Sponsored Content - Over the years, we have done our level best to share industry insights with you. Our hope in doing so is that you will better understand—and feel more comfortable in the process—of buying, storing, and selling precious metals, says Rich Checkan, president & COO, Asset Strategies International.
Two things Michael Checkan and Glen O. Kirsch hammered into me from my very first day were…
1. Taking excellent care of our clients is our most important job.
2. An educated client is the best client.
We have produced special reports identifying the most common mistakes and misconceptions of first-time gold buyers. We have authored numerous articles explaining general workings of the markets as well as anomalies as they occur. We have done the same in our presentations at virtual and in-person conferences. And we’ve written about how bad players in the precious metals industry prey on good and unsuspecting investors.
Today, I’d like to share some insights on how mints work. Hopefully, when I am done, you will better understand some of what you are seeing in the market today, and you will be better protected against predators who don’t have your best interests at heart.
Be sure to read the entire article. It will explain a lot, but it will also save you a lot.
Premiums and Premium Adjustments
Let’s start with premiums.
It can be frustrating to wait for a dip in the spot price of gold and silver only to see the cost of your coins or bars be higher than they were at a lower spot price.
The premium is the cost you pay for a coin or bar that is over and above the underlying value of the precious metal contained in that coin or bar. The premium has several components…the fabrication cost, producer, wholesaler, and retailer profit margins, shipping costs, insurance costs, hedging costs.
The fabrication cost is simply the cost of taking a raw ounce of a precious metal and making it into a bar or coin. The profit margins are fairly obvious. This is a for-profit business for all those involved…whether you make the bars and coins, sell them to retail dealers, or sell them to clients.
Luckily for investors, most profit margins are tiny.
Shipping costs are obvious as well. Part of the cost you pay for coins or bars are the cost to get them to you. Insurance costs are necessary to protect the bars and coins until they are in your hands, and hedging costs protect the dealers who hold inventory from fluctuating precious metals prices until the coins and bars can be sold.
Those are all pretty standard costs.
However, from time to time, you can see increases and decreases in premiums based upon investor demand. Right now is a splendid example. American Silver Eagles are currently selling at over a 70% premium! Normally, that premium is closer to 10% to 15%. Now is not normal.
The US Mint cannot make the coins fast enough. So, to protect dealers who might be exposed to volatile prices waiting for delivery from the US Mint, and in an attempt to dampen investor demand, premiums have gone hyperbolic.
This premium adjustment has been frustrating for investors, but it has been necessary for mints and wholesalers.
Usually, when these premium adjustments happen, all bar and coin products are not typically affected simultaneously. If the premium is astronomical on American Silver Eagles, you may be able to find reasonable premiums with other coins, bars, or rounds.
Your trusted dealer can help you with finding the most attractive premiums available from day to day. We do that every day for our clients.
Buyer Beware – Modern Issue Rarities
This is important!
Please pay attention to this warning and remember it if nothing else.
I mentioned earlier that premiums by most dealers are tiny. As a result, you need to take good care of many people, and you must do a large volume of business to make a decent living selling precious metals bullion.
However, some dealers take shortcuts.
Rather than sell you low-premium bullion to help you own more metal for as little money as possible, they “fabricate rarity” in order to charge you higher premiums.
Now, that would be fine if you were able to recoup those high premiums when you sold back. But you can’t. Here’s why…
Technically, the coins are rare. The dealers tend to work with private mints to make a small handful of coins or bars. Then, the dealers sell them as rarities citing the small mintage figures. You pay a high premium for the “rare” coins or bars.
Unfortunately, since there is no collector value or demand for these “fabricated rarities,” when you try to sell them back, all you will get paid is the melt value of the underlying precious metal.
Because there is no collector value, the vast majority of dealers who prey on unsuspecting investors in this way do not buy back their own material. I’ll say that again. They do not buy back their own material.
If they did buy back, they would expose the incredibly large margins they are charging on your buy side but not supporting on your sell side.
The best way to protect yourself? Before you buy anything, ask the dealer if they will buy back when you are ready to sell. If the answer is “No,” run away. Buy nothing from them. No ifs, ands, or buts. Do not buy from them.
Forewarned is forearmed.
One More to Watch Out For
Please…stay away from graded, first-strike, modern-issue bullion coins. This is a slightly different take on “fabricated rarities.”
In this case, the “fabricated rarity” is a bullion coin from a major sovereign mint. We see this quite a bit with American Silver Eagles.
Wholesalers take delivery of new Silver Eagles from the US Mint. Then they send them to a grading service (PCGS or NGC) to have them encased in plastic and designated First Strike and MS-70 grade.
Then, they charge you nearly $200 for a coin containing less than $20 in silver. Hint, you don’t get anywhere near that price when you sell it back.
I know in one particular case, the price tag of $180 was pitched as a “bargain” because a similar coin sold at auction for over $2,000.
While that statement was true, what the dealer did not share with the client is that they sent four of their representatives to the auction to bid the price up to the lofty hammer price.
So, while it is true that price was achieved at auction, it is incredibly deceptive. Your coin will never command such a lofty figure at auction.
Here, the best way to protect yourself is to stay away from such material. If you are a collector, and if you are willing to pay a premium (and eventually take a loss) for a coin because you admire it…by all means buy it.
But, if you are an investor looking to maximize your bullion holdings for as little premium as possible, stay far away from these coins.
As this current precious metals bull market picks up momentum, more dealers will enter the business motivated by greed. Hopefully, when they do, the tips shared here today will help you avoid costly mistakes.
Visit Asset Strategies International to learn more about investing in precious metals and other alternative asset classes.