Bread and Butter
Clients and prospects ask, “How can I get the most gold and silver for my money?” Almost invariably I suggest “sticking to the bread and butter”.
So, what do I mean by bread and butter? Two things:
- Premium
- Liquidity
PREMIUM (link – Understanding Bullion Premiums) is the amount you pay over spot price for a particular item. Precious metals always sell for an amount over the spot price. In most cases, you want to purchase the form of precious metal that carries the lowest premium.
LIQUIDITY is the ease of and cost associated with selling your items. In most cases, you want to purchase the form or precious metal that enjoys the highest liquidity.
Yes, you want the best of both. How do you get it? Very simply, by buying bullion.
Investors will often tell me “I want bullion, I don’t want coins”. In response I’ll suggest gold Krugerrands or gold Maple Leafs to which they’ll remind me that they want bullion, not coins (in case I didn’t hear them the first time).
Many investors that are new to precious metals do not realize that the term BULLION is a generic term commonly defined as any precious metal item whose gold or silver content sells for no more than 15% above the spot price, regardless of the form. Because Krugerrands, Maple Leaf’s, US Gold Eagles, British Sovereign’s, Austrian 100 Coronas and others sell at less than (much less than) 15% over the spot price, they are deemed bullion – in a coin form. Most bars (ingots) are also bullion.
Granted, while 1 oz. gold bars will sell for approximately $10 – $15 less than most of the items listed above, they do not enjoy the same liquidity. My firm sells 500 to 1,000 gold bullion coins for every 1 bar. I will certainly buy gold bars from sellers, but I will not be nearly as excited as if they were Krugerrands – nor will most other dealers. Why? Simply because I don’t know to whom I will able to resell the bars and how long I must wait. Consequently, dealers will often bid slightly lower for gold bars than coins due to lessened liquidity.
Saving $10 – $15 on premium up front at the expense of unhindered liquidity is simply not worth it.
All Things Considered – John’s Commentary
Another golden rule, don’t get fancy and stick to the bread and butter!
Next issue: A list of the bread and butter precious metal items/products
Quote of the day: ” . . .Gold and economic freedom are inseparable. . . . Deficit spending is simply a scheme for the “hidden” confiscation of wealth. Gold stands in the way of that insidious process.” – Alan Greenspan’s famous essay; ‘Gold & Economic Freedom’
