People have been flooding into the physical bullion markets ever since with the onset of COVID and the tyrannical government response more than two years ago. Now we can add unprecedented political and economic uncertainty.
The bubbles in stocks, bonds, and real estate may finally be popping -- perhaps all at once.
Those weighing whether to buy physical gold and silver as a hedge against all of this have some of the same basic questions.
It is always a good idea to learn something about an asset before making the investment leap.
Luckily, physical metal is about as straight-forward as it gets. Investors can do just fine by following three simple rules.
The first rule is applicable to any investment. Once you decide you need to own it, don’t fool around trying to time the market.
There are expert traders who spend huge amounts of time studying charts and signals. Many, if not most, get it wrong.
It’s a fact which has been studied extensively. Most people are instinctively bad at market timing -- they get greedy when they should be fearful… and they are fearful when they should be greedy. They do better when emotions are factored out.
With the benefit of hindsight, the best time to buy bullion was in March 2020. Panic-driven selling in the futures market drove metals to extreme lows. A few investors had the courage to move fast and grab metal before prices and premiums rose significantly.
People decide to buy bullion because they want a hedge against a number of calamities that could happen suddenly and by surprise. Given the urgency to prepare, and knowing market timing is counter-productive, the second-best time to buy metal may be now.
The next rule for successful bullion investing is to stay as far away as possible from collectible, or numismatic, coin dealers.
Money Metals has covered this topic extensively over the years, but the problem of unethical rare-coin dealers remains one of the biggest threats for beginners.
These shysters tend to be prominent advertisers on TV and radio. They are cashing in on the rush to precious metals, and they know the right buttons to push. Ads offer "free investor kits" and talk about gold and silver for defense against rising inflation and uncertainty.
What they don’t mention is that their business model is to deploy high-pressure, high-commission sales people looking to cash in on peoples’ wise instinct to protect themselves.
Anyone calling one of these dealers will get pitched, and pitched hard, on “rare” coins priced far above their actual value.
Clients who find Money Metals later frequently report paying 2-3 times what a coin is worth. For a novice, it’s easy to believe coins which are 100 years old, for example, are inherently collectible -- or that some “modern rarity” or limited release coin is worth way more than the metal it contains.
They wanted gold. What they got, unfortunately, was a fanciful story about some “rare” and desirable coin. Now they can’t so much as break-even until gold prices double or triple. Shame on these “rare coin” shysters who are a blight on our industry.
The last rule is to focus on keeping premiums low, even when you’re already sticking with bullion.
Investors would be prudent to avoid unusual and illiquid items, of course. Beginners can get a good idea as to whether an item is questionable based on price and availability. If the price is heavily discounted or hard to find elsewhere, it could be because the item is illiquid or not to be trusted.
Beware of dealers claiming to be selling precious metals below spot prices or otherwise pitching offers that sound too good to be true.
They may be deploying bait-and-switch tactics or even running their business as a Ponzi scheme.
Other than that, it’s hard to go wrong buying from a reputable source at the lowest possible price per ounce.
From an investment standpoint, the number of ounces in a stack will almost certainly be more important than exactly what type of coin, round, or bar an investor holds. If gold and silver prices rise, it is the ounces that will generate the returns.
Bullion coins, rounds and bars are essentially commodity products. Dealers everywhere trade them in bulk-quantity – they are all easy to buy and easy to sell. There is little chance one product will outperform, or underperform, another.
Privately minted bars and rounds are nearly always less expensive than coins made by official, government mints. When in doubt, go with the most cost-effective way to accumulate ounces.