How to hold physical gold / silver

Discussion of the Gold portion of the Permanent Portfolio

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Hal
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How to hold physical gold / silver

Post by Hal » Sat May 14, 2011 4:54 pm

Hello All,

I am in the midst of setting up the gold section of the permanent portfolio and was interested in your opinions.

At the moment I have some unallocated gold / silver at the Perth Mint and wish to take delivery.

Harry recommended 1 Oz gold coins.  However, the fabrication cost for a coin is about twice that as a bar, do you consider it is worth the extra for the sake of being easily recognised.

Also, what is recommended way to have silver fabricated. Coins? Bars? Sizes?  To have a one ounce silver coin fabricated costs about 30% more, while the larger bar sizes are much more reasonable.

Looking forward to your comments,

Hal
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Re: How to hold physical gold / silver

Post by dualstow » Sat May 14, 2011 9:51 pm

Hal wrote: Harry recommended 1 Oz gold coins.  However, the fabrication cost for a coin is about twice that as a bar, do you consider it is worth the extra for the sake of being easily recognised.
Yes, definitely. Unless you're going to be purchasing it by the ton, use the 1oz coins.
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Re: How to hold physical gold / silver

Post by smurff » Sun May 15, 2011 2:34 am

Coins.  For both gold and silver.

Hal, if you get a gold bar, it will be impossible to rebalance your gold portion of the PP with it unless you trade it in first for something in smaller pieces--like coins.  You will then have paid for the fabrication twice.  

In addition to making the rebalancing  simpler, it is easier to divide a stash of 1 oz. coins to store in two or more separate locations than it is to do with one or two 1000 gram bars.  (This comes under the "don't put all of your golden eggs in one basket" rule.)  

And in SHTF  situations, it would be easier to trade, sell, and otherwise deal with easily recognizable coins than with a huge gold bar.  It would also be possible to split up the fortune among different family members if that's your choice under stressful/dangerous circumstances.  Don't even think about going through Customs or any other policed inspection line with a big gold bar in your luggage.  

If the Perth Mint ships a 400 oz Good Delivery gold bar to you, rather than to a recognized gold bullion vault, it will lose its status as a "Good Delivery" bar because the chain of custody will be broken.  Then there's a chance that if you decide at a later date to convert your bar to coins, or trade the bar for another asset (like real estate), the buyer will want to melt it to verify its contents, especially if any of the associated paperwork is lost or damaged.  (There are now other ways of testing for purity, but the melt is still common.)  This testing requirement is less likely to happen with bullion coins.  
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Re: How to hold physical gold / silver

Post by AdamA » Sun May 15, 2011 3:17 am

smurff wrote: Then there's a chance that if you decide at a later date to convert your bar to coins, or trade the bar for another asset (like real estate), the buyer will want to melt it to verify its contents, especially if any of the associated paperwork is lost or damaged.  (There are now other ways of testing for purity, but the melt is still common.)  This testing requirement is less likely to happen with bullion coins. 
You will likely be the one to pay for the assay.  Coins are definitely more practical.
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Re: How to hold physical gold / silver

Post by BearBones » Sun May 15, 2011 6:22 am

Just have it sent to me, and I will "fabricate" the coins at a fraction of any price you are quoted!
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Re: How to hold physical gold / silver

Post by Hal » Sun May 15, 2011 6:53 pm

Thanks for the comments,

However......  the Perth Mint sells small 1 oz bars, or 1 oz gold coins, so it was really a choice between those! If I had 400 oz bars I would be off living somewhere in the Pacific Islands  :) (definitely not working!).

With the silver, I was thinking of getting 10 oz bars, you can get coins but you pay about a 1/3 of the price in fabrication. The larger 100oz silver bars seem like they would be to big to allow selling off to rebalance the portfolio.

I am interested in how other posters hold their precious metals.

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Re: How to hold physical gold / silver

Post by smurff » Sun May 15, 2011 8:28 pm

Hal wrote: However......  the Perth Mint sells small 1 oz bars, or 1 oz gold coins, so it was really a choice between those! If I had 400 oz bars I would be off living somewhere in the Pacific Islands  :) (definitely not working!).
Sorry Hal, I thought you were a mogul. ;)

If the bars are numbered and stamped with the name of well-known bullion refiners/banks/mints (Credit Suisse, Johnson-Matthey, Pamp, Perth, etc), and they are one ounce or smaller, I would say that's okay.  Some of these are as well-known as coins, and some are even beautiful.  If they're coming from the Perth Mint, they likely have good stamps.  Be sure to save whatever original paperwork that comes with them (along with a copy) in as secure a place as you save the little bars.

