Buying Physical Gold

[dr ratdog]

Hey all.  I don't post on here a lot but I read from time to time.  Thanks up front for all the feedback.

I think I've reached the resolve soon to buy physical gold.  Honestly it seems like such a crazy move for me.  I don't mean to offend anyone but it feels at times that I've somehow joined an underground movement by even considering buying physical gold.  Those are just my own issues to work through, of course, and I've found it helpful to remember again that for the PP "gold is a tool not a religion." 

Anyway, I'm considering buying online from one of the major dealers (APMEX perhaps).  I have two questions:

1) How much should I buy?  Let's assume for the sake of discussion I have a 100k portfolio.  If I buy 5% in physical gold that's only 3 or 4 gold coins.  It hardly seems worthwhile.  But let's say at some point my portfolio is 1M.  Then 5% would be 50K which at current prices would be about 40 gold coins.  That seems unwieldy.  Any thoughts on this?

2) Another issue I'm wrestling with is which gold coins to buy.  It seems like Gold Eagles are one of the most popular coins but they also seem to have the highest premiums.  If I bought those coins and then later sold them would I get the same premium again in the future?  In other words, if I pay a higher premium for a more popular coin now will that carry over when I sell it again?  If I bought, for example, Gold Maples or Kruggerands will those ever be in danger of losing value if they become even less popular in the future?  I think I wish I could just buy a gold coin with no minting whose value is determined 100% by the gold content and not the country of origin, etc.  But that seems to be impossible.

Thanks for the input.

[goodasgold]

1) How much should I buy?  Let's assume for the sake of discussion I have a 100k portfolio.  If I buy 5% in physical gold that's only 3 or 4 gold coins.  It hardly seems worthwhile.  But let's say at some point my portfolio is 1M.  Then 5% would be 50K which at current prices would be about 40 gold coins.  That seems unwieldy.  Any thoughts on this?

Three-four coins *are* a bit unwieldy. But when you buy a larger lot of coins, you don't have to buy them all at once. Why not make several purchases, until you feel comfortable with the process?

And for the sake of sleeping securely, I strongly recommend insuring your coins and keeping them in a bank's safe deposit box. I don't understand the folks who keep them at home, uninsured. Sure it costs a bit more, but the peace of mind is worth it, IMHO.

And I don't think it matters which coins you buy. When they appreciate greatly in value, as they tend to do (when they are not depreciating greatly in value , which they sometimes do  ),a few dollars more or less for Golden Eagles vs. Krugerrands is meaningless, IMHO.

And, yes, buy the coins from a respected dealer. And I have to admit I am a bit uneasy with the recent introduction of perfect Chinese fake coins. While respected, established dealers are the most reliable, even these companies might hire a few rogue employees who could palm off fake coins before quietly disappearing to enjoy their new lifestyle in Rio de Janeiro (Brazil, as all con men know, has no extradition treaty with the U.S.) 

[rickb]

1) How much should I buy?  Let's assume for the sake of discussion I have a 100k portfolio.  If I buy 5% in physical gold that's only 3 or 4 gold coins.  It hardly seems worthwhile.  But let's say at some point my portfolio is 1M.  Then 5% would be 50K which at current prices would be about 40 gold coins.  That seems unwieldy.  Any thoughts on this?

3-4 coins is about $3900-$5200 at today's prices.  I think Mike Maloney in his book on silver claims the last time silver spiked, an average car was worth about 500 oz of silver.  At a silver/gold ratio of 50/1 this means about 10 oz of gold.  Seem worthwhile yet?

40 gold coins is 2 20-coin tubes.  Comfortably fits in your pants pocket (sometimes mistaken for a pickle), and very easily fits in any safe deposit box.  Hardly unwieldy at all.

[barrett]

dr ratdog,

You have joined an underground movement. At five coins we teach you the secret handshake. At the ten-coin threshold you get a plaque for your home office!

I would never feel comfortable ordering online but many on here seem to. At the coin dealer I have bought from they tell me that they pay spot for Eagles when buying them and that they pay about 2% under spot for the other coins. So it comes out as a wash. That said, I somehow feel a bit safer with the Eagles because they are probably the most common gold coin here in the US and could be more easily recognizable in a liquidation emergency... at least that is what I think.

I think even owning a few coins is worthwhile. Don't buy them if you think you won't want to hold onto them but I think you'll find it's just not that big of a deal having some. You'll be aware of having them for a few days or weeks and then you'll forget about them (except when you take them out to stare at in the middle of the night).

[Bean]

1) How much should I buy?  Let's assume for the sake of discussion I have a 100k portfolio.  If I buy 5% in physical gold that's only 3 or 4 gold coins.  It hardly seems worthwhile.  But let's say at some point my portfolio is 1M.  Then 5% would be 50K which at current prices would be about 40 gold coins.  That seems unwieldy.  Any thoughts on this?

3-4 coins is about $3900-$5200 at today's prices.  I think Mike Maloney in his book on silver claims the last time silver spiked, an average car was worth about 500 oz of silver.  At a silver/gold ratio of 50/1 this means about 10 oz of gold.  Seem worthwhile yet?

40 gold coins is 2 20-coin tubes.  Comfortably fits in your pants pocket (sometimes mistaken for a pickle), and very easily fits in any safe deposit box.  Hardly unwieldy at all.

