When should You Buy Gold & Silver Bullion?

So you’re interested in buying gold or silver bullion. Well, buying bullion in the form of bars or ingots is one way to own gold or silver, but it’s not the most practical or enjoyable way. It may not be the most economical way, either.

Buying precious metals should not be regarded as an investment. An investment is when you loan a financial institution or company some money, expecting either a fixed rate of return, as from a Certificate of Deposit, for example, or in hope of large profits, as from buying a company’s stock and having the stock price increase substantially.

With commodities such as gold and silver, and other precious metals such as platinum and rhodium, you would convert cash to metal form to preserve your buying power. The prices of these commodities fluctuate daily based on a variety of predictable conditions, estimates of future commercial consumption of these metals, and unpredictable world events. Prices are published in the financial pages of most daily newspapers, and are also available on the internet.

So, it is possible to buy a quantity of your desired metal commodity and profit from an increase in its value, as determined in daily trading. It is also possible to lose value if the price goes down, similar to price movements of equities such as stocks and bonds.

The difference is that when you invest in a company by buying its stock, it has officers executing a business plan and a staff of managers, administrators and workers all doing their utmost to meet the demands and expectations of their customers, and provide their investors (you) with a substantial return on their investment.

When you deposit money at a financial institution, they loan or invest the money to make more money and pay you a part of the profit (interest).

With precious metals, you’re just exchanging your paper money for some other physical item perceived to have intrinsic (real) value by the world at large. Your gold or silver doesn’t do anything - it just sits there; and, depending on your financial circumstances, may tie up a significant amount of cash that you could either spend, or invest to make more money.

The best reason to own some precious metal is to protect your assets in case of unforeseen financial and/or economic turmoil. Potentially, maybe because of high inflation or an unanticipated catastrophic event, paper money or electronic transactions might be rejected by sellers, who may demand hard assets such as gold or silver in exchange for their goods and services.

Why? It is known that gold has been used both as a medium of exchange (money) and a means of preserving wealth in societies all over the world as far back as 6,000 years. The physical properties of gold, its scarcity, and its difficulty and expense to find, mine and refine, not to mention its beauty, make it a prized commodity in great demand the world over. These characteristics also apply, in varying degrees, to the other metals mentioned in this article.

Recent estimates put the total quantity of gold in the entire world at about 20 cubic yards, maybe the size of a small apartment building. Gold is one of the best, if not the best, conductors of electricity known. It cannot and will not oxidize or corrode. It can be easily alloyed with other metals to increase its durability while maintaining its desirable properties. It can be hammered into virtually transparent, paper-thin sheets. Some sushi bars in Japan even fold small, delicate sheets of gold into their fish rolls to be eaten by their well-heeled customers!

Hearing of the run-up in gold and silver prices back in 1979, and eager to be a part of the world of high finance, I once bought 3 one-hundred ounce bars of silver from a jewelry store. I held them for awhile and watched excitedly as the market price of silver, often called the “spot” price, rose steadily.

After a few weeks, I found a coin dealer who also bought quantities of precious metals. I sold him my silver bars and made a tidy profit. I was so proud of myself!

But a savvy co-worker educated me on a better way to own gold or silver. Coins, he said, not bars or ingots, are the way to go. I bought some coins and I was hooked.

The advantages of coins over bars and ingots are many. In addition to their utilitarian use as money, some coins are regarded as beautiful works of art which are sought after and bought, sold and traded world-wide.

Coins have a history, too. It’s fascinating to own a coin that may be a century or two old and wonder where it’s been and through whose hands it’s passed.

But the most important advantage of coins over bars or ingots is spendability. Let’s say, hypothetically, a few months after I bought my one-hundred ounce silver bars, inflation exploded and the price of silver went to $300 an ounce, and the price of a loaf of bread went from 59 cents to 30 dollars.

I couldn’t very well take my huge silver ingot, now worth $30,000, to the baker and expect him to make change. But I could easily take a couple of Type II Jefferson nickels, minted during World War II with 35% silver and now worth about $15 each (based on its silver content of about 1/20th of an ounce), to the baker and get my bread.

“Ahh”, you say, “that cannot and would not ever happen.” Well, it has happened, many times in many countries, even in the United States after the Civil War.

More recent examples are Hitler’s Third Reich, where inflation was so bad that, near the end, currency was printed only on one side to save time and ink, and factory workers were paid twice a day so they could rush the near-worthless cash to their wives at the factory gates so the ladies could run to stores and get food before prices went up and they didn’t have enough “money”.

A more recent example is Argentina in the late ‘70s and well into the ‘80s. Inflation was reported to run as high as 800 percent on an annualized basis. Banks offered interest on savings accounts at rates of over 100 percent, with virtually no one opening up new accounts. Israel in the 1980's also dealt with crushing inflation by issuing “new” shekels, printing new currency minus 3 zeroes, so that 1,000 old shekels became 1 new shekel.

World economic turmoil in the late 1970's and into the 1980's saw governments create what came to be known as “bullion” coins. Perhaps the most popular at the time was the South African Krugerrand, a one-ounce gold coin that could (and still can) be bought for the market price of gold plus a fee to cover production, shipping, etc. Hot on its heels came the Canadian Maple Leaf, the same type of coin. So if you wanted gold, but you didn’t want to support South Africa by buying a Krugerrand, you then had the choice of supporting our friends, the Canadians.

Several other countries issued similar gold coins, and later the coins came out in fractional denominations such as half-ounce, quarter-ounce and tenth-ounce. As with just about anything you buy, the smaller denominations may be more convenient, but will cost more on a per-ounce basis.

The United States eventually got around to issuing its own gold bullion coins, called American Eagles, and now there is a fairly wide selection of both gold and silver bullion coins from several countries. There are even some platinum bullion coins available.

Such coins are popular, so, during a fiscal/economic/monetary crisis, they would probably be accepted by sellers in place of paper money or electronic transactions. You can get them from reputable coin dealers in person or by mail. They may also be available through some jewelers.

Type II Jefferson nickels, mentioned earlier, are noteworthy. Also known as “wartime nickels” or “warnicks”, a roll of 40 of these coins, $2 in face value, contains over 2 ounces of silver. In uncirculated condition, the silver content of a roll is actually 2.25 ounces. In circulated condition, they are dark and ugly, therefore not desired for their appearance. They are easily distinguished from non-silver Jefferson nickels by their mint marks. The mint mark is a large “P”, “D”, or “S” above Monticello’s dome on the reverse of the coin.

These coins are plentiful. Around 850,000,000 were minted. They were produced from 1942 through 1945. They are easily obtainable through mail bid auctions held on a regular basis by various coin dealers. The beauty of these coins is that they are easily portable and their small denomination and small silver content make them ideal for small transactions in the event of a national or global monetary crisis. Further, since they are ugly, they are usually obtainable at, near, or even sometimes below the value of their silver content

There are plenty of other coins available as bullion. United States dimes, quarters and half-dollars dated 1964 or earlier are 90 percent silver. U. S. half-dollars dated 1965 through 1970 are 40 percent silver. Canadian dimes, quarters and half-dollars from 1920 through 1966 are 80 percent silver. In circulated condition, these coins are usually available at or slightly above the value of their silver content. They can be had from coin dealers but you may get a better deal buying locally from private individuals.

Bottom line: You want some gold or silver bullion? Buy it in the form of coins. When should you buy it? Before you need it. If you wait until you need it, you won’t be able to get it at a reasonable price.