Confusion with Precious Metal Pricing

On the way home from our cruise we spent a few hours in the Delta Sky Club (first in New York, then Detroit). They both had Fox News playing in the background. I wasn't really listening to it (I was getting caught up on email after being gone 2 weeks), but I did notice one thing: they have a TON of commercials for gold and silver investing.

After a while I started keeping track of the advertisements, wondering what the difference would be from one company to the next. Service? Shipping? Something else? I thought that pricing would be the same (after all, isn't the price of gold/silver a well-known commodity price?) Boy, was I mistaken.

When I got home and settled I decided to do an experiment. I went to each site advertised and compared the price of one basic, generic, and well-known item just to see the difference between the companies. On February 12 at 4 pm I visited each of the sites below. The 1 ounce silver price at that point was $31.12. Here's what each company had listed as the cost of a 1 ounce Silver American Eagle coin:

• Merit Gold: $33.70
• Rosland Capital: $34.14
• Lear Capital: $34.70
• Goldline: No price listed. In their FAQs, here's what they said about showing a price (why they couldn't): Goldline has a spread or price difference between our selling price, called the "ask", and our buy-back price, called the "bid". That spread varies depending on coin or bar you acquire.  Spreads on 1 oz bullion coins, 90% silver dimes and quarters, and one ounce and larger bullion bars are 13%. All other coins have a spread of 28%. There is also a 1% liquidation fee when you sell your coins back to Goldline. You should read our risk disclosure booklet, Coin Facts for Investors and Collectors to Consider, and our Account Agreement, which describe the various spreads and will tell you how the spread works.
• Buy Gold and Silver Safely: This one wasn't on Fox, but has been a site I've discussed here before (I had some excerpts from their book). They didn't give a price but simply listed the following: $32.70 bid, 33.71 ask. They claim to offer costs "1% over wholesale cost". Not sure what that means though.

So is anyone else confused/surprised or is it just me? I'm surprised that there isn't one standard price. I guess these coins are just like mutual funds -- you can get some with higher expenses and some with lower expenses -- even though you're getting basically the same thing.

I was also surprised at the spread. If I was buying one coin, then I can live with paying almost $4 over spot price. But if I was investing $100k that would add up to a large amount of money (I know, still the same percentage). Perhaps they would give a better price for a larger purchase.

I didn't check the cost comparisons of shipping, storage, and the like, since those would likely only muddy the picture further. 

It's a wonder that anyone buys physical gold and silver considering the strange (or at least strange to me) process. I know that you're buying (supposedly) for capital protection and a hedge against inflation, but it still seems to be a murky world compared to other forms of investing.

Perhaps those of you out there who are more educated in this area can enlighten me. Anyone invested in physical gold or silver? If so, can you tell us about your experience?

Comments

[My Financial Independence Journey]

Gold, of which only about 11% has any use other than sitting in a vault or being jewelery, is almost a purely speculative investment. Silver is a bit closer to being an actual commodity with about 40% having some industrial use.

When you think about it in those terms, the fact that pricing is all over the board kind of makes sense. It's just companies popping up to make a buck on the current high demand for gold and silver. They charge the highest price they can, market the heck out of it, and watch the investors come running in.

[Peggy]

And thus the key to buying hard metal: look for the lowest over spot price. I've bought from Apmex and Monex and been mostly satisfied with both -- not just the over-spot amount, but also the customer service.

Remember, too, that when you sell the metal, you'll have to pay tax on the profit, just like any other investment. (Of course, when the inevitable zombie apocalypse occurs (grin), I suspect the last thing any of us will be worrying about will be the tax man...)

[Jon]

I prefer to stick with a local dealer and avoid all shipping costs. Physical delivery is immediate, and I know the exact price I'm paying is based on the spot price at the time of purchase.

