10 Rules Before Investing In Precious Metals

10 Rules Before Investing In Precious Metals or Rare Coins

By Gold Investing 101
Published: January 20, 2009

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reproduced from the GoldDealer.com section

10 Rules Before Investing In Precious Metals or Rare Coins

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For 2009 Ponder These 10 Rules

Before Investing In Precious Metals or Rare Coins

Hello again, this is Richard Schwary (Gold coins, silver bullion, gold bullion, silver coins and PCGS Certified Coins at www.golddealer.com | America's Coin Dealer) and these ideas will save you time and money. If you have questions or would like to voice your own views my email isRSchwary@aol.com. Thanks for reading and good luck investing. 

1. Throughout most of 2008 gold has moved sideways between roughly $700 and $1000 an ounce. This almost predictable pattern should be seen as yet another chance to buy those bullion coins or bars needed to protect your financial ship in a stormy sea. I believe we are in the middle of great wealth redistribution in the United States, and with money supply figures exploding the folks who own gold and silver bullion will be in a better position to weather this storm. Stick with lower premium hallmarked products and develop a plan to purchase on a regular basis. This systematic approach will reduce natural market volatility and give you a chance to become familiar with the process. While using this approach ask your dealer about his “buy” and “sell” prices and the process involved when selling product back to him. Is cash available when you want to sell? There are a few bullion products which are reportable but most are not and knowing the difference will save you time and trouble. These are important questions, so if you get the runaround find someone who can answer them honestly. 

2. If rare coins are desired for diversification, insist on one of the two recognized grading services. I prefer PCGS over NGC because they have a longer track record, are publicly traded (CLCT), and I believe their grading standards are more consistent, but I appreciate there are other opinions. Believe it or not there are millions lost each year because some folks consider “certified coins” a generic term, and anything in a plastic holder with the word certified on it is accepted. There are dozens of certification services and only one that I would recommend: PCGS is the industry standard, so why settle for less? 

3. There is virtually no room for bargaining with a bullion purchase but with certified rare coins the story is different. Always shop rare coin price and certification service, especially if the dealer is new to you or you have been solicited on the phone. Most professionals will bargain if you are polite, and there is always some room in any rare coin investment. Also let me add that most legit rare coin dealers work on between 5% and 20% markup from wholesale depending on relative rarity and difficulty in finding an example. So don’t offer a real dealer 50% of the selling price, as he will think you are an idiot, and you will lose a valuable source of pricing information and liquidity. 

4. Be wary of the “confiscation” argument when it comes to buying gold because unethical dealers use this to move you from a low profit bullion coin to a high profit alternative. This is called a “steer” in the trade and it goes like this: “You know that bullion coin you are considering could be confiscated by our government, as it was done in 1933 and could happen again.” You think this guy is doing you a favor and ask for a better bullion alternative so he suggests this “low price Swiss 20 Franc dated before 1933”. What he does not tell you is that on your first bullion coin choice he makes a modest $20 an ounce, but on his alternative the telemarketer pockets a whopping $100 an ounce and now places you in the sucker category. Because you did not figure the price per ounce for each coin the spot price of gold could double and you will not make a dime on the second choice. Actually the Swiss 20 Franc is a popular bullion coin; we sell a carload of them, but make sure the price you pay falls within the acceptable bullion range. And don’t go for this old story: “Our 20 Francs are more expensive because they are hand picked and better quality.” All of these small bullion coins are imported from the same two international sources by every coin dealer in America, and we all pay the same price and receive the same quality. 

5. Before you invest your hard-earned money understand that not all gold coins are similar just because they contain gold. A PCGS graded rare coin may be made of gold but is far different from a similar looking bullion coin. This is not to say the PCGS coin should be avoided, it just means you need to do your own homework before the purchase. The bullion coin will cost you its weight plus a premium which will vary according to availability. The graded rare coin will run considerably more than its weight because you are investing in rarity, not metal content. The bullion coin will move up or down tracking the gold market. The rare coin brings its own price dynamic to the table. It is your job to understand these differences before you purchase if you want to be an informed investor. 

6. There are many dealer organizations which promote good business practices within the coin industry. They all have a place, but there is only one which can represent you if you believe a dealer has not treated you fairly: The Professional Numismatists Guild (PNG). Every member is assigned a three digit number according to the year his credentials were impressive enough to be accepted. My number is 365, which was issued during the last ice age. Dealer membership is critical to your investment strategy because the PNG holds the member legally responsible for treating you fairly. The PNG arbitration process is simple and free to the public. 

7. There is always confusion over Uncle Sam’s rules for dealing in cash. So here is the inside scoop: Federal forms must be filled out when you tender $10,000 or more in cash (the real green kind). The dealer will fill out Federal Form 8300, which asks a number of questions and includes your Social Security number. And you can't spend $5000 today and $6000 tomorrow trying to avoid this rule, as that is called a chain transaction and Uncle Sam does not like to be fooled. So here is the inside tip: If you pay for your stuff with a check or bank wire there is no reporting trigger regardless of the amount of money invested or the product chosen! 

8. Delayed delivery programs involving precious metals are at least risky and could lead to disaster. The whole notion behind protecting yourself with precious metals is to have the product in hand if our currency melts down, so a certificate or promise to deliver is not the same thing. Also note that with premiums going through the roof for certain bullion products it has become popular to offer delayed delivery, which is code talk for you pay for everything now and wait until the dealer is good and ready to deliver. In the old days many dealers went broke before delivering product to their customers. Millions were lost in the 1970’s over this sleight of hand, so the only wait permissible in my book is for the clearing of funds. If your first bullion choice is “sold out” consider a low premium substitute which is not backordered, and you will sleep better for the choice.

9. Rare coins are graded by a credible third party service to take the guesswork out of the price equation. Bullion coins should not be graded because they are all basically the same and the grading process is not necessary. In the early days of independent grading (1986) bullion coins and other modern issues were not accepted by PCGS. But with today’s pressure to produce profits the services began grading bullion coins for the extra revenue. The problem then arises when a small number of unethical dealers sell these graded bullion coins to uneducated investors for shameful prices. I recently saw a great example of this on television as two pitch men sell certified Mint State 70 2009 US Silver Eagles for the “discount” price of $75.00 and you had better hurry as they are going fast. In fact a very nice example of the 2009 Silver Eagle can be had at most coin shops in January for less than $20.00. The unsuspecting investor gives the graded bullion coin the same status as the graded rare coin and thus is robbed of his investment capital. The poor souls that were sold certified bullion coins on television, or by their friendly telemarketer, will face a Madoff type scandal and legit coin dealers will be expected to clean up the mess. This rule is golden: Avoid graded bullion coins unless you don’t like your money. 

10. Ask your dealer what specific plan he has in place to protect your private information. And don’t go for the old story about “we destroy everything”. That’s what they all say, and in my opinion fewer than 1 in 10 large dealers actually have a professional plan for shredding paperwork. We use Shred-It (Document Destruction - Paper Shredding - Shred-it) to destroy all unwanted notes and invoices. The unneeded paperwork is locked in Shred-It containers on each floor of the CNI Building, and once a month the contents of each station are destroyed with certification. Believe me if your dealer cannot describe in detail his specific plan your paperwork and important information is just being put out with the trash. 


Richard Schwary
Gold coins, silver bullion, gold bullion, silver coins and PCGS Certified Coins at www.golddealer.com | America's Coin Dealer
1-800-225-7531

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