One of the most important questions when buying precious metals can also be one of the most confusing: how much should you pay for gold and silver? Precious metals retail pricing is based on the spot price of the metal at the time of the sale plus the premium surcharge, which can vary drastically from dealer to dealer. In the past, we’ve suggested that a fair premium on gold and silver bullion products is no more than 7% over spot.
However, with the recent correction in the prices of gold and silver, our previous 7% premium suggestion has become a little outdated, especially for silver. Physical precious metals demand is breaking records around the world as investors hurry to buy at bargain rates. This demand is straining supplies, and consequently premiums are rising everywhere.
Last month, gold made headlines as its price took a turn for the worse. At the beginning of April, gold sold at $1583 per ounce, but it caved to $1380 before finishing out the month at $1469. The forced sale of Cyprus’ gold reserves in the wake of the nation’s bankrputcy seems to have caused triggered the selloff.
However, this temporary price volatility doesn’t reflect any real change in gold’s fundamentals. Cyprus’s gold stores are relatively small, and will be directly transferred to creditors instead of hitting the market at large. Even more importantly, it remains the case that developed nations hold gold but little capital, and still-developing nations are owed much debt that they will eventually call in. Then, gold will move from the West to the East, with fiat dollars being printed and debased all the while. The need for a real store of wealth will be greater than ever, and gold is of course a prime candidate for filling this role.
You’ve been reading the news and watching the economy. You know things are bad, and likely to get worse as central banks around the world continue to print money for irresponsible governments to squander. You know this means the purchasing power of the dollar is deteriorating, and that holding savings in dollar-denominated assets is probably a bad idea in the long term. So you’ve come to the logical conclusion that it’d be a really good idea to buy some gold and silver as part of your personal savings plan.
And yet you hesitate. There are so many people selling precious metals, and each vendor or broker or advisor you turn to seems to have their own opinion of how best to invest in gold and silver. Should you buy physically backed ETF’s, or perhaps shares in a mining company? Or maybe you worry about confiscation and start to consider numismatics. It can start to get overwhelming, and might paralyze you from buying anything at all.
Last week, the entire nation avoided the biggest metals scam in history when the Treasury Department announced that it would not mint a trillion-dollar platinum coin to reduce the government’s debt. The platinum price has been rising, and is expected to perform better than gold this year, but there still isn’t enough of the stuff above ground to mint a coin that is actually worth $1 trillion. If the Federal Reserve had accepted such a coin as payment, it would surely have been the greatest swindle in the history of modern economics.
Actually, on second thought, it wouldn’t have been much of a swindle at all. Printing a trillion-dollar coin would have simply been a more honest approach to what the government and the Fed have been doing for years: printing money that doesn’t exist and has no real value underlying it. Instead of minting coins or bills in outrageous denominations, the Fed simply “buys” government debt by typing a big number into a computer and – voila! Suddenly the Treasury has an extra $85 billion dollars to spend every month. Where did the money come from? The magic push of a button by some bureaucrat at the Fed.
Gold dealers have developed a reputation akin to the stereotypical car salesmen: fast-talkers with a tendency to mislead through omission. Vetting a prospective precious metals broker can be a tedious process. You might find yourself becoming chummy with a gold broker over the course of weeks or months, only to find yourself duped when you’re actually ready to buy.
We’ve recently heard of just such a scenario. An enthusiastic gold investor had been exchanging emails and phone calls with a broker at a well-known, national metals dealer. They communicated so often, the buyer started to think of the broker as a personal friend. The buyer wanted to roll his IRA over into precious metals, and when he was ready to do this, the broker convinced him to also purchase some gold coins. It wasn’t until he received shipment that the buyer discovered he had bought half-ounce gold eagles for $400 over spot! A fast-talking broker had gained his trust and taken him for a ride. This bait-and-switch swindle is the sort of thing Goldline got in trouble for earlier this year.
Have you heard about the Nigerian prince who would like to send you his fortune for safekeeping if you’ll only give him enough money to execute the transfer? There are a lot of variations of this classic internet scam, and in all of them the victim ends up giving away lots of money only to find the so-called prince doesn’t exist. Apparently scammers are now using the rising price of gold to lure new victims with this old trick.
One of our readers was asked to “hold” some gold bars the scammer had supposedly found while serving in the military in Afghanistan. He told his would-be victim that he needed someone in the US to keep his gold safe until he returned from his tour of duty. All he asked for was a measly $1,000 to purchase a lock-box to safely ship the gold, and then he delivered legitimate account information for a bank in New Jersey where the funds could be deposited. Of course, he said he would be more than happy to pay her back with a generous bonus — as soon as he returned to the US and collected his “gold.”
One of our readers recently asked about investing in gold through a new company they had come across on the Internet. The company sells 1-gram gold ingots (tiny bullion bars) encased in thin plastic, which are stamped with a serial number and hologram to prevent counterfeiting. They tout their product as a unique development that will change the way precious metals are used in the world – but the truth is that these types of products have been around for a quite some time.
Commonly known as “ingot cards,” they are offered by internationally respected precious metals manufacturers like the Swiss gold refinery PAMP (Produits Artistiques Metaux Precieux). They issue a wide variety of them, ranging from fractions of a gram to several grams. The picture below is an example of PAMP’s 1-gram card.
While not nearly as common as overpriced numismatics, every now and then the precious metals investor will come across the opportunity to purchase natural gold nuggets. While they may be appealing at first glance, these opportunities are just another distraction from the real purpose of investing in precious metals: as a long-term, liquid store of wealth.
Often these natural nuggets are called “placer gold,” which are basically deposits of gold that have found their way to the Earth’s surface, either in the silt of a riverbed or the topsoil nearby. When you think of the classic image of a ’49er panning for gold, this is the metal he is looking for. The gold can range in size from the tiny flakes you might find floating in bottles in souvenir shops to substantial nuggets weighing several grams or more.
News from earlier this month is still circulating about a newly discovered bacterium that…how do we put this…“excretes” gold under the right conditions.
That’s right—when forced into a toxic environment saturated with gold chloride, Cupriavidus metallidurans will essentially eat up the toxins of gold chloride and leave behind pure, 24K nuggets. Gold skeptics and scaremongers are having a field day with this so-called discovery, in spite of the fact that the project is part of an art show, and the creators of the process acknowledge there is no profitable way to use this bacteria to create gold.
Nevertheless, if you cruise the feedback on Facebook or under the news articles themselves, you’ll find comment after derisive comment suggesting “gold hounds” should sell all their bullion before the value plummets, or voicing relief that “we’re not on the gold standard anymore.” Some even go so far as to suggest the world can stimulate its economy by harvesting gold chloride from asteroids and thereby fund government recovery projects.
Let’s get real.
Just recently we, here at Gold Scams received a tip about a dealer called Discount Gold Brokers. I was immediately suspicious when I saw the cheesy look to the website and large bold text claiming it offered 0% above the dealer’s price. I’ve heard of discounts on premiums, but no premium at all? If that were true, how would the dealer make a living?
While roaming the site, I did in fact find that their prices were astoundingly low, and they weren’t necessarily pushing one product as a “loss leader”. With generic rounds, generic gold bars, and higher-valued rounds like the Maple Leaf and Buffalo at these prices, I can see why someone would stop and consider them as a bullion dealer.
BUT — Being an experienced gold & silver buyer, I know that not all dealers are honest. So, instead of being astonished and sucked in immediately by Discount Gold Brokers’ impeccable premiums, I dug deeper.