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.
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