It was 500 oz of silver is worth about your average house historically, not car

Now I crawl back into my forum cave for a few more months of hibernation 

[mortalpawn]

1) Buy whatever you feel comfortable purchasing and storing (securely of course).  Buy a little at a time if a large purchase makes you uncomfortable.

2) I would stick with the top few government mint coins (Eagles, Maples, Kruggerands, Philharmonics for example) in 1 troy oz size.  These are widely recognized and can be redeemed near spot price just about anywhere in the world.  Eagles have a slight premium in the sales market over the others (in the US), but they also usually sell for slightly more so its probably a wash.  Don't buy numismatic coins (double eagles, commemoratives, proofs, etc) as you will have a hard time getting your premium back when selling unless you really are a coin collector and know what you are doing.  Also I personally don't buy bars or private mint issues (at least in gold) - only because they can be harder to redeem than a recognized government mint coin.

3) Don't take your coins with you when you go boating (accidents happen!)

4) Now that you are a member of the club, start stocking up on guns, ammo, foodstuffs (at least a year's worth) and dig an underground bunker to protect yourself from the coming zombie apocalypse 

[rickb]

It was 500 oz of silver is worth about your average house historically, not car

I thought it was house - but the Hunt brothers silver spike took it to about $50/oz sometime in the 1980s (right?).  This is $25,000.  An average house at the time was clearly more than that - so I figured I must have been remembering wrong and substituted "car".  And I definitely thought he was talking about a spike, not the historical "average" value of silver. 

Digging out my copy of Maloney's book, he actually was talking about "house", not "car" (my bad) - in January 1980 the average house price was $42,747 and the silver price was $52.50, so about 814 oz of silver.  This is more than fits in your pocket, but not so much that you couldn't pick it up and carry it somewhere.  8 100oz bars of silver makes a stack about 10 inches high, each bar being about 6.5 x 2.5 x 1.25 - but the stack of 8 bars weighs nearly 55 pounds (100oz bars of silver are impressively heavy).

With a (current) 50-1 ratio of silver to gold, 800 oz of silver is 16 oz of gold.  Imagine buying 3-4 gold coins 4 times, and then buying a house with the 16 coins that very comfortably fit in your pocket.

[Bean]

With a (current) 50-1 ratio of silver to gold, 800 oz of silver is 16 oz of gold.  Imagine buying 3-4 gold coins 4 times, and then buying a house with the 16 coins that very comfortably fit in your pocket.

This thought process is one of the reasons that folks think any reversion to the historical mean for silver will be the greatest investment of a lifetime.  I just haven't sorted out what would be the pressures on the demand side that would force this.  All I can think of is a supply side crunch to drive up the price and I don't see that in my lifetime. 

I still buy the shiny stuff though 

[Kshartle]

With a (current) 50-1 ratio of silver to gold, 800 oz of silver is 16 oz of gold.  Imagine buying 3-4 gold coins 4 times, and then buying a house with the 16 coins that very comfortably fit in your pocket.

This thought process is one of the reasons that folks think any reversion to the historical mean for silver will be the greatest investment of a lifetime.  I just haven't sorted out what would be the pressures on the demand side that would force this.  All I can think of is a supply side crunch to drive up the price and I don't see that in my lifetime. 

I still buy the shiny stuff though 

Silver is looking extremely attractive at this price. It is something like 85% below it's inflation adjusted high.

If it turns up here $18 will look like an extremely strong support level. I am tempted to buy another 200-300 ounces next month if it stays around $20. Either that or AGQ.

[dr ratdog]

Thanks everyone for the feedback.

I think that since they're the most popular I'm just going to buy Gold Eagles.  The other thing I realized is that even with the premium I'll pay above spot price I'll still save money over the long run vs. my ETF.  IAU, which I use, has a .25 expense ratio which never goes away.  At some point the 4-5% one time fee I pay upfront will be less than the continual ETF ratio so it seems like it makes better sense in the (very) long term.

I'd never heard about a set amount of silver/gold equaling a house (or car) but I've often heard the idea that an ounce of gold bought a men's suit in most time periods going back to the Romans.  Is the silver/gold ratio at all important?

Finally, I'll definitely put the gold in a safe deposit box in the bank.  Although watching Breaking Bad definitely gave me good ideas about where to hide stuff in a house (or car wash)

[StdDeviant]

I highly support the decision to buy American Eagles. I think the safe deposit storage strategy is fine, too, but I'd think long and hard about paying insurance on them. Very expensive relative to the miniscule risk. I like the idea of diversifying the storage locations and keeping them several places. Self-insurance is free, and the risk of loss should be very, very low for any one location (assuming you don't hide them behind the air register in the baby's room; I think that's the first place everyone will look now! And vacuum-shrinked garment bags in the crawl space probably aren't a great idea either!)

[vnatale]

I highly support the decision to buy American Eagles. I think the safe deposit storage strategy is fine, too, but I'd think long and hard about paying insurance on them. Very expensive relative to the miniscule risk. I like the idea of diversifying the storage locations and keeping them several places. Self-insurance is free, and the risk of loss should be very, very low for any one location (assuming you don't hide them behind the air register in the baby's room; I think that's the first place everyone will look now! And vacuum-shrinked garment bags in the crawl space probably aren't a great idea either!)

A COMBO post!

High in substance yet also high in humor!

Smith1776 have you watched far enough to get the references?

Vinny