But I still think it's a good idea to have coins in your PP.  By coins, I mean South African Krugerrands, American Eagles, Canadian Maple Leafs, and old legal tender (non-numismatic $20 Liberty, $20 St. Gaudens, etc.), but not the "rounds" you may see that have been privately produced.

My PMs are 100% coins, but I am considering adding an allocated gold ETF for rebalancing purposes.
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Re: How to hold physical gold / silver

Post by Tortoise » Sun May 15, 2011 8:41 pm

For physical gold and silver, I hold only 1-oz coins.  My philosophy is that the whole point of taking delivery of physical gold and silver (as opposed to letting someone else hold it for you) is to give you something with which to barter in extreme SHTF situations.  Bartering with coins would be much easier to do than with bars since coins are much more widely recognized by the average person.  Especially the most common coins like Silver Eagles.
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Re: How to hold physical gold / silver

Post by AgAuMoney » Tue May 17, 2011 8:36 pm

With silver, if you have a large quantity I think 10oz or maybe even 100oz bars are fine.  (If from recognized name, etc.)  Silver is available in just about every weight of 99.9% silver, from 1/10oz rounds and bars, 1/5oz, 1/2oz, 1oz, 2oz, 2.5oz, 5oz and up.  Also while some bars are extruded or cast to very precise weight, you'll also find some rough poured random weight bars or ingots typically over 2oz, metric (gram) sizes, etc.

With gold I cannot imagine a 100oz bar, much less a 400oz!  I think I might still have a 50gm bar.  I know I have a cute little 1gm bar, just for fun. :)

And finally, recognize that uniformity is kind of nice to stack, store, count, sell, etc. but variety can be fun just to see what is out there.  If you are doing large quantities, think typical quantity lots -- 500oz "monster box" of silver eagles or maples, or 20oz tubes of silver coins or rounds, or 20oz sheets of gold maples or buffalos, 15oz tubes of maples or krugs,  ...
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Re: How to hold physical gold / silver

Post by dualstow » Tue May 17, 2011 8:46 pm

AgAuMoney wrote: 20oz sheets of gold maples or buffalos  ...
There are sheets? Like, something you can put in a binder? Do you know where I can find those?
I have searched for various storage cases -- you'd think there would be more opportunists out there considering all the gold buying. Alas, I haven't found much.
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Re: How to hold physical gold / silver

Post by AgAuMoney » Tue May 17, 2011 9:10 pm

dualstow wrote:
AgAuMoney wrote: 20oz sheets of gold maples or buffalos  ...
There are sheets? Like, something you can put in a binder?
I never considered a binder!  The sheets I was talking about are those sealed mylar sheets that the U.S. Mint uses for gold buffalo and the R.C. Mint for gold maple leaf.

Personally I think the tubes are the most space efficient but a coin dealer might know of an aftermarket sheet that would fit your coins.
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Re: How to hold physical gold / silver

Post by l82start » Tue May 17, 2011 10:45 pm

i have some sheets of the Canadian maple leaf silver 1 oz (VP), they do take up space but i wouldn't take them out of the package because of it, i don't know what the advantage is for the silver, maybe less tarnishing?? with the gold maple leafs it would help protect the softer 99.9 coin..   also some of the ones i have have been separated from the sheets but are still in the wrapper so i guess it doesn't stop you from selling them off one by one if necessary..
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Re: How to hold physical gold / silver

Post by Hal » Wed May 18, 2011 7:01 pm

Thanks for the ideas,

As a beginner to the PP, is the gold/silver holding an investment (in which case larger size coins/ bars would be more suitable) or is it insurance in case fiat currency becomes worthless (in which case small silver 1 oz coins would be more useful)?

Hal
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Re: How to hold physical gold / silver

Post by fnord123 » Wed May 18, 2011 7:18 pm

Hal wrote:As a beginner to the PP, is the gold/silver holding an investment (in which case larger size coins/ bars would be more suitable) or is it insurance in case fiat currency becomes worthless (in which case small silver 1 oz coins would be more useful)?
If you want to view the gold as an investment, then the suitability of various ways of holding gold would be as follows:
#1 Gold ETFs (GLD, PHYS, IAU).  Very liquid, minimal transaction costs, tiny spread.  Also consider GTU for tax reasons.
#2 Gold eagles/maple leaves/krugerrands.  Widely recognized and reasonably liquid. Lower spread than gold bars.
#3 Gold bars from major manufacturers.  Assay can be required if you take physical possession, particularly for large bars.  Worse spread than #2.
#4 Gold rounds and bars from others. More likelihood of assay needed. Worst spread of all.

