Have Fun While Building

Your Precious Metals Portfolio

August 6, 1997

When most people think of amassing a horde of bullion gold or silver, they only think of nicely polished coin sized pieces issued by one of the many governments in the bullion business. In the United States there is the American Eagle family of one ounce pieces with gold and platinum pieces also coming in fractionals. In Canada there is the Maple Leaf which preceded and probably was the inspiration for the Eagles. The Canadians probably got their ideas for the Maples from South Africa which issues the one ounce Krugerrand and the various fractionals in gold.

Private mints issue bullion bars, plates, medallions and coins of all sizes and fineness and in all metals. There are many of these. Some are priced at terribly unrealistic prices, particularly if offered directly from the private mint. Multiples of three and four times bullion content are common. Many of these are breathtakingly pretty, but if you are buying bullion only, the only way to get these is in the secondary market.

Almost all these bullion pieces trade at some premium to the spot price of the metals. The premium varies greatly, depending upon the quantity purchased and the location of purchase. It can be three or more times the bullion value(private mint issues), more than 30% of the cost of the coin(American Eagle silver coins) or it can be very small(Krugerrand). The point is that you are still paying a premium over spot.

As investors we all want to pay as little in premium as we possibly can, right ?? After all, what happens to that premium when we go to sell ? It is either gone or greatly reduced. The person you bought them from has to make a living, right ? The bottom line is, the cheaper you can buy any item, the greater your chance for profit. That is why you put your money at risk. To make a profit or to see your initial investment grow.

Are there any ways to make purchases of precious metals where you can eliminate or reduce the premium ? Yes, in fact there are many. Some of them can be fun. Some can lead to purchases that not only have no premium, but are actually below spot. Not everybody is equipped to start making these below melt purchases. Some require a certain amount of knowledge. There may be risks involved. The purpose of this article is to introduce you to alternative ways to increase your bullion holdings which may also prove to be fun and exciting. I have first hand knowledge that all the methods mentioned in this article will work. They all have been used by me hundreds of times over. I have had a lot of fun, met a lot of nice people and salted away a decent position in the precious metals. May they work for you as well.

1) Visit you local coin dealer. There are times that the dealer has just made a purchase and needs to "blow out" some merchandise at very reasonable prices. When the dealer is "spent out" there may be bargains to be had. The dealer must know and understand what you want to buy and what you are willing to pay. You need to make a trip to the dealer's shop to talk him so that he knows what you want to buy. If you are only interested in bullion, tell him that if he buys a group of one ounce bars that he can sell you at spot, you are a buyer. Of course the offer may be at spot, below spot or above spot. While the offer is up to you, the more realistic you are, the more likely you are to buy. It may be that you can provide a list of what you will buy. The more specific you are, the more likely the dealer will be to satisfy your wants.

An example of an item to put on your "will buy" list would be foreign gold coins. There are times that dealers buy common bullion gold coins at less than their gold content value. Why are they cheaper ? They are not the preferred method of owning gold for the public. They are odd weights and fineness. They are generally more trouble than the nice neat package of one ounce of .999 purity. But they are still gold and as such they have value. To have any chance of getting these you will have to offer at least 97% of the melt value. To have a realistic chance of getting them you will have to offer 98%.

Many countries issued gold coins that circulated at one time as legal tender that now trade at or about bullion price. Available in the near ounce size are the Kronas of Austria and Hungary. Of course the British sovereigns are very common as are various coins from other countries differing greatly in weight and amount of gold contained. There are so many of these that there is no way I can list them all here. Your coin dealer will have for sale a reference book that will list all world coins. It also details the weight and gold content of each coin. Carry this book with you to flea markets. Sometimes you will find someone with a gold coin they price too cheap because they do not know the correct weight or content of a coin.

Another item for you to put on your list to buy from the coin dealer is silver bullion. Many coin dealers have to move bullion fairly quickly to keep from having too much capital tied up in low profit material. Many would welcome a local buyer. This would allow them to liquidate quickly in a face to face deal rather than having to ship to another dealer and wait days for their check. The specific items to tell him you will buy might include bars, foreign silver coins or 90% US silver coins. Personally, I like the 90% right now. It is available at below melt when purchased in $1000.00 face value bags. There is at least one large US dealer who makes a spread of US $100.00 between his buy/sell prices for these bags. I think you will find this the way to buy silver with the smallest loss of premium as of this date. Of course as markets change, so may these spreads. I would suspect that Canadian 80% silver would be available at similar percentages.

