Buying gold and silver tips.

Question: "I know governments are piling on more and more debt to the point where they have passed the point of no return. I am worried about a failure of the currency. I think physical gold and silver will be safer than money in the bank. Any tips?"

Answer:

I can’t give financial advice so please don’t take anything which follows as financial advice.

Currency reset explained

When confidence in a currency erodes rapidly, it often leads to a currency reset. In simple terms, the old currency becomes worthless and a new currency is issued, with the promise that the new currency is "sound money". You will probably find that you can not convert all your old money to the new currency. You might be allowed to convert some. The amounts could be limited. If everybody could convert their old money into the new money 1:1 it would defeat the point of the reset. The rules are likely to be very complex. The government will decide who wins and who loses, not you. The bottom line is that holders of cash and debt (e.g. bonds) are always the biggest losers.

Physical and tangible assets are better than fiat money and bonds in a reset situation

There have been many currency resets in the past. Those who held physical or tangible assets like land, animals, businesses, tools, property, art collections, gold, silver, hoarded goods and other assets which could be sold were OK. They survived because they still held those assets after the reset. They could sell them for the new currency. The losers were generally the bag-holders who were left holding bonds, bank balances or paper money in the old currency.

It has generally been a good thing to own gold and silver before, during, and after resets in the past. By that, I mean that precious metals have held some, all, or even more value for those who hung onto it throughout the reset.? i.e. long term holders.??

The exception was in the United States. In 1933 president Roosevelt made the holding of gold coinage illegal. Everyone was forced to hand in their gold coins, (but not collectible coins), in exchange for fiat dollars. At least in that situation, the new paper dollars did hold their value for a while, i.e. until 30th of January 1934, when the dollar was devalued by 58% in a single day. Unfortunately for those who illegally hid away their gold coins, it was another 42 years before they could legally sell them.

How can I be exposed to gold and silver?

There's no single way which is right for everyone. Here is a list of some of the more popular ways.

• Old circulated silver coins (known as junk silver), such as pre-1947 UK shillings and sovereigns, or or pre-1965 American dimes, quarters and half-dollars). These are often sold by weight - e.g. a price per l kilo. In general the percentage of silver content is much lower than bullion coins.
• Bullion type coins. Bullion coins typically have a gold or silver purity of 99.9% or better. Examples are American Gold Eagles, Canadian Maple Leafs and South African Krugerrands. There are hundreds of types to choose from, and most are available in both gold and silver.
• Collector coins. Some silver or gold coins have both collector value and bullion value. Examples are the Australian Perth Mint Lunar collection, and the UK's Queen's Beasts collection. There are hundreds of popular collections. You will pay more for collector coins than bullion coins, but the difference may not be that much.
• National gold coins. Many countries used to have circulating gold coins. These remain popular in the respective countries where they circulated. Examples are Sovereigns in the UK, Vrenelis in Switzerland, Eagles in the USA and Napoleons in France.
• Gold and silver bars. These come in all sizes from 1 gram upwards. Generally the smaller the bar, the bigger the premium. Larger bars of 1kg upwards generally have fairly small premiums above the spot price.
• "Physical Backed" Gold or Silver ETFs.? ?If holding physical metal is not a safe or practical option, you may want to study physical backed gold or silver ETFs.? They are cheaper and easier to buy and faster to trade than the physical metal.? Unlike buying physical bars or coins, there is generally little or no premium on ETFs compared to the spot price. The question is "Do you trust all the counter-parties in the chain?" You own a paper claim on the physical gold in the ETF, not the gold itself. It's not going to be easy to take delivery.
• Gold and silver miners. These companies have the gold in the ground. If the spot price rises, there is a leveraged effect on the expected profits. Thus gold mining shares tend to move faster than the spot price. Unfortunately there are many potential downsides. A falling spot price can quickly make a mine unprofitable. Mines are also subject to industrial action, government interference, political problems (e.g. Russia), as well as the general woes of the stock-markets. Stories of fake gold finds are all too common as illustrated in the Bre-X gold mining scandal. If buying mining shares I would prefer a diversified ETF which holds the major mining companies. That way I would avoid the specific risk of a single company.

Where can I buy Gold and Silver?

• Flea markets are great place to look for a bargain. They are also a great place to get scammed. Make sure you know what you are doing (see below).
• Numismatic fairs. In these events you will find hundreds of dealers, buyers, and sellers. Everything from bags of junk silver to gold bars to the rarest of the numismatic coins can be found. Sellers are usually motivated. Due to competition, prices are fair. You are bound to find some things that you like, and make loads of contacts.
• Online market places. This is another place to look out for bargains. You can find several local sites as well as the international ones. Look carefully at the feedback reputation of the seller before you make an offer. If your goods have to cross a border, be aware that the post office may charge you an inspection fee or a duty.
• Bullion, gold, or silver dealers. In general these companies buy new coins or bars in bulk from the mint and sell them on at a premium. Providing you are dealing with a reputable firm, you will pay a little more, but you can be sure that your gold and silver is real, and it will come with proper documentation, certificates, and receipts to prove it. You don't have to visit these companies. You can buy in their online shop and the purchases will be delivered by insured or registered post.
• Coin dealers (numismatic shops). They tend to specialise in the more expensive type of coin with numismatic value. You are unlikely to find a bargain here. But if you are looking for something special it is worth popping in for a chat. They are a fountain of knowledge.
• Pawn shops. Try walking into a pawn shop or one of these shops which says "We buy gold and silver". Go in and say something like "Do you have a 2023 Perth Mint Year of the Rabbit 1 oz silver or gold coin in stock?".? When they say "no" you can draw them into a conversation about whether they have anything else that they were going to throw in the melting pot.? Get the shop to agree to call you if something interesting comes in.? You can promise to pay them more than the "melt" value.
• Banks. Many banks can arrange physical gold and silver purchases (usually bars) for you at fair prices.