So I think the right question is whether to hold gold ETFs (investment) or gold eagles/maple leaves/krugerrands.  There are a lot of threads on this topic - in a nutshell, get at least a few coins just to experience what gold really is.  Beyond that, it depends on how much you are worried about counterparty risk.
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Re: How to hold physical gold / silver

Post by Pkg Man » Wed May 18, 2011 8:56 pm

Hal wrote: Thanks for the ideas,

As a beginner to the PP, is the gold/silver holding an investment (in which case larger size coins/ bars would be more suitable) or is it insurance in case fiat currency becomes worthless (in which case small silver 1 oz coins would be more useful)?

Hal
It's both.  HB designed a portfolio to protect against remote but not impossible events, one of which was gold confiscation by the government.  That is the reason he preferred to have gold that you could hold in your own hands, and if possible, store at least some in an overseas bank (much more difficult to do now than when HB wrote his books).  I do think it makes sense, given the unfavorable tax treatment of gold, to keep some in an ETF that is in your 401K or IRA.  I would limit that to no more than 20% of the total gold holding, but that is just my personal opinion.

Personally I would not substitute silver for gold in the PP, as gold is mostly a monetary metal while silver is mostly an industrial metal and may react differently to inflation and other problems.  But I actually like silver for the variable portfolio, and think that having a few silver coins on hand for the very remote possibility of a currency collapse would be cheap insurance.  You don't want to go to the corner grocery store and try to buy a loaf of bread with even the smallest gold coin.

As HB said, gold is your portfolio's last line of defense, and you don't want to throw that away by treating it too casually, i.e., by storing it in less-than-secure ways.
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Re: How to hold physical gold / silver

Post by Tortoise » Wed May 18, 2011 11:56 pm

Pkg Man wrote: I actually like silver for the variable portfolio, and think that having a few silver coins on hand for the very remote possibility of a currency collapse would be cheap insurance.  You don't want to go to the corner grocery store and try to buy a loaf of bread with even the smallest gold coin.
If grocers were accepting silver coins in exchange for food, then why wouldn't one be able to find a person willing to exchange silver for gold (perhaps for a nominal fee)?  I'd just find the local money-changer, trade a 1-oz gold coin for a few dozen 1-oz silver coins, then head over to the grocery store to buy some food.
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Re: How to hold physical gold / silver

Post by AgAuMoney » Thu May 19, 2011 2:39 am

Tortoise wrote:
Pkg Man wrote: I actually like silver for the variable portfolio, and think that having a few silver coins on hand for the very remote possibility of a currency collapse would be cheap insurance.  You don't want to go to the corner grocery store and try to buy a loaf of bread with even the smallest gold coin.
If grocers were accepting silver coins in exchange for food, then why wouldn't one be able to find a person willing to exchange silver for gold (perhaps for a nominal fee)?  I'd just find the local money-changer, trade a 1-oz gold coin for a few dozen 1-oz silver coins, then head over to the grocery store to buy some food.
Or wouldn't the grocer give change?  Today 1 oz of gold is only ca. 44oz of silver and 1oz of silver is not a very substantial trip to the grocery store.  Of course, no idea what prices would be if society has collapsed to the point that you are worried about if the grocer can make change.  :-\
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Re: How to hold physical gold / silver

Post by smurff » Thu May 19, 2011 2:55 am

You might not want to flash real gold around in a currency collapse emergency situation.  If you whip out a gold coin to buy something in a public store under those circumstances, a crowd will form.  I can almost guarantee it.  Gold can trigger primitive responses in some people, and the flash of a gold coin might give certain individuals a clue that there's more where that came from--and hence that you are somebody worth following home and robbing.  Envy comes out under that economic stress, too, especially if someone can actually demonstrate they have a bit of real wealth (as opposed to electronic bookkeeping entries, which is what most of us have these days).  You prepared in advance and have a gold coin, I didn't and I don't, I want a gold coin, therefore I'll take it from you.

Silver is another matter; maybe not as strong a response.  Right now it's the sort of PM that almost everyone can afford, even if it is just a few pre 1964 dimes.  That may change in the future, however.
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Re: How to hold physical gold / silver

Post by Storm » Thu May 19, 2011 9:21 am

Smurff has a very good point.  In a currency collapse situation, the value of all PMs would skyrocket.  Pulling out a 1 oz. silver eagle in a supermarket would be the equivalent of pulling out a wad of $100s in a bad neighborhood.  People are going to notice.  Pulling out a gold coin would be the equivalent of a stack of $10,000 in hundreds.

For real SHTF currency collapse situations, you're far better off with junk silver coins.  A few pre-1964 dimes should be enough to buy a couple bags of groceries, and doesn't draw too much attention.

