The purpose of these tips is to help educate potential buyers of Precious Metals and to demystify some common perceptions that are prevalent among newcomers. I've purposely kept this simple and it is not intended to be comprehensive. Further education is encouraged and there are many resources online from which to build your base of knowledge.
- Are you ready to assume market risk?
Prices rise and fall continuously. If you are spending a considerable amount of money, you must be prepared to take a loss or to hold as long as necessary.
- Buying Coins vs. Bars and Rounds
It boils down to personal choice. Commonly traded bullion coins such as Gold and Silver Eagles, Canadian Maple Leafs, and many others are excellent choices. When buying bars and rounds it's important to know a little bit about the maker. Sunshine Minting, Credit Suisse, Johnson Matthey, and Perth are examples of well known and reputable producers. There are other reputable manufacturers.
- How do I determine a fair price?
The best way is to shop and compare. Perform numerous searches before pulling the trigger. Make sure you are comparing apples to apples because there are often subtle differences that can translate into a big difference is price. Be skeptical of any prices that are too good to be true! It is important to realize that there are costs involved in producing and distributing bullion. You can NOT buy named brand products from reputable sellers at the "spot" price. Typically consumer prices range from 5% to 15% over the "melt" price of an item, but there are exceptions. Small purchases are generally more costly than buying in volume. Finally, watch out for steep shipping charges.
- What is the difference between "spot" and "melt"?
The "spot" price is the price at any given moment that precious metals are trading at on U.S. and world markets, quoted per troy ounce. The "melt" price of an item is the value of that item based on its metals content and spot. For example, if silver spot is $33 a ten ounce .999 silver bar would have a melt price of $330. A half ounce silver round would be $16.50. The "premium" is the amount being charged over melt for an item.
- What is "fineness"?
Bullion is typically described in fineness, not karats. Fineness is the percentage of precious metal in an item. For example, sterling silver is 92.5% pure or .925. 14K gold is 58.3% fine or .583. Most but not all bullion products are either .999. .9999, or even .99999 fine. Once you get past 99.9% does it really matter? It does to some.
- Troy Ounces vs. Grams
As stated in #4, the "troy ounce" is the standard unit of measurement for precious metals. However, "grams" are also often used and it's as simple as knowing that 31.1 grams = 1 troy ounce.
- What is "Transparent Pricing"?
The answer to this is vague at best. To demonstrate go to Wikipedia and read up. Ok, done? Confused? So was I. Sellers of precious metals typically update using "live feeds". However, this is no more transparent than manual updating unless one were to know: a) the mathematical factors being used that work in conjunction with the feed prices to calculate prices that are always subject to change b) the exact quantities the seller has if prices change according to inventory levels c) the source of the feed d) complete disclosure of any hidden fees including but not limited to sales commissions. Because of this, my simple definition of transparent pricing is knowing what you will pay at any point in time based on a posted price, that short of some type of error, will be honored. Simple.
- Is eBay a safe place to buy bullion?
The short answer is yes as the eBay platform provides some levels of protection not found elsewhere. This should NOT be interpreted as a green light to buy anything from any seller and feel warm and cozy. Do your research! Most important, anyone can create an appearance. Do not buy based on appearance and claims only, check credentials and verify.
- How do I sell when the time is right?
In a word, shop, just as when you buy. Dealers will quote buy/sell prices on the products they stock and sometimes on products they do not stock. As an example, if spot gold is $1700 a dealer might quote a buy price of $1710 and a sell price of $1800 for a named brand one ounce gold bar. The difference between the buy and sell price, in this case $90, is known as the "spread". If there isn't much competition where you live, don't be afraid to deal with an out of state business. Most precious metals transactions are done this way. Again, check credentials.
- Who should I buy from?
Obviously this is a personal choice. However, most would consider it prudent to buy from an established seller with a strong and visible track record. Accessibility matters, but you may want to be wary of a company that immediately assigns you an account manager that calls you to make solicitations. Someone has to pay for that, and it could be you.
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