The 4 Key Things You Should Know When Buying Gold and Silver

When I first started my financial journey as a young man, I quickly realized how complex and diverse the financial markets are. After spending many years investing and managing real estate, obtaining government licenses in investments such as stocks, bonds, and commodities, and working for a major US forex (money) dealer learning the ropes in currency trading, I settled on gold and silver.

This may seem odd for someone coming from the mainstream investment sphere. Why did I settle on precious metals? Ultimately it was about counterparty risk. I saw lots of it in the general financial sector through my experiences working inside it, so I chose precious metals as my primary financial investment and savings plan moving forward. I invest in other things, but PMs still top the list for me.

I believe we are in an incredible time in this market to capitalize on what will be an incredible run in the metals. But more than that, gold and silver stabilize portfolios and contribute to higher long-term savings than investing in the financial markets themselves. In fact, I will soon write an article about how a 10% position in gold stabilizes financial portfolios and reduces much of the counterparty risk that may exist in your stocks, 401k, or popular real estate investments.

The 4 basics in metals investing that follow are a very effective strategy regardless of how long you have been buying gold and silver. It can be used by new investors as well as the pros.

Step 1: What is the Spot Price?

This one is a bit obvious but no less important. You can find different prices on gold and silver at various bullion dealers. Given that American Silver Eagles, for example, are the same no matter whom you buy them from, price tends to be the differentiating factor for many in making their first purchases. After all, we want to maximize our savings value and future returns as part of our financial strategy.

There are two main components to the price which we cover next. The easiest way to find the price is to simply Google it. Generally, the spot prices, or the base price you pay, for metals are very similar everywhere. That is because spot prices are determined on a national commodities exchange called the COMEX.

When I worked in a currency role, the Series 3 license I had passed for that job covered commodities and currencies together. The government regulates their trade using the same rules. So, we don’t have to worry much about large differences in spot price because it is easy to find, and no dealer wants to lose a sale by overcharging on the spot price. You can, for example, find the prices here at JM Bullion. In addition, JM Bullion has long-term charts on the precious metals you can use in your price research.

Step 2: What is the Premium?

The second part of the price is called the ‘premium’. This is the markup that your dealer will apply which essentially covers two main components. There is the wholesale premium, provided by the small group of large wholesalers that purchase the bullion from the industrial markets and pass their premium down the chain to the retail dealers you will purchase metals from. The second half of the premium is made up of the profit margin that the retail dealer will charge you.

Differences in premiums on the bullion coins and bars are where companies like JM Bullion make their name. Good dealers who provide quality service and lower prices will grow and expand because they are saving their customers money over their competitors while serving their customer’s needs.

Step 3: Diversification is Good

This is a potentially complex topic that will also be very personal to you, the bullion buyer and/or collector. The reason I mention both types of strategies is for the sheer diversity of options available. For example, buying a government-minted coin like the gold American Eagle generally come with slightly higher premiums than a gold round because they are an official issue and instantly recognized. However, not everyone will want to pay that additional premium over a typical silver round. The key to remember here is that value is often in the eye of the beholder.

Generic rounds, produced by private mints versus government ones, can be cheaper and provide you with a plethora of very interesting designs you cannot get anywhere else. For a large portion of my metals investing journey, I have been collecting various rounds for their beauty as well as personal significance. I once purchased a set of silver rounds that depicted the world’s most recognizable golfers just because it had an extra layer of ‘cool’ factor for me.

One can also diversify into previously minted government coins that are no longer in circulation. The first example I can think of this is ‘constitutional’ or ‘junk’ silver. Prior to 1964-5, most US coins had either 40% or 90% silver in them. Once silver became too expensive to use for base money, the government started substituting base metals such as nickel, zinc, and copper. Those old US coins retain the value of their silver content and are a type of collectible for many metals investors. Premiums on these coins are generally very competitive with the generic rounds from the private mints. So, you can get access to a bit of US monetary history without paying a lot for it.

The other type of collectible is an older, out-of-circulation coin that is valued for its rarity, quality, and beauty. These coins add an additional layer of ‘premium’ which collectors gladly pay to have access to them. Think of a collectible coin, aka numismatic, as a combination of precious metals and collector value. For more information on these coins, you can find my guide on how to invest in gold numismatic coins in this recent article. These coins take a bit more know-how to invest in, so I fully recommend you consider them after you have begun learning how the bullion market works.

Step 4: Know the Market/Establish Trust

If you are anything like me, trust is valuable to you when making any purchase. We want to know that the service and quality are up to our standards. And building a relationship over time with your dealer can provide you with some key benefits.

First, you can opt to be put on an alert list, where you get emails on deals that help you maximize the value of your investment. Second, while many gold and silver dealers exist, I find establishing a relationship with a preferred provider that has the diverse inventory of coins and bars that I want makes my life much simpler and easier!

You can hunt around for hours looking for the best price only to find a lack of inventory or poor service. Or maybe the service is great, but the premiums are too high. My recommendation is to find a dealer that combines the right combination of those attributes for you. After all, this is your investment. The more comfortable you are with your dealer, the better your overall precious metals investment journey will be.

Final Thoughts

I personally buy from JM Bullion because they are close to me in the Dallas area, I have always had great service from them, along with fast shipping times. And I have visited their offices and met with some of their management team. You should do your own research here, but I think you will find JM Bullion to be a great option for you. I certainly have.

Coin of the Week

For the coin of this week, I am going to recommend one of my all-time gold bar standbys. When I first started investing in gold, I found these particular bars to be an ideal combination of a world-renowned private mint and a solid price point to go along with instant recognizability with the market for that inevitable day I may want to sell one. I am referring to the Pamp Suisse bars, renowned for their very beautiful and distinctive design. I think you will be very happy with them.

Rob Kientz is a precious metals industry expert with over twenty years of investment experience in bond, stock, real estate, commodities, Forex, and precious metals markets.