Gold and Silver

by Lloyd
(Brisbane, Queensland)

This is in answer to Lily's enquiry on buying gold and silver...

Actually Lily, I believe you are quite smart - as for financial stuff, don't let them hoodwink you - it's very straightforward and logical - once you get to the truth underlying the blarney...

Chris is right. Buy coins for a start (but don't stop there...).

I actually started collecting gold and silver when I was in the UK, myself. Great place for it, as there are coin shops all over the place and the Old Country seems to still have respect for old real values - like for instance, the real value of precious metals.

One very important thing to keep in mind about all this, is that the world doesn't measure the price of gold and silver correctly. Generally, you'll hear about the price of gold being something like (today) US$1200/oz. In other words, they price an ounce of gold in US dollars. This is actually the wrong way around. US dollars have no intrinsic value and vary all over the place, but an ounce of gold has the same value in real terms that it's had for millenia. The correct way to price gold is rather to price the dollar in terms of gold, i.e. $1 = 1/1200 of an ounce of gold.

Silver is different because it's been artificially suppressed to manipulate the gold(!) market, and is presently ridiculously cheap. If you are looking for a windfall profit (eventually), silver is the metal to own, as much of it as you can, where gold is what you own to preserve your wealth.

But how do you get it, I hear Lily quietly reminding me... :)

OK, so Chris is right as a general thing. Buy coins from coin shops. That's the way to get started. You can also buy coins and bars from bullion outlets, of which there are I believe two in Brisbane. Lily, you are closer to Brisbane - I'd say that's your best bet.

Most cities have coin shops, and most coin shops will sell collectible coins. Here is where Chris and I part ways - I don't buy collectible coins, partially because their price is way more than the value of the metal, and partially because that price is too subjective. A $350 bullion Sovereign (an old Pound coin, 1/4 oz of gold) is no different in my eyes from a $4,000 collectible Sovereign which just happens to be one that's very rare. But it also has to be in perfect condition, i.e. no nicks, cuts, abrasions, etc, and if such a coin suffers damage of this sort, suddenly it's only worth $400, not $4,000.

Buying a gold coin locks in place the value of your money on the day you buy it. From that day on you own the gold coin, and it's worth exactly 1/4 oz of gold (for a Sovereign) and always will be. Doesn't matter what currencies do - you will always be able to sell that coin for an equivalent value of currency to that which you used to buy it in the first place.

Buying coins and bars from bullion outlets is extremely safe because they are brand new and haven't had a chance to be tampered with. Coins are generally not subject to the same problems as gold bars. They are generally not thick enough to have the gold-plated-tungsten treatment. As a rule, a bullion Sovereign, or 1/4 Krugerrand, or $5 American Eagle, which are all 1/4 oz of gold, will sell for roughly the same value from the same coin shop. Remember, you probably don't want to buy gold bars - a 10 oz gold bar will set you back about AU$14,000. In a pinch, if you want to sell some gold to get some ready cash, this is a quantity of gold that you will find it very hard to offload. If you buy coins, that is, 1/4 oz, 1/2 oz, and 1 oz gold bullion coins, then you are buying roughly $350, $700, and $1400 worth of gold respectively, in amounts that will be reasonably easy to turn into cash when the time comes.

If the time ever comes.... We may yet see the day when paper and plastic "currency" as we know it, is completely worthless and people buy and sell things for actual gold and silver...

And now I get back to silver - buy coins. You can get 1 oz silver Australian, Canadian, US and Austrian coins for about AU$30-35 depending on daily prices. This represents a premium over the value of the actual metal, which is only about $25, but it's worth it, because in real terms, that same amount of metal is actually worth in excess of $200, and will revert to that price again when the global markets collapse in the somewhat near future.

You can also buy 2 oz, 10 oz and 1 Kg coins, as well as bars and ingots. If you are worried about tampering (like gold can be faked with tungsten, silver can be faked with lead) stay away from the bars and ingots, at least the larger ones. The smaller ones are too fiddly and not worth the effort of drilling them out to fill them with lead, then covering the ends of the holes with silver...

Typically, I would buy pretty much everything I've mentioned above, 1/4, 1/2 and 1 oz coins of gold. Don't bother with anything smaller like 1/8 oz Half Sovereigns, 1/10 oz Brittanias, etc, as these are more for curiosity, and you pay a ridiculous premium for them. These sizes will give you a store of value of $350, $700, and $1400 on today's prices in Aussie Dollars. Also, buy 1, 2 and 10 oz and 1 Kilo silver coins for prices of about $35, $60, $250 and $800 each, including premiums. And don't forget that when silver returns to its correct intrinsic values, these coins will be worth something in excess of 12 times what they are today. So your $800 kilo would eventually be worth more than $10,000.

I know how unbelievable that sounds but the reason for it is just as unbelievably simple. The gold market is manipulated on a daily basis to benefit the big money interests and to prop up the USD, pulling the value of gold down if it gets too high so they can make tidy profits on precious metals options and to keep the value of the USD high against gold. And the way that's done is that silver, which is much cheaper than gold in today's prices, is sold to push the price of silver down. Because the precious metals markets are linked, this instantly starts a selloff of gold and down the price of gold goes. But then it rises again at the end of the day's trading after everyone has made their profits on their gold options. Silver, though, being the metal that was used to actually achieve all this, suffers and over time goes lower and lower until it's now at a gold:silver ratio of about 66:1. It should be more like 15:1 on historical values, because it used to be about 15 times more abundant than gold. Now however, it's actually rarer than gold and could potentially end up being more valuable.

At the present moment, gold is about 1/2-1/3 of its proper value, due to this manipulation. When the dust finally settles, it will be worth something like US$3000 in today's currency. Silver, on the other hand, is worth 1/4 of its value with respect to gold, 1/12 of its value against historical values and at least 1/66 of its value based on relative rarity with respect to gold. I would buy both gold and silver - reasonable VALUES of each. For instance, I would buy maybe $10,000 worth of various gold coins, ingots, bars, whatever, and maybe $4,000 worth of various silver. The gold will fill a small box, like a jewellery box. The silver will fill a small chest. If you have the space, and want to buy more, buy some more silver, once you feel you have enough gold to feel comfortable.

Where to store it? Find a place which is not in your house, but which is somewhat secret and out of the way and keep it all there. Maybe have a few places. You might even think about burying it. You wouldn't be the first to do so... Don't talk about it with your friends or family. Don't leave it with a bank, and don't buy ETFs. None of this means anything if you can't physically touch the goods.

When global markets and currencies collapse, the only things that will be worth anything will be property - land, house, gold, silver, platinum - and food and water. I think it's reasonable to keep stocks of all of these things, don't you? :)

Lloyd.

Web Guy: Try these in Oz.

GO TO - Google Gold Bullion Dealers In Australia.