Gold and Silver Buying Summary

Who Should Buy Gold, Percentages

Who should buy gold and what percentage should you buy? Not everybody is in the financial place to buy gold. If you are living from paycheck to paycheck, then gold is not for you. If you have some discretionary money that is not earmarked for anything, then you should consider buying some gold and silver. If you are retired and you have wealth that you want to protect, you should buy gold. What percentage should you put into gold? Generally, portfolio managers for years have recommended between 10% and 20% of your total net worth into the precious metals. But now, in the middle of 2010, with the economy of the United States completely collapsed, the banks melting down, and the immediate future of the country hanging by a thread, the percentages have changed. The rule now is that whatever you don’t want to lose, you should put it into gold and take possession of it.

So, if you are retired and have substantial wealth or if you want to protect the wealth you have already accumulated, don’t leave anything in financial institutions that you can’t afford to lose. Another general recommendation is that, of the precious metals that you have in your possession, 90% should be in gold, because that is your core of wealth, a very compact store of value. And 10% should be in silver for barter. They each have their own purpose: gold is for wealth preservation and silver is for barter. We will cover silver later.

Gold Coins to Avoid – Bullion and Foreign Gold Coins

Here is a little lesson on how to buy gold. There are two ways to buy gold: gold bullion and semi-numismatic U.S. gold coins. When most people think of gold bullion they think about the big bars of gold in Fort Knox. The most common form of bullion today is the one ounce gold coins, like the American Eagle, the Canadian Maple Leaf, the South African Kruggerand, the Austrian Philharmonic, the Mexican Pesos, the Chinese Panda, etc. These coins are all coins of the realm, but they have never been circulated as legal tender in any of these countries from which they came.

Also considered bullion are any foreign gold coins that have been legal tender in their respective countries, like the British Sovereign, the Swiss Franc, the French Franc, the Finish Markkaas, the German Marc, etc. These coins, regardless of their age or condition, are also considered bullion in the eyes of our government. Why? There are 49 countries around the world that allow their citizens to hold their own countries’ numismatic gold and silver coins without fear of confiscation, if they are in good enough condition to be considered a collector item. It is a way to preserve the country’s history in coin form. But they do not exempt another countries’ old gold or silver coins, just their own. America is no different. In the United States, our government only exempts old U.S. gold and old and silver coins, not foreign coins.

Most of the people who buy bullion coins are speculators, people who buy it cheaply, and when gold goes up, they quickly sell it and make money. My clients are not speculators. They are interested strictly in wealth preservation. The worst part about bullion, however, is that it is confiscatible. The government can take it any time they want, and they will pay you $50 an ounce in paper money for every ounce they take from you. The $50 face value is stamped right on the face of the coin, and that is why it is there.

The Right Coins to Buy for Wealth Preservation

The coins I recommend to purchase for wealth preservation are the lightly circulated, semi-numismatic U.S. gold coins like the $20 Liberty (one ounce coin), and the $20 St. Gaudens (one ounce coin), and the $10 Liberty (one-half ounce coin). All these coins were legal tender in our country from 1850 to 1933 and were exempted from the confiscation by President Roosevelt on April 5, 1933 with Presidential Executive Order 6102, Section 2 (b); Section 2 reads: “All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve bank or a branch or agency therefore or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933, except the following: (b) . . . . gold coins having recognized special value to collectors of rare and unusual coins.”

It is very interesting, but these United States semi-numismatic coins are still considered the only legal tender according to the U.S. Constitution, even though we obviously don’t use them anymore in commerce. The three semi-numismatic grades I recommend are the Very Fine (VF) grade, the Extra Fine (XF) grade and the Almost Uncirculated (AU) grade. These coins have slight wear, but to the untrained eye they don’t appear to have much wear at all. But because they are lightly circulated, the premium is more moderate than the high MS coins. Premium is the dollar amount or percentage over spot gold. And there is no reason to pay even a dollar more premium than you have to acquire high MS coins.