I think there's a good chance that there will be money changers, grey market or otherwise, in such a situation that will break gold into silver for you.  It would be similar to going to the bank to break hundreds into 20s so you didn't have to flash a lot of cash around.
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Re: How to hold physical gold / silver

Post by Pkg Man » Thu May 19, 2011 9:58 am

It takes time for markets to develop. A few ASEs is just designed to get you by for a few weeks until things get sorted out. Most folks have no idea what junk silver coins are, having been born after they were made. There is no way to know if they would even be accepted by most folks as a form of payment. I think ASEs would fair better as an emergency medium of exchange.

This is of course all hypothetical, remote possibility stuff which we will hopefully never encounter.
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Re: How to hold physical gold / silver

Post by Tortoise » Thu May 19, 2011 12:28 pm

Pkg Man wrote: Most folks have no idea what junk silver coins are, having been born after they were made. There is no way to know if they would even be accepted by most folks as a form of payment. I think ASEs would fair better as an emergency medium of exchange.
You took the words right out of my mouth.  I've never been sold on the idea that junk silver coins would be more useful than 1-oz coins like Silver Eagles for barter.  If someone were to walk up to me tomorrow and offer to trade me a Silver Eagle for something, I'd have a fair sense of what the trade should be.  But if they were to walk up to me and drop a few old, scratched up dimes and nickels on the table, I'd have a number of questions:
  • What percentage of the coins is silver?  I don't know off the top of my head, and I probably wouldn't want to take the guy's word for it.  I'd need a look-up table or web access.
  • How much do the coins weigh?  I don't know off the top of my head, and again, I probably wouldn't want to take the guy's word for it.  I'd need a scale.
Silver is silver, and 1-oz is 1-oz.  No muss, no fuss.  Simple.
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Re: How to hold physical gold / silver

Post by moda0306 » Thu May 19, 2011 12:33 pm

Couldn't somebody mint their own "silver" eagles... or gold for that matter... and be able to scam a lot of people not willing to do research?
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Re: How to hold physical gold / silver

Post by Storm » Thu May 19, 2011 12:36 pm

Ok, I buy the argument that ASE is a lot more recognizable than junk silver coins, but how do you get around the fact that it would be like pulling $500 out of your pocket?  Do you only barter in private, or do you have to flash it to the cashier under the counter before you negotiate how much it's worth?  Also, $500 could buy a ton of groceries.  What if I only need $100 worth?
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Re: How to hold physical gold / silver

Post by smurff » Thu May 19, 2011 1:09 pm

Pkg Man wrote: Most folks have no idea what junk silver coins are, having been born after they were made. There is no way to know if they would even be accepted by most folks as a form of payment. I think ASEs would fair better as an emergency medium of exchange.
Most people don't know what American Silver Eagles are, either.  (Those of us who invest in the HB PP tend to become experts on precious metals, at least bullion, relative to others.)  If you were to ask a random sample of 100 people on the street today what an ASE was, or ask what the difference is between a pre-1964 dime and one from 2011, I would doubt that more than 10 of them would know.  But people have a tendency to learn certain things quickly, especially where their financial well-being is involved.

There's no way to know what would become a medium of exchange during such times.  Bullets, booze, and tobacco might at times fare better than silver or gold.  (Silver bullets even better, to deal with the vampires that tend to come out in crises.)  And who knows what the government (federal, state, local)  might do under such circumstances.  They may, for example, permit only silver and gold to be used in commercial transactions.  They may temporarily ban the use of silver and gold as money in commercial transactions.  The federal, state, and/or local governments might have different rules, and fight each other in court over it.
This is of course all hypothetical, remote possibility stuff which we will hopefully never encounter.
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Re: How to hold physical gold / silver

Post by Tortoise » Thu May 19, 2011 3:51 pm

Moda,

Regarding counterfeit coins, I'm assuming the SHTF situation would be relatively short in duration.  For example, if our currency were to collapse, I'm guessing the situation wouldn't drag on for long before the government rolled out a new fiat currency to replace the old one.  In that short time, I'm guessing not many people would have the time or resources to become skilled counterfeiters of gold and silver.  Criminals would probably focus their efforts more on simple theft and assault.

Storm,

How would using one or two 1-oz silver coins be like pulling $500 out of one's pocket?  Historically, a 1-oz silver coin has been able to purchase a small amount of groceries, much the same way a 1-oz gold coin has historically been able to purchase a man's suit (give or take, of course).  Yes, in a SHTF situation, a 1-oz silver coin may very well be "worth" $500, but then a bag of groceries will probably be "worth" a similar amount.  Flashing gold coins, however, is a different matter.  That's something that should probably always be avoided in crowded places--even when times are good.
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