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(5.00 out of 5) - How is the Price of Gold Today Determined (5.00 out of 5)
- How to Buy Gold Coins (5.00 out of 5)
- Still a Good Time to Invest in Gold? (5.00 out of 5)
- IRS Invades Privacy of American Investors (5.00 out of 5)
- Selling Price of Gold Coins (5.00 out of 5)
- India to Buy More Gold from IMF (5.00 out of 5)
- Is this Gold Bull Market Over? (5.00 out of 5)
- When to Buy $20 Liberties and $20 Saint Gaudens? (5.00 out of 5)
- Gold Price Gains and Losses over the Last 3 Months (5.00 out of 5)
Posts Tagged ‘bullion’
Is there a Current Floor to the Gold Price?
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Gold has been of value for over 5,000 years. Civilizations have risen and fallen, currencies have come and gone and yet gold still is coveted by people all around the world. Gold has never been worthless! It has always had some value to it; therefore it is different than most other asset classes. Stocks, bonds and paper currencies for example can all become worthless at some point.
But is there a floor under the price of gold? The simple answer is no. I am assuming that this question is pertaining to the government. Neither the U.S. Government, nor any other government has a floor price on gold. A floor price being the minimum a person or institution has to charge for it, or the lowest possible dollar amount it can fall to. Gold can free float as high or as low as the market’s action will allow. So the price is determined primarily by supply and demand. But there are technical tools that can help us understand the price action of gold.
This leads me to believe the question is this: what is the current support level on the price of gold? Most assets trade between support on the bottom and resistance on the top. These two figures are determined by previous market action. When an asset breaks a resistance level, that figure then becomes the new support level. The current support level on gold is $1,017 which was the last resistance level. The resistance level at the top is $1,218. Gold has not tested that level since it was set in December of 2009. In addition, recently gold has had difficulty breaking $1,045 on the bottom (the price at which India bought 200 metric tonnes from the IMF) and the $1,120 mark on the top. So I am calling $1,045 to $1,120 a smaller trading range within the technical trading range.
Should gold go below $1,045, look for it to test the $1,017 level. If gold breaks the $1,120 level on the top look for it to test the $1,218 mark. If gold should break the $1,218 level that would then be the new support level with the new resistance level being unknown because it has never been higher. If gold should break the $1,017 support level that would then become the new resistance level and the next support level would be around $1,000.
Technical language can be confusing, so if I have done so I apologize. In the simplest form, the current support level is $1,017 and the current resistance level is $1,218.
Gold, Long-Term Hold
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When investing in gold you will often hear it called a long-term investment. What exactly does long-term mean? You will typically hear precious metals companies refer to a long-term hold as a period from 3-5 years up to 10 years or possibly more. Where did this come from? It was illegal in the U.S. to own gold from 1933 to 1974, and prior to that gold was pegged to the dollar for 100’s of years. So owning gold bullion as an investment is a fairly new thing. Its track record is currently at 36 years. When compared to other investments that is a fairly short time frame.
If you are reading this blog for the first time then we must pause and differentiate between the two types of gold you can own, bullion and numismatic gold. These two types of gold have different strategies for ownership behind them and different spreads (see previous blog post). These factors will determine length of hold. For more on the different types you can read bullion and rare gold coins.
My thoughts on long-term hold and where it came from is this. When the dollar was removed from the gold standard in 1970 the price action was allowed to free float. The price of gold rose from $35 per ounce to $850 per ounce in January of 1980. That was a fast and significant rise in the value. From there gold fell to its low of $252 per ounce in 1999, with ups and downs all along the way. That was a fairly slow and significant fall. Because gold as an investment is a fairly new opportunity companies want to disclose to their clients that it may take a while to grow your gold’s value. Gold’s recent climb from $252 per ounce in 1999 to $1,115 where it stands today has been a fairly steady rising pace. So if you bought bullion in 1999 you would have realized over a 340% gain.
There are times when it has taken a few years to see your gold grow and there have been times when it would have taken many years to see your gold grow. This is why everyone needs to DIVERSIFY their portfolios.
When comparing the two different types of gold, bullion and numismatics, these tend to perform differently. If you look at a PCGS chart you can clearly see that over the past 40 years numismatics have outperformed gold bullion. This is due to a few factors that make it unique, but mainly it is rarity. Because the cost of doing business is higher, it will take you longer to make up the difference, which is another factor in “long-term.” It should be noted that bullion and numismatics do not move in lock step with each other. In fact from 1987 to 1989, bullion lost roughly 10% of its value while numismatic coins according to PCGS went up over 600%.
