Author Topic: Basic precious metals questions  (Read 516 times)

FinnishingEarly

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Basic precious metals questions
« on: June 01, 2021, 12:04:06 AM »
Hi,  Most of my savings is in low expense ratio index funds, but I was considering diversifying a little of the cash portion of my savings into precious metals.  However, that community seems less standardized than the ishares world that I’m used to.

Here are a few beginner questions as I survey that market:

1. Why is there such a large markup on coins over the raw metal?  Should I expect that markup to be durable if I later sold the coins?  Or is it generally better to avoid the coin mark up?

2.  Why are Kangaroos cheaper than buffalos?  Looking at apmex, 1 oz 0.9999 purity American buffalos are currently: $2075  While 1 oz 0.9999 purity Kangaroos are:  $2005.  The are both “reputable”, what accounts for this difference?
    1. https://www.apmex.com/product/223496/2021-1-oz-gold-buffalo-bu
    2. https://www.apmex.com/product/217664/2021-australia-1-oz-gold-kangaroo-bu

3. Is it common to take physical delivery?  Even if you trust the broker, the delivery process seems risky.  Is delivery discreet and secure?  Do people take additional steps to authenticate their purchase once received to verify that it is not counterfeit?

4. Does anyone have experience using fidelitrade as a metals broker:  https://www.fidelitrade.com/products-prices/gold-products/.   I think that this is the PM broker that fidelity investments (where I have my Roth) uses, which made me feel a bit more comfortable considering them (and they offer a vaulting service that I don’t think APMEX does).  What are the most popular brokers and why do people prefer them?

5. What’s the general (speculative) landscape of the metals supply say 20 years from now, assuming Earth’s population grows but per capita demand stays fixed?  Is solar power + AI going to give us low cost mining while the emerging space industry mines asteroids to send supply soaring or is it more likely that all of the easily accessible gold deposits get used up and supply goes down?  Maybe the intermediate case is presently accessible deposits get used up, but we unlock new ones in the northern latitudes due to climate change so the production rate basically treads water.

Thanks for your insights!

vand

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Re: Basic precious metals questions
« Reply #1 on: June 01, 2021, 04:38:31 AM »
It's the difference between physical and paper metal. Physical always commands a premium over spot because it doesn't come out of the ground in the form that you eventually buy it, and costs money to refine, process,store and deliver the coins.

There's no really good explanation for the slight difference in cost between coins from different mints, but generally people are willing to pay a slightly higher premium on coins that are well recognised (eg Eagles), and there's also the question of asthetics, eg Perth Mint Lunars have a very high quality finish.  Newer series generally cannot command high premiums. Also, "coins" (ie issued by an official government mint and given face value) command higher premiums than "rounds" (issued by private mints, and/or have no face value).


ChpBstrd

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Re: Basic precious metals questions
« Reply #2 on: June 01, 2021, 07:57:17 AM »
1. Why is there such a large markup on coins over the raw metal?  Should I expect that markup to be durable if I later sold the coins?  Or is it generally better to avoid the coin mark up?
Because people are willing to pay it. No, you will only get something close to the spot price. Yes, run for your life from these "collectibles".

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2.  Why are Kangaroos cheaper than buffalos?  Looking at apmex, 1 oz 0.9999 purity American buffalos are currently: $2075  While 1 oz 0.9999 purity Kangaroos are:  $2005.  The are both “reputable”, what accounts for this difference?
    1. https://www.apmex.com/product/223496/2021-1-oz-gold-buffalo-bu
    2. https://www.apmex.com/product/217664/2021-australia-1-oz-gold-kangaroo-bu
The difference is which format of collectible has the highest retail mark-up. It's a good business really. Buy 1oz of gold for today's spot price of $1908. Cast it into a collectible coin for maybe $10 per coin. Do marketing at $10 per coin. Sell to a goldbug for $2075.