Another benefit of holding these U.S. semi-numismatic gold coins is their up-side or profit potential. I don’t normally recommend selling these coins once they appreciate in value, because the last thing you want to do when gold is going out of sight is to sell your coins to make a profit and switch back into the paper money you escaped from because you didn’t trust it. But if you have to cash in a few of these coins for any reason when they double or triple in value, you certainly have the option to do that.

A vivid example of that escalation is value for these coins took place at the end of 1999 when the fears about the computer problem turning over to the year 2000 were at their height. In August, 1999, gold hit a 25 year low of $252 per ounce. All during 1999, Americans were panicking, liquidating their investments, taking money out of the banks and buying gold and silver to preserve their wealth. In fact, the gold buying frenzy in 1999 was so great that Americans bought more gold in that year than they did the previous 10 years combined.

As a result, we were thrown into a severe supply and demand situation especially with these pre – 1933 U.S. semi-numismatic gold coins. At the time I was working for the largest coin company in the country out of Minneapolis, and there were days and weeks at a time where we couldn’t even get these coins, and the price of these coins went through the roof. For example, while gold was hovering around $260 per ounce in the fall of 1999, a bullion coin like the one ounce Gold American Eagle or a Canadian Maple Leaf was selling for about $290 each, but the price of a $20 Liberty or $20 St. Gaudens in an XF or AU grade was over $660, reflecting a 150% premium over spot gold. Bullion bars or bullion coins have no up-side potential at all. If spot gold goes up, they go up, but if spot gold goes down, they go down with it. These semi-numismatic coins respond to supply and demand, and even though spot gold can be flat, supply and demand will cause them to double or triple in value. Again, that is a secondary reason for buying these coins as opposed to bullion, but it is a definite plus.

Gold is for Preserving Wealth

As I have mentioned before many times, gold and silver each serve a specific purpose. Gold is for preserving wealth, and silver is for barter. Probably the most common question I am asked about the precious metals is how could a person use them in the event of a currency collapse? People ask me, “How can I use my gold coins for barter when the time comes? Do I saw off an edge of the coin and use it that way? How will people know the value of gold and silver? The answers to these questions are relatively simple. No one knows exactly how things are going to unfold, but we could pose a very possible scenario.

When the dollar fails, and many financially knowledgeable individuals are saying that the dollar with collapse this year in 2010, what will happen to gold and silver? Gold and silver will go out of sight as far as value at that point, and that is when you want to have the bulk of your wealth in gold coins in your possession. Gold analysts and experts are now saying, as I mentioned before, that because of the severe shortage of above-ground gold and silver, that gold could easily climb between $5,000 and $20,000 an ounce, and silver could get between $100 and $600 per ounce.

Now to answer the question about how you could use your gold and silver for barter. First of all, gold is not for barter but for preserving wealth. Gold will simply be too valuable per ounce to use for barter. You can’t take a one ounce gold piece, which could be worth $5,000 an ounce, down to the grocery store to buy groceries or get a tank of gas with it. It is not practical. Gold is something that you hold and store as your core of wealth. Later on, if things finally settle down, you can either convert your gold to currency if the government prints another currency, or you could use it to buy bigger things like a house or a car or a piece of land.

As an interesting piece of history, in 1929, when the stock market crashed, land values plummeted 75% to 95%, and people with money were able to buy houses or land for pennies on the dollar. The same thing will happen this time when our dollar fails and the market crashes. The only thing different this time is that the dollar will be worthless, and with gold coins in your possession you can purchase whatever you want. With gold in your possession you have a chance to survive what is coming to this country.

That is why gold and silver are so important. Physical gold stands by itself as a sentry outside the fiat money system, guarding all of your assets. Gold has a 5,000-year track record of being the world’s only real money. Gold is tangible and real. Gold is universal and international. A person can take his or her gold anywhere in the world and exchange it for currency, or goods, or services. Gold is the only financial security in the world. Gold maintains its purchasing power. You have probably heard the old adage, that in the year 1900 an ounce of gold would buy a good suit of men’s clothes, and in 2010, an ounce of gold will buy a good suit of men’s clothes.