The net of this is that sometimes it can take a short period of time to cover your costs of doing business, and other times it can take years. That is why it is noted by companies to think long-term when it comes to gold ownership, because no body really knows. In addition, many people choose gold to protect against a collapsing dollar, and in that case it could be a very long hold.
What does it Cost to buy Gold
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Buying gold coins should be a process of discovery; for you and for you representative. You will begin to discover the ins and outs of owning gold in your portfolio and what it can do for you. On the other side your broker should discover what your goals and objectives are. Items like: are you more concerned with asset protection or growth, are you long-term or short-term, what are your concerns about the future, how much of your overall portfolio do you want in gold, as well as other questions that may arise.
These questions will help you both narrow down to the right type of gold and or silver that is right for you. Once you have a strategy in place it is easy to begin to acquire the appropriate precious metals for you. This can take place in one lump some or your strategy could include a plan to acquire pieces over time.
There are various costs of doing business in each category of gold and silver. Bullion gold or silver, meaning loose coins and bars of a more recent issue, typically can range anywhere between 2-10% on average throughout the industry. This is what is known as the spread. The spread is the difference between retail and wholesale. Typically you will buy at retail and sell at wholesale. Common dated numismatic gold coins with typically rage anywhere between 15-25% and better dated or rare gold coins will typically range between 25-35%. These are averages; some can be higher or lower depending on the company. Make sure to choose a company that discloses their spread verbally and in writing and that it is clear exactly what their spread is (not a range).
Do not be afraid of high spreads! You want to use the right tool for the right job. That might mean owning rare gold coins which fetch a higher premium. This type of gold has outperformed gold bullion in the mint state rare category (according to PCGS) close to 4-1 over the past 40 years, and has some other very important benefits that other types of gold do not have. This type is a typically a longer term hold. For these reasons it is important to understand your options and your goals, in order to apply the right tool for the right job.
Cost of Gold
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The cost of gold is rising, and has been for the last 10 years consistently. This action confirms the current gold bull market (see the previous blog for 10 year spot chart). For individual buyers the cost of gold differentiates depending on what type of gold you buy. Whether you buy gold bullion coins or bars, or rare gold coins, these prices will vary greatly.
Currently the spot price of gold is at $1,175 per ounce. According to many experts this is a great value, because they believe gold will hit $2,000 per ounce this year. The spot price of gold is an indicator value, like crude oil is to gasoline, spot gold is to physical gold. Therefore the cost you pay for physical gold will be the spot price plus a premium. Typically the premium will be anywhere from $50 to $150 above the spot price.
Gold bullion coins cost more than gold bullion bars, due to manufacturing costs. Coins are struck multiple times and treated with more care than gold bars. Therefore if you are looking for the cheapest costing gold you should buy gold bars.
Rare gold coins cost more than bullion coins and bars. This type of gold can range in price from a few hundred dollars more than a bullion coin to seven figures. This is due to the rarity and quality of a particular coin. The more common and the lower the grade of a coin the lower the cost, the higher the grade and the rarer the coin, the higher the cost. This type of gold has benefits that extend beyond what bullion can provide. While rare gold coins have these added benefits they still have the intrinsic value of the gold itself, and history has shown that the value of gold has never been zero.
Figure out your goals and objectives, and then acquire the right type of gold to support those goals. The cost will vary, but this should not matter. It is more important to acquire the right type for you then to buy the cheapest gold.
What to Buy, Gold Coins or Gold Bars
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A very common question is always what form of gold should I buy. Before you can answer this question you must understand the different types of gold you can own (click on bullion in the next sentance and rare gold coins in the last paragraph to read about them first). You can buy gold bullion or you can buy rare gold coins. If you are convinced that bullion is the way to go then, in my opinion, you should buy the cheapest possible option available. That can change depending on supply and demand.
Bullion coins come in many possible options. They vary in country of origin and in size. Depending on market conditions one particular coin can be more readily available than another. For example, there have been times recently that American Eagles were very sought after and commanded a higher price than the Canadian Maple Leaf. Both represent one full ounce of gold, but because of supply and demand issues one cost more than the other.