Educate yourself before buying

If you are thinking of buying gold and silver coins or bars, make sure you educate yourself as much as you possibly can, e.g. by watching lots of YouTube videos and and reading.? Learn what's easily available, and decide what you want. Then study it. Before buying anything familiarise yourself with:

• The weight, and size
• The purity
• The value of the gold and silver
• The buy and sell prices.
• How to test if it is real (see below)

Selling coins back

If you might need to resell the coins, think about how you are going to do it. If you were to sell them back to a shop or a bullion dealer they’re going to give you a lousy price compared with the real value or what you would pay to buy them in the same place. ? In general you can get a better price advertising privately on a website where other coin buyers and sellers congregate. You need to look for a local website, where you can meet or trade in person without cross-border issues.

How to test if your gold or silver is real

Almost all coin dealers, gold bullion dealers and pawn shops have very expensive spectrometer equipment for testing the internal gold or silver content of a bar or coin. Most will be happy to test a coin or bar for you free of charge. There are also a variety of cheap tests you can perform at home, or even in a flea market.

• Magnet test: Let your silver coin slide down a powerful Neodymium rare earth magnet at 35 degrees angle. It should slide slowly. If it sticks, or if it slides too fast, it's not silver, or has a base metal like copper or iron mixed in. Magnet: $15 to $30
• Purity test: You can buy a very cheap diamond purity tester pen. It will tell you if the surface of the coin or bar is a pure metal (gold or silver) or an alloy. For example it's easy to distinguish between the cupro-nickel version of a coin and the silver version. It's very useful if you have jars full of old coins collected over decades of international travel. You can quickly test if any are silver. Tester pen: $10 to $20
• Ping Test: Download the app onto your iPhone. Select your gold or silver coin in the app (or manually enter its parameters) and ping it. The screen will tell you whether the coin is pure gold or silver based on the ping sound. Ping Test App: $3 per month.
• Weight and size test: Check if the coin or bar corresponds to the official specifications. For that you will need some very accurate coin scales and high quality digital callipers. Scales:$10 to $20, Callipers: $40 to $160
• Ice test. Take two identical size coins. A cube of ice will melt faster on the pure gold or silver coin. Ice: free
• There are several other tests you can do at home. Here's a link to them: https://bullionexchanges.com/learn/test-gold-real

Gold vs Silver which is best?

Gold is easier to hide and store than silver. Silver is 80 times more bulky than the same value of gold. For that reason you may prefer gold.

It would be difficult to buy a loaf of bread and get change if you were paying in gold. Silver is far more likely to be usable for small transactions. If you expect a loss of confidence in paper money, so that you need to use precious metals to buy things, then silver seems like a better choice.

Price performance. If you are reading this, you are probably expecting the demand for precious metals to increase. Silver tends to perform faster than gold in both directions.

Factors influencing future prices - Gold

Gold will be heavily influenced by central bank behaviour (buying or selling gold), and by investor sentiment towards the currency. In times of increasing currency distrust, people will tend to buy gold. On the other hand, gold dislikes high interest rates. As interest rates rise, the perceived opportunity cost of missing out on income increases. People are less likely to want a non-income producing asset when interest rates are high.

In the event that a currency reset involves some kind of backing by gold, then gold could perform extremely well.

Factors influencing future prices - Silver

Silver is an industrial metal. It is consumed. In the longer term silver will be more influenced by supply and demand. Demand for silver is increasing. More silver is being consumed than is being mined, and the gap is expected to grow. The gap between mined silver and consumed silver is filled by recycled silver. There's plenty of above-ground scrap silver which would be sold if the price was right. Any sudden spike in the silver price will be countered by armies of grannies queueing up to sell their silver candlesticks.

The main growth in silver consumption will come from the electronics industry, photovoltaic cells, and the automotive industry.

As far as mining supply is concerned, most silver is mostly mined as a by-product of other metals, so mining supply is not expected to change much.

All of the above point to a positive outlook for the silver price.

Storage of gold and silver

If you hold physical coins or bars, think about personal security so that they are not easily found if you get burgled. Google and you will find many crazy ideas about where to hide your precious metals. The craziest idea I saw was to hide it in the coal cellar under the coal.

A safe vault in a bank is obviously the safest bet, but it's not much use if the banks are closed.

Keep records and receipts

Keep very careful records of everything you buy, along with the proof, in the form of receipts, contracts and cash withdrawals or bank to bank payments.? You might need the evidence when you sell, or pay money back into a bank.