Legendary investor Jim Rogers isn’t buying gold. He is waiting for it to make a 50% correction and believes it will fall below US$1,000 per ounce sometime during 2015 and 2016. Demographics expert, Harry Dent, sees the price of gold falling to US$700 per ounce in 2015.
On the other hand, Marc Faber of the Gloom, Boom & Doom report sees gold going to US$5,000 per ounce. Peter Schiff, Chief global strategist of Euro Pacific Capital, believes the same. Schiff argues that the US Fed has created bubbles, which will lead to catastrophe.
Who’s going to be correct? Is now the best time buy gold and silver?
We’ll soon find out.
But I’m in the Rogers and Dent camp. So I’m not buying precious metals just yet.
When gold was trading at US$1,350 per ounce in early August 2014, I explained to Money Morning readers that the price will fall to US$931 in 2015.
Diggers and Drillers readers got the heads up a couple of months prior. I’ve shown them how gold could potentially fall to US$817 per ounce or lower in 2015. Silver will also bottom around US$11 per ounce.
I must say that I’m not a permanent bear. Gold will return as a top performing investment in the years ahead. I’m tremendously bullish on gold.
Precious metals have been a store of value dating back to the Mayan civilisation and well into BC times.
But, right now, precious metals have entered their final retracement phase of this multi-year bull market. Buying precious metals at some stage in 2015 or 2016 will prove to be an excellent strategy. I’ll let my readers know when I believe gold has formed its technical price bottom.
That said, you may wish to know how you can profit from buying gold and silver in the future. There are a range of options you can take.
Owning the paper version…
Some investors shy away from owning paper gold. True gold bugs will say that paper gold holds no comparison to owning the physical metal.
Both have their pros and cons.
The younger generations are moving towards an electronic world — everyone pays with their debit cards. They don’t see the need to hold cash anymore. They prefer to shop on the internet.
The 21st century is without a doubt the technology age. We’re moving towards electronic currencies and a cashless society. These days, I can do everything I need on the internet.
Governments even want to move to an electronic world so that they can avoid bank runs. In this case, if the banking system seems likely to crash, how will you get your money out in a cashless society?
There’re other perks for governments. In a cashless society, there will be no underground world. This means your average tradie will no longer be able to do a ‘cash job’. And the governments will be able to claim more tax. This new world will be here within the next decade.
In my view, just like owning physical gold in the 19th and 20th centuries, owning paper gold will be sufficient to protect your wealth in the 21st century. How will governments be able to steal your shares? (See below for more information).
The pros of owning paper gold — Exchange Traded Funds (ETFs) and shares — is that they are easier to liquidate and cheaper to own. This means that if you don’t want to own it, you can sell it straight onto the market. The cons are that you won’t get to look at it, feel it, smell it, or touch it.
If you want pure exposure to the gold price, precious metals ETFs are the cheapest and most convenient way to buy and sell gold and silver. With ETFs, you aren’t exposed to company specific risks such as capital raisings or institutional investors dumping stock.
In the following table, I’ll show you a range of precious metal ETFs that are available on the ASX. The ETFs in the red box are the most popular and are denominated in Australian dollars. This means that the US price is adjusted for the AUD/ USD exchange rate.
The ultimate way to own gold and silver is buying the shiny physical stuff -in the form of gold and silver bullion, or gold and silver coins.
Owning physical precious metals — what to buy…
The argument is that if there’s collapse in the financial system in the future, owning physical gold and silver is the only option to protect your wealth. This isn’t necessarily true. Gold stocks outperformed in the market during the Great Depression of 1929‒33.
However, a collapse in the financial system will still see you owning physical gold and silver. And owning the physical stuff means that you aren’t exposed to stock market panics or companies going bankrupt. This is a real avenue to protect and store your wealth outside of the electronic world.
Buying and Selling Gold
Buying and selling gold bullion is more expensive than investing in an ETF or shares. Dealers charge a premium. Then you’ve got the cost of delivery, storage and insurance. And when you sell, your dealer will take a cut.
On top of that, buying bullion isn’t ‘risk free’. The risk is that government will confiscate your gold and silver.
Franklin D. Roosevelt (FDR) said on the radio that he wouldn’t confiscate gold before being elected. He said this the night before being elected President of the United Stated of America in 1932. On April 5th, 1933, FDR confiscated every gold coin, bar, and certificate, and people had to turn in their gold to the federal government.
It’s a risk that governments could do the same thing again in the future. It’s strange that history always has a way of repeating itself.