Coins typically cost more to produce than bars. Therefore a bar of gold is typically cheaper to purchase than a coin of the same number of ounces. In addition, if you purchase a large number of ounces at a time (typically 50 or more) you get a price break. This works for coins or bars. If you are looking for the absolute cheapest way to own gold, then bars in larger ounce sizes are for you. If you are looking for something to barter with in the event of a dollar collapse, then coins of the smallest sizes are for you. If you are looking for beauty in addition to owning gold, then proof one ounce coins are for you.
This brings us to rare gold coins. Many rare gold coin owners acquire U.S. rare gold coins minted prior to 1933. They are minted in identical ounce sizes as American Eagles; however these coins offer many advantages above and beyond their bullion content. Advantages like privacy, exclusion from previous gold confiscations and performance over bullion gold make this form of gold the best way to own gold in many peoples’ eyes. If you are looking for beauty, privacy, historical significance and long-term performance, then this type of gold is for you. They are more expensive than gold bullion due to their performance over history, and depending on how rare a particular coin is, it can be worth millions. When buying this type of gold coin, you are buying more than just the gold content.
India to Buy More Gold from IMF
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As reported by Bloomberg.com, India bought 200 metric tons of gold valued at $6.7 billion from the International Monetary Fund on November 3rd, 2009. That gold purchase cleared out just under half of what the IMF was offering for sale; consequently the IMF is still offering another 203 metric tons for sale. India proclaimed that the purchase was due to their fear of a collapsing dollar and their desire to hedge their foreign currency reserves.
The first purchase by India at $1,045 per ounce occurred over a two week period and made an impact on the value of gold which rose to over $1,190 per ounce just before the Thanksgiving holiday. Since the first purchase India has realized an $800 million profit. What is most significant is that India is currently in negotiations on the other half that the IMF is offering. A second purchase could push gold prices much higher in the near future.
This recent purchase by India highlights the recent shift of foreign central banks from net sellers of gold to net buyers of gold, which will likely continue. The average country has 10% of their foreign reserves in gold, China only has 2%. If China were to purchase the other half it is speculated by David Rosenberg, chief economist and strategist with Gluskin Sheff & Associates Inc, that gold would rise to $1,300 per ounce.
It is likely that we will hear very soon as to which country will purchase the second half of the gold offered by the IMF and when we do watch for new record gold prices to be set.
Can I Profit from Owning Gold Coins?
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It is first important to distinguish between bullion and rare gold coins, which you can read more about in this blog or click on the rare gold coins link. Owning gold coins for long-term appreciation has proved to be lucrative in the past. It fact PCGS, one of the top two grading companies in the world has documented rare gold coin performance since 1970. They claim in their mint state rare gold coin chart (which is an index of coins) that since 1970 a $1,000 initial investment would be worth roughly $115,000 today. When comparing this chart to the DJIA (Dow), mint state rare gold coins have outperformed the Dow close to 11 to 1. You can do this calculation yourself to check out this comparison.
Rare gold coins have been accumulated by investors and collectors alike for many centuries and some collections have been documented as performing very well. Check out these examples:
1. Harold Bareford reportedly bought a collection of American gold coins for $13,832 in the early 1950s which was resold at auction in 1978 for $1.2 million.
2. Louis Eliasberg, built a collection that cost approximately $300,000. In 1982, it sold for $12.4 million at auction.
You can see that rare gold coins have performed well in the past, and it should be noted that past performance is no guarantee of future performance. We are currently experiencing a bull market for gold. Gold has gone from $252.85 in August of 1999 to $1,113.20 where it is now, at the time of this writing. That is a 340% increase in ten years. Gold bull markets make all gold boats float higher, and as a result we have seen rare gold coins perform very well and I fully expect them to go even higher as we enter the final or third phase of the gold bull market.
The third phase is the speculative or panic phase. This is where everyone wants in and everyone is putting their money into the asset driving prices above its fundamental value and usually very rapidly. We have not seen this third phase yet in gold and I believe it is still a few years out before we will.
Selling Price of Gold Coins
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People always want to know what the prices of gold coins are. First you have to determine if you are buying bullion gold coins or numismatic also known as rare gold coins. These two types will vary in price dramatically.