Silver is for Barter

Now it is time to cover the importance and the function of silver, the other precious metal. Some people call silver “the poor man’s gold,” because it is much more affordable per ounce than gold. Currently, in the summer of 2010, silver is almost $20 per ounce and gold is right around $1,250 per ounce. Silver is strictly for barter. Which are the best silver coins to buy for barter? They are the 90% United States silver coins, the dime, the quarter, the half dollar that were minted in this country up until 1964. They are called “junk silver,” today, not because they are junk, but because some of these coins have quite a bit of wear, having been in circulation in the United States as legal tender up until 1964. After 1964, they were taken out of circulation and replaced with coins that had little intrinsic metal value.

Many people ask, how and when can I use these 90% silver coins for barter? After the dollar collapses and there is no currency to replace it, if you need small food items like a gallon of milk or a loaf of bread or a dozen eggs, these small denominated silver coins are ideal for these kinds of purchases. Say, for example, in our scenario, that after the dollar collapses, silver gets to $50 an ounce. All we need to do to calculate the value or the purchasing power of any one of these coins is to multiply the silver content of the coin times the value of silver per ounce. For example, the dime contains .07 of an ounce of silver, and if we multiply .07 times $50 an ounce, it equals $3.50. If a loaf of bread is $3 or $4, you could buy a loaf of bread with the dime. A quarter contains .18 of an ounce of silver (0.18 times $50 is $9.00). A half-dollar contains .37 of an ounce of silver and would be worth $18.30. A silver dollar contains 0.78 of an ounce of silver and would be worth $38.85.

The next question is, how do I buy these silver coins? Junk silver or 90% silver coins are generally sold in what is called a $1,000 face value bag. It is called a $1,000 face value bag because if you add up the face values of all the coins in that bag, they would equal $1,000. For example, a bag of dimes contains 10,000 dimes, a $1,000 face value bag of quarters contains 4,000 quarters, and a bag of half dollars contains 2,000 half dollars. A $1,000 face value bag weighs 55 pounds and contains 715 ounces of silver. My recommendation for each of my clients is to put them into a $1,000 face value bag of silver. I generally like to put my clients into a mixture of dimes, quarters, and possibly half dollars, and having 90% silver coins in a variety of denominations will easily suit every barter situation.

If you can’t afford a whole bag then get a quarter bag ($250 face value) or a half bag ($500 face value). If you can’t afford either of those then any smaller amount of junk silver could be a life saver. Even if you have a few hundred dollars, buy some junk silver from a local coin shop. You will be glad you had it later. And you can use that simple mathematical formula which I gave above to determine a fair price for any given coin before you go to your local shop. A fair purchase price above spot silver would be anywhere from 5% to 20%. Armed with the formula you won’t get ripped off. Silver dollars are all right also, but generally they are a too expensive per ounce compared to the junk silver, and they are a little too big for most small barter situations. I also don’t recommend one ounce Silver Eagles or silver rounds either because they are a full ounce and are too big for most barter situations.

Avoid Gold and Silver Bars

Many people think that buying gold or silver bars is a wisest and cheapest way to preserve wealth. The old adage of “you get what you pay for” is certainly true when it comes to bars. Why? I don’t recommend bars because they will be unusable later on. Why? If you try to use them in a barter or exchange situation people will ask you what’s inside the bar. How can they know it is really silver or gold? Maybe someone filled it with lead or tungsten. What is really inside these smaller gold and silver bars there is no way to tell. Another disadvantage of bars is that they are too big to use. They make silver bars in one ounce, 10 ounce, 100 ounce and 1,000 ounce.

Bars are totally impractical. About the only real use for a 100 ounce bar is for a door stop, and I have talked to a lot of people who use them for that. There is no practical use for the 1,000 ounce silver bar. They weigh 70 pounds each. The same is true for gold bars. They are totally impractical. Gold bars are minted in one ounce, 10 ounce and a kilo (32 ounce). But you have the same problem with gold bars also. What is really inside? How do I know it is real gold? There is no way of telling. The distinct advantage of smaller denominated United States gold and silver coins is that they are easily recognizable, and consequently, will be easy to use when the time comes in an exchange or barter situation.

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