Recently a coin dealer I know called me and said there was a person in his shop right then with one thousand one ounce round silver bars. They were from a private mint I was familiar with, so I offered 50 cents under spot. I bought the whole thousand. I added an ideal investment to my core bullion holdings at a very favorable price. Had I gone shopping for that item and had to pay a dealer his retail price, you can bet it would have been much higher. I was very happy with the purchase and the dealer was happy to have a place to sell bullion he didn't want.

2) Go to coin shows. You can find nearly anything at a coin show. Dealers who display at the shows have to be competitive with each other so you are likely to be able to get a fair price whether you are buying or selling. At any show in a major city you will find a wide variety of merchandise for sale and chances are someone is there willing to buy anything you have to sell. Scrap gold and bullion in practically any form will be traded at a middle to large size show. Profit margins are very low as dealers know they have to "churn" to make a profit. Most of the dealers will take time to talk with you and many will helpfully offer advice. Most are not offended if you compare prices with other dealers. Visiting a major coin show may be the ideal way to add to or liquidate your bullion portfolio. If you have never been to a coin show, it is an absolute must for anybody interested in precious metals.

Dates for coin shows are listed in most numismatic periodicals. These can be bought from your local coin dealer or you can subscribe. Most cost about US$30.00 for a yearly subscription. There is a website that does an excellent job of keeping up with shows, listed by state. The URL is www.coinshow.com.

You may wish to add some items to your portfolio that could improve your odds to make a profit. Examples could be uncirculated rolls of Franklin halves, uncirculated rolls of 40% silver clad halves, uncirculated rolls of common date 90% silver coins and maybe even some uncirculated rolls of silver dollars. These have some value as numismatic items and could rise in price due to an increase in numismatic activity. They also carry a fairly cheap premium in relation to silver bullion prices and would benefit from any significant increase in bullion prices. Should you elect to add these items to your portfolio, be careful not to pay retail prices. Again you want to keep premiums to a minimum to increase your chance to make a profit. Expect to pay five to ten percent over wholesale "bid" prices. You may get them even at the "bid" price if you are lucky. Your local coin dealer may stock these items. If he doesn't, a trip to a coin show will surely allow you to select the items you wish to purchase. It would also be to your benefit if you are not experienced in numismatics to have a trusted friend who is knowledgeable go along with you just to make sure the coins are uncirculated and not cleaned or polished. I really like this form of investment because of the added dimension of dual ways to profit.

3) Another place you might want to visit is the local pawn shop. You have all seen the big signs out in front of the pawn shop that declare "BUYING GOLD". Some is in the form of rings, necklaces, watches and some may be in bars or coin. You might be surprised at how much gold some of these shops actually buy. They in turn sell it to someone who sells it to a refiner and the gold is recycled. The pawn shop owner probably sells his karat gold for around 95% of the actual melt value and his buyer sells to the refiner at about 97 1/2%. If you know what you are doing, you can buy some of this gold for the price the shop owner sells for. This takes some knowledge and should not be attempted by those who do not possess that knowledge. While you are at the pawn shop, tell him you are a buyer of other forms of bullion. All kinds of stuff walks into a pawn shop. Some of it you can buy at bargain prices.

4) Also go to the local jeweler. They occasionally have scrap gold to sell. While the jewelry store is more likely to use their karat gold either to make or repair jewelry, some have an excess from time to time and may be willing to sell. If the jeweler has gold to sell, he will receive the same percentage of melt as the pawn broker.

5) What shows up at the local flea market? Everything. And I do mean everything, including gold and silver. There is likely to be a coin dealer or two, someone selling used jewelry and vendors selling a scattered sampling of everything else. Use the same tactics as with the businesses mentioned above. Go to them and detail what you want you want to buy and at what percentage or relationship to spot.

Probably none of the aforementioned business people will respond on your first visit. Go back every month or so to be sure they remember you. Call sometimes just to keep yourself fresh in their mind. Be reasonable in your offers. While this does not mean that you should offer retail prices, you must be realistic if you expect to buy. These people are business people who know what this stuff is worth. You will not be able to buy for a song. If you do, it probably wasn't worth even the song. You must keep in mind that worthless replicas of all forms of bullion do exist. Study and learn. Be careful. Have fun. Own precious metals.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.