How to Buy and Sell Physical Gold and Silver, Part 3

This is part 3 of my interview with Doug Eberhardt, author of Buy Gold and Silver Safely: The Only Book You Need to Learn How to Buy or Sell Gold and Silver. As with yesterday's post (and the one two days ago), I'll include my questions in bold/red and Doug's answers below each one. And at the end of the post, I'll add in some commentary to add perspective to why I asked the question and/or what I think of the response.

We ended yesterday with Doug starting to talk about pricing when buying physical gold and silver. We start today with a continuation of that topic.

What should I expect to pay (How do I know if I'm getting a "good" price or not)?

The price you pay for gold or silver bullion should be anywhere from 1% to 13% over the ask price. This will come out to about 5% to 13% over spot for gold and a smaller percentage for silver. The best thing to do is check around with the various dealers and ask what the spot price is at that moment and what they are selling the gold and silver you want for based on that spot price. Then you can decipher how much of a mark-up they have. But in comparing dealer to dealer, one has to use the same spot price (apples to apples).

Can you give an example? Say I buy an American Eagle coin (pick a spot price). Can you show what the coin is worth, what I'll pay for it, what additional costs, fees, shipping is added to it, etc.?

What I do, based on the spot price at the time of purchase, is add my 1% fee to my ask price. The price of gold as I type this is $1318.60. The ask price is $1366.69. My fee of 1% ($13.67) would be added to this ask price bringing the total to $1380.36, for a total of less than 5% over spot. I also guarantee my prices as being the lowest as I’m not too worried of someone undercutting me by too much because they would be breaking the law set forth by the U.S. Mint pricing practices. Since I don’t do the advertising on TV and radio like these other companies, I can keep my prices low and am just looking for a win/win experience for my clients.

I still don't get how the ask price is determined. I understand the spot price (basically the value of the gold) and the 1% of the ask price, but where does the ask price come from? Do you simply set it yourself? If so, does this mean all companies set their own ask price?
 
In determining ask price, the amount of spread between the spot price and the ask price consists of the premium charged by the U.S. Mint to the gold dealers and any other mark-up by major gold dealers or 3rd party intermediaries. The ask price will not vary by much from company to company, but the premium charged by gold dealers will. The 1% my company charges ranks as one of the lowest. The main difference with me, as I said, is I don't try and bait and switch investors into gold and silver they don't need to own like rare coins or semi-precious European coins. 

Where should I store my physical gold and why?

This is going to vary from person to person. I don’t recommend bank safe deposit boxes, because well, they’re banks. FDIC takes over a bank and your safety deposit box is frozen till they sort things out. If the economy collapses, and I’m not a Chicken Little who claims such, but I do paint a lousy economic future based on the data, you’ll want access to your gold and silver bullion.

A safe buried in your home would be a good place to start. But also have a secondary safe filled with $1 bills and fake jewelry as a dummy safe to fool the thief’s. Just point them to this safe if ever in trouble. Lastly, don’t tell anyone you bought gold and silver. The old saying of “loose lips sinks ships” applies here. I know it’s difficult not to tell everyone how well you are doing with your investments to show them how smart you are, but someone may just be knocking down your door if the economy did implode. Perhaps an investment in Smith and Wesson hardware would be advised as well.

How do I sell my gold if I want to (it seems like the market is highly illiquid and full of fees/spreads on both the buying and selling side -- so isn't it difficult to make money on gold unless the price goes up dramatically)?

There should be two types of gold you own, depending on your own personal wealth. The first allocation should be under the mindset of never selling it. It is the “insurance” against dollar default.

The second allocation would be the type of gold that can be delivered at a moment’s notice and/or sold at a moment’s notice with just a phone call, depending on the economy.

How do I sell the gold I want to sell at a moment's notice? Who do I call exactly, what sort of price will I get (spot? spot less something? spot plus something?), how do I get the gold to them, and when and how do I get paid (after they receive it via wire transfer?)

There are many places to sell gold, but the primary one would be the place you bought it from. Gold dealers will buy back the metal and cut you a check after they have received it. With gold moving higher right now, dealers are offering $30 over spot for one ounce American Eagle coins.

The gold has to be shipped to the dealer at your cost before any funds are dispersed. You can request to have the funds wired or sent by check.

Other places to sell would be Ebay, although you need to know what you’re doing as I explain in my book, and Craigslist. Ebay is good for selling coins but there are fees involved that if one doesn't understand them, they can end up getting burned. Craigslist is just a dangerous way to sell gold coins so if people use it, I just recommend only doing transactions in a public place with security, like a local bank.

Is there a way I should or shouldn't handle gold or silver? For instance, are the coins sealed and if I open/handle them, do they lose value?

The handling of pure bullion, like the American Buffalo gold one ounce coins or the Canadian Maple leafs have the problem of losing value and they should be handled with care. American Eagle gold coins have one ounce of gold, but actually weigh more than an ounce as they contain other base metals, including even silver, to allow for less wear and tear.

Isn't it true that buying gold and silver isn't tracked by the government like holding stocks, bonds, etc. is? Is this about to change in any way? (I think you may have mentioned this in your book.)

It is true that certain gold and silver coins are not tracked today, unless of course purchased with more than $10,000 in cash. This doesn’t mean that an investor is not required by the IRS to report gains via a 1099 upon selling them. Many gold dealers imply certain coins are not reported by them, but it is still the citizen's responsibility to report the gains.

Yes, as part of the current health care bill, all sales $600 and more will have to be reported by the gold dealer. There are some in congress who are trying to take this out of the bill as it also requires any company selling any product over $600 to send a 1099 off to big brother, erm, the IRS.

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Is it just me or is the pricing system for buying physical gold and silver both complicated and expensive?