Bullion gold coins are based on the spot price of gold plus a premium. The spot price of gold is the cash price for immediate delivery, usually on 100 troy ounce contracts. Gold coins will usually be priced higher than gold bars of the same ounce size because they are more costly to produce. Individual buyers of gold bullion coins almost never buy them at the spot price. If you did you would be buying them under the wholesale value. Therefore one can expect to pay the spot price plus a premium depending on the broker/dealer you are working with. Typically the premium will be 10-12% above the spot price on gold bullion coins. In addition, depending on supply and demand factors some gold bullion coins may be priced higher than others. For example, 1oz American Eagle coins and the time of this writing are more sought after than the 1oz Canadian Maple Leaf, therefore one can expect to pay a few dollars more for the American Eagle.
Rare gold coins on the other hand are much harder to price due to quality and rarity factors involved. Rare gold coins are graded on a scale from 1-70, 70 being perfect condition. Typically the lower a coin is on the grading scale the closer it will be to the spot price and vice versa, the higher a coin is on the grading scale the further away it will be from the spot price. Rare gold coins also vary in rarity. Some coins are very rare and some are fairly common and thus easier to come by. The rarer a particular coin the more expensive it will be. Therefore prices on rare gold coins can range from close to the spot price all the way up into the seven figure range. Both types of gold coins will do different things for your portfolio. This is why it is important to work with a company that you trust that will help you to determine the best gold coins to meet your goals and objectives.
Storing Gold Coins
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Storing gold bullion and rare gold coins after you purchase them is the next very important step to securing your wealth over the long-term. You want them to be safe and secure without degrading in value over time. There are a few options to you depending on what you feel most comfortable with.
Storing gold bullion whether it be in coin form or bars and ingots is slightly trickier than storing rare gold coins. Gold bullion is considered to be a monetary metal; therefore the government frowns upon you holding it in a bank safe deposit box. It is considered to be hoarding like cash. Therefore with gold bullion one must keep it in a home safe, whether it be a gun safe, fire proof safe or a floor safe. Some people choose to hide them around their home or bury them in their yard. Others keep them in a private safe deposit box that is run by a business vault (not a bank). If hiding them in your home you will need to find a safe place that no one will be able to stumble upon them.
Rare gold coins can be kept in a bank safe deposit box; therefore many individuals choose this option. However, many are scared to do that since bank failures are at an all-time high, and the red tape can mire your ability to get to your coins should your bank fail. In the case that bank failures scare you, you would then have the same options that you have with gold bullion for storage. The beautiful part about acquiring rare gold coins is that if they are graded then they are sealed in a sonically sealed transparent plastic container which protects the coin from any degradation over time. The transparency of the plastic allows you to be able to see the coin and enjoy them while they are protected.
What are the Best Gold Coins to Buy?
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If you have been doing research you probably know by now that there are a couple of different ways you can acquire physical gold. Now you are trying to determine which type to buy. This decision should depend on what you are trying to accomplish with the gold. So what are your goals? This should be the question you ask yourself. Only then can you approach the gold market for an answer.
There are two types of gold that you can acquire which will do different things for your portfolio. Bullion gold is used purely for speculation and as a hedge against inflation. 1 ounce of gold 100 years ago could buy roughly as many loaves of bread as 1 ounce of gold today. Therefore over the long-term gold keeps up with inflation. With gold now in the second phase of the bull market you can also speculate purely on the price of gold hoping that it will enter that third and final phase and explode in value.
You can also acquire rare gold coins, which by many standards is considered the best way to own gold. Rare gold coins from the U.S. were minted between 1795 and 1933. They are non-reportable, so the transactions are private and confidential. They are also considered to be non-confiscateable. Bullion has been confiscated in the past while numismatic or rare gold coins have been excluded. History has also shown that rare coins have outperformed bullion significantly in the past. This can be best measured over the last 38 years on PCGS’s index for mint state rare gold coins.
In my opinion the best gold coins to buy are $20 Liberties and $20 Saint Gaudens minted between 1877 and 1933. These coins are highly liquid and affordable to most portfolios and can add great privacy and protection for your assets. Liberties and Saints are easy to track and have a market in which coins are traded every day. These coins can be bought in very common dates like 1904 and 1924, or they can be bought in very rare dates like 1861 and 1933. Acquiring these coins in my opinion should be done between the grades of mint state 62 and mint state 66 as these are the most sought after, thus increasing the demand.
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