If history repeats, if you were to buy physical gold, I recommend that you buy fractional gold coins rather than gold bullion. This is because, if governments do confiscate physical gold, you can say that you own a coin collection.
As Peter Schiff writes,
‘Gold American Eagle and Canadian Maple Leaf coins are also produced in sizes less than one full ounce. These are called “fractionals.” They come in sizes of 1/2-ounce, 1/4-ounce, and 1/10th of an ounce. Their appearance is exactly the same as the full 1-ounce size.
‘Many people like fractionals since their value is significantly less than the 1-ounce coin and could be useful in barter transactions. Fractional gold coins also allow for greater flexibility in managing your portfolio, because you do not have to sell full ounces at a time.’
You may also choose to buy rare gold coins. Some rare collectables may have ‘added value’ in the eye of the beholder. The same can be said of antique gold and silver coins. This is a specialised market and is best to avoid unless you really know your stuff.
Buying and Selling Silver
Owning silver bullion is safer than gold. This is because silver has been used for industrial purposes for years. Gold is far too expensive to use in the industrial process. And at the same time, owning gold is an emotional symbol of traditional value.
Indians place an enormous value on gold. They consider no possession more valuable and enjoy flaunting their collections — especially at weddings.
The bride’s family makes sure she is adorned in thousands of dollars’ worth of gold jewels, which will serve as her financial security once she joins her husband. Indian brides start receiving gold as presents when they are young girls, in preparation for their wedding day.
Silver doesn’t receive this kind of emotional value from Asian countries. It’s merely an industrial metal. Governments perceive silver in the same way.
For this reason, whether you own silver bars or coins is irrelevant. I see little risk of confiscation by government in the future. You didn’t see government confiscating silver in the early 1930s.
Owning the shiny physical stuff — how and where to buy gold and silver…
Just remember that with precious metals, the ounces are ‘troy ounces’, which are equal to 31.1 grams. Australia has quite a few bullion dealers, and I’ve listed the main ones in this table below. Click on the name to link to the website.
Australian bullion dealers
|Australian Bullion Company||Melbourne|
|Gold Bullion Australia||Melbourne, Sydney, Brisbane Gold Coast|
Take the time to shop around for the lowest premiums and commissions. It’s quite surprising what the difference can be. And make sure you’re comparing prices to the Australian gold or silver price.
You can head to the bullion office directly to buy gold and silver. But if you don’t have one located near you, you can place an order over the phone or even online. Delivery is easy to arrange, but ask questions about the method used and whether it is insured.
And then you’ve got eBay.
Bizarrely, eBay has quite an active silver market. I’ve bought and sold successfully this way quite a few times before. Selling is particularly good, as you’re the one charging the commission for once!
Using eBay to buy gold and silver is riskier than going through a registered dealer.
So it’s essential to get the metal tested. This is as easy as going to a business that buys scrap gold and silver, and asking them nicely to scan it for you. When you find a good seller, stick with them. It’s also a smart move to get the seller to insure it and send it recorded delivery. Make sure you’re familiar with eBay if you want to go down this route.
The other interesting way to cut out the cost of the middle-man is through SilverStackers, a precious metals forum. This puts you directly in touch with other buyers and sellers, as well as providing plenty of market commentary.
Where do you keep your precious metals?
Now, you’re faced with the problem of storing it. A shoebox under the bed? Your home safe? A bank deposit box? Store it with the dealer you bought it from?
I personally avoid holding it at a bank. That means if a bank collapses in the future, you’ll still own your precious metals. But if you do want to store your gold and silver, I’d buy a vault and lock it somewhere safe at home — albeit, the risk here is being robbed.
A home safe can be installed for about $500 from a local security company. But you should only store small amounts this way. If you do keep it at home, you need to increase your home and contents insurance to cover the metal. And you’ll need to avoid telling everyone down at the pub about your stash…
Most bullion dealers have storage facilities. When you buy bullion from a dealer you can ask about the storage options available.
Depending on how much gold and silver you buy, it quickly becomes cheaper to store it at the dealer, or rent a safety deposit box for a few hundred bucks each year…
Safety deposit boxes are a great option. They provide security and easy access.
Banks offer safety deposit boxes, but then we are back to square one with the risk of having a bank as the counterparty.
If you want to remove counterparty risk, you can store it with a company that has nothing to do with the banking system. These are in short supply. One company called Guardian Vaults does this. They’re only in Melbourne for now, but they have clients nationwide.
I hope this all helps to put some new options forward in helping you buy and sell gold and silver – and help you profit from it too.
Enjoy that bullion!
Analyst, Resource Speculator