BTW, I asked the last question because I've seen people recommend gold because it's "not tracked by the government." It's advocated by those who don't want the government knowing everything they do -- not because they are trying to avoid taxes.

Personally, I really enjoyed interviewing Doug because he cleared up several issues for me. If you want to read more of his stuff, you can find his blog here.

Comments

[Don Current]

Thanks for this series. It has been highly enlightening on the whole process. I'm still not sure I buy into having gold as a safeguard against market collapse though. It seems to me that it would be more valuable to have property and an in demand skill. Property would allow you to grow crops and raise livestock for personal use, barter, and sale. An in demand trade or skill would provide the same security as a bartering tool. Just my two cents.

Excellent information none the less. Thank you.

[Doug Eberhardt]

Thanks FMF, I enjoyed it as well. Just trying to get the truth out there.

Don Current, in Chapter 4 of my book, I go into detail as to the reasons to own gold and silver as a safeguard against market collapse. This is the chapter that explains what I call the deflationary credit contractions we are currently experiencing. Not too many people understand how this will unfold, but I utilize 100 footnotes in making the case for it.

The result of the deflationary credit contraction is illusions of wealth flowing down to real wealth. It is the trillions of dollars of illusions of wealth that at some point need a counter party to and if there are no counter parties, then that wealth can't be converted to an asset that has purchasing power (treasuries, gold, silver).

So when you see our government and the Fed throw trillions of dollars of quantitative easing to "stimulate" the economy, and it has no effect, this is the reason. While people talk about the dollar being weak, at the same time, U.S. treasuries have been strong. Inflationist's can't explain this. My book does.

But you are correct. Farm land and a skill can come in handy. Nothing wrong with having those and some gold and silver. That's good diversification! All I want is the 10% to 20%. The other 80% can still be put to good use based on trends.

Thanks again FMF...

[MasterPo]

Don - The gov is already cracking down BIG TIME on people trying to trade their own grown food. Do a Google search. For example, recently in GA a guy who grew his own veggies was told by his local town he can not trade them to other private citizens for their products.

There is currently a "food protection act" (not sure the exact name at the moment) that if passed would pretty much spell the end of farmers markets and organic/cooperative stores and farms with the licensing and oversight needed to sell or trade food (or face mega fines and/or prison!).

But then again MasterPo has been accused of being a bomb-shelter alarmist...

[dsji]

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[Apex]

Here we go. I must respond to this non-sense.

MasterPo, you are a bonified bomb shelter alarmist, bunker dwelling, paranoid nut.

Sorry if that was too nuanced.

The Georgia case you are talking about has nothing to do with banning food for barter. The guy is growing his crops in a residential area that is not zoned for agriculture and he is growing too much for the local ordinance on non agriculture land (2 acres which is quite a bit, 8 times larger than most people's entire lot). The law was actually intended to stop large commercial farms from coming into residential areas. He might have gotten trapped in the middle a little bit but he is bigger than any local growers usually are, just not as big as the commercial guys the law is usually aimed at.

This has nothing to do with the government trying to control the food market and keep organic or local producers from bartering or selling their goods. If he was outside the city limits or had his land zoned differently (which he is working on doing) he could do whatever he wanted. It has nothing to do with what he raises or how he sells it, only where he raises it. I am sure you would not mind if a hog farmer decided to put up a nice manure infested hog farm right next to your residential property. There are reasons for zoning laws. People who live in residential areas don't want agriculture and livestock production going on in large scale in their back yard.

Your love for gold is entirely understandable. However I am not sure what good it will do you in the parallel universe you inhabit where the govt will ban the private sale or barter of food and throw anyone in prison who tries (your words above, not mine)

[MasterPo]

@Apex - Did you see the news video of the story? The guy owns a big spread of land in a rural area. It may be zoned residential but so what? He wasn't in business as a farmer on the land. Heck, MasterPo grows tomatoes in his backyard (albeit much smaller than his). So I can't trade my tomats for something?? I'm more curious who turned the guy in!

There is an axiom in math: The whole is equal to the sum of the parts. As of now the Federal gov owns or controls the banks, major insurance, GM, and in the process of taking over healthcare, the internet and broadcast media. That's not to mention all the companies and groups that eagerly walk in lock-step with the administration (e.g. GE). 1+1 still equals 2.

Food&water followed by transportation and telecommunications are the logical next steps.

MasterPo doesn't "love gold". MasterPo actually owns very little as a percentage of the overall portfolio.

But facts are facts, When currencies fail gold and silver remains.

MasterPo true hopes he is wrong. MasterPo would be so happy if in 5 years he can post on his blog how wrong he was when unemp drops below 5%, the Dow is at 20k, S&P at 4k, and gold has fallen below $800/oz again But MasterPo isn't holding his breath.

Just do an ol' MasterPo a favor: *IF* he is right please don't cry that you didn't have fore warning.

[Apex]

Po, the city can't fine you if you aren't in their limits regardless of what you think his surroundings look like from a video. The land wasn't zoned for what he raised so he was technically in violation. There is no grand scheme to take over food production in this story. He got the land rezoned and the city allowed that so now he can grow his veggies again. But I am sure somehow that is all part of their grand evil design to control the food supply.

Your second and third paragraph talking about the government talking over banks, insurance, autos, healthcare, the internet and the media followed by food, water, transportation, and telecommunications is awesome. Regarding your tongue in cheek reference to being a bomb shelter alarmist ..... I rest my case.

[Apex]

I love how gold discussions always bring out these kinds of people talking about the govt taking over and society collapsing. Even if the discussion is reasonably balanced as Mr. Eberhardt seems to be it still attracts these people like moths to a flame.

Nearly every time someone starts talking about gold to me, this kind of thinking is behind it.

[AntiApex]

If only we were all as smart as Apex.