[Strick]

I don't see the point in buying physical metals as an investment (hedge against inflation, etc) because of not only the coining costs/delivery/spreads/etc, but also storage costs. Buy ETFs (SLV, GLD) and you track value with no waste)

Seems like one would buy physical metals for either the hobby value (a monster box of silver is pretty cool) or as catastrophic insurance against the downfall of markets (when a monthly paper ETF statement might not feel comforting)... And at that point it seems more logical to just buy my wife a diamond to wear to get value out of it is the disaster doesn't come...

[FMF]

Strick -

A monster box of silver IS pretty cool. :)

[Matt]

I bought a silver eagle for each son when they got there Eagle scout with the year they got there Eagle as a keepsake. (2009 and 2012)

It is pretty cool to hold a one troy oz of silver.

I have though of buying silver eagles just to collect them for fun. Maybe a profit in the future.

For investing and retirement I think it is over blown.

[Bill]

When the zombie apocalypse occurs no one is going to care how much gold you have. I guess it's heavy so you could throw it at the zombies but as MFIJ pointed out it has almost no industrial use.

[Tim]

I almost bought 10 1-oz gold coins in 2008 for ~$700+ each. The only reason I didn't was because I thought I was being ripped off having to pay so much more than the spot price. Plus gold profits are taxed as a collectible similar to art. Needless to say I talked myself out of it. I wish I hadn't.

[Sarah]

They're rip-off operations. They're not especially worried about canny customers.

[Mike Hunt]

If you travel overseas, I'd recommend to buy physical gold in Asia (Hong Kong, Singapore, Bangkok)- you can buy physical ingots for less than 0.25% over spot pricing, and you can sell back to the same shop for 0.25% over spot pricing. Gold chains command a slightly higher premium on the buying side because of the workmanship.

This probably wouldn't work with silver, it is not as precious and you'd need to carry a lot of weight for any significant purchase amount. I also don't see silver being traded the way gold is in this part of the world.

-Mike

[Jose]

The airways are bombarded with Gold and Silver commercials. Personally I avoid minted real currency, the premium over spot is high because there is a numismatic value to those coins. I prefer privately minted bullion and my favorite is old U.S. 90% silver "junk" coin. You can buy that on ebay for slightly over spot.

[JW]

The Silver Eagles do cost a premium but you can also sell them back at a premium. If things got crazy they would be far easier to spend then shaving off portions of a bar. You can buy silver rounds that don't cost as much, bars(even small ones) or the junk silver mentioned above. No matter what you'll pay some amount over spot and receive some amount under spot when selling. Look up bar prices when trying to compare to spot though to see the true markup.

[Ross]

I'll never buy gold or silver as an investment. It's not like it's actually used for anything useful. I'd rather have my money in companies that are producing something or rental properties that produce cash from rent.

[Sarah]

Gold (or silver) is dutiable like other goods, so must be declared and paid for unless you're buying a relatively small amount (under $400 [???] worth). I would imagine this would cut into the profitability of overseas purchases. Gold (or silver) COINS are also considered a financial instrument in some cases. Please, people, do NOT try to bring $10K or more of coins back into the U.S. without making the special declaration. And expect to spend some quality time with CBP explaining the transaction after. Nothing like ending up on a potential money-launderer list to improve your life.

[jim]

I'm not sure but Eagles may have some added value as coin collectables. I assume if you wanted to buy a large amount just for the metal you might buy 100 oz bars or something which would have a lower premium over spot.

If you want to invest in commodities then I think an ETF is better route like Strick mentioned.

Seems its too late to catch the bandwagon for precious metals silver peaked over $48 in 2011.

[Greg]

I would imagine that if we wound up in a Mad Max world, OR if the zombie apocalypse comes (not darn likely), people would not be too concerned about whether a coin was MS70 or not. So if you are buying gold or silver as a last resort to buy bread, a numismatic premium is wasted money. It infuriates me that coin dealers are buying up most production of bullion coins and raising the price because the coins are in perfect shape (well, duh!).....