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3. Is it common to take physical delivery?  Even if you trust the broker, the delivery process seems risky.  Is delivery discreet and secure?  Do people take additional steps to authenticate their purchase once received to verify that it is not counterfeit?
Not in the futures market it isn't, but deliveries still occur. Not sure - porch pirates are not part of my risk profile in index funds. You could weigh the coins or bars, but of course there's no guarantee somebody didn't put a couple sheets of lead and aluminum in the middle to get the weight right.

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4. Does anyone have experience using fidelitrade as a metals broker:  https://www.fidelitrade.com/products-prices/gold-products/.   I think that this is the PM broker that fidelity investments (where I have my Roth) uses, which made me feel a bit more comfortable considering them (and they offer a vaulting service that I don’t think APMEX does).  What are the most popular brokers and why do people prefer them?
Was it Warren Buffet or Benjamin Graham who advocated spending as little as possible on "financial helpers"? I can't remember, but if you can transport, insure, and pay rent on a vault for less than the 0.25% expense ratio of iShares Gold Trust (IAU), which can be bought through any broker, then that's where your fortune lies!
TL;DR: Just buy IAU instead of setting up a subscription with a metals broker.

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5. What’s the general (speculative) landscape of the metals supply say 20 years from now, assuming Earth’s population grows but per capita demand stays fixed?  Is solar power + AI going to give us low cost mining while the emerging space industry mines asteroids to send supply soaring or is it more likely that all of the easily accessible gold deposits get used up and supply goes down?  Maybe the intermediate case is presently accessible deposits get used up, but we unlock new ones in the northern latitudes due to climate change so the production rate basically treads water.

There will be more people mining PMs, production will go up, demand will go up, and the overall PM market will probably be larger than it was in 2021. More mercury will be dumped in the Amazon river, people in Africa will continue to be exploited or enslaved to mine gold, and there's no telling what any of this means for prices. I think we're a long way from mining asteroids; a period of political stability in any one of a number of African countries would yield more supply than an asteroid. The biggest game changer would be an improved refining technique, which could send the price plummeting.

I think the speculative outlook for the USD is much more interesting. By all signs, we're a decade into a Japanese-syle disinflationary trap, where central banks struggle to keep inflation above 2% and asset bubbles come and go as demographic graying slows monetary velocity. In such a world, gains from one's PM allocation will come from opportunistic rebalancing, not PM's going to the moon.   
« Last Edit: June 01, 2021, 08:02:43 AM by ChpBstrd »

celerystalks

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Re: Basic precious metals questions
« Reply #3 on: June 01, 2021, 10:13:40 AM »
Hi,  Most of my savings is in low expense ratio index funds, but I was considering diversifying a little of the cash portion of my savings into precious metals.  However, that community seems less standardized than the ishares world that I’m used to.

Here are a few beginner questions as I survey that market:

1. Why is there such a large markup on coins over the raw metal?  Should I expect that markup to be durable if I later sold the coins?  Or is it generally better to avoid the coin mark up?

 Spot price is derived from what wall street traders will pay today for a good delivery bar by the oz.  The market price for a coin or bar is related to this but will be different.  Generally speaking it there are fabrication, delivery, and merchant overhead costs involved in converting bullion to a coin which is sold and delivered to an individual.  And these will factor into the premium that most coins are sold to consumers at.  But at the end of the day, it all comes down to supply and demand. 

The difference between the buy and sell prices is the spread and it is how merchants make money, since most merchants will use derivatives to reduce or eliminated the speculative fluctuations in value of their holdings.

Quote
2.  Why are Kangaroos cheaper than buffalos?  Looking at apmex, 1 oz 0.9999 purity American buffalos are currently: $2075  While 1 oz 0.9999 purity Kangaroos are:  $2005.  The are both “reputable”, what accounts for this difference?
    1. https://www.apmex.com/product/223496/2021-1-oz-gold-buffalo-bu
    2. https://www.apmex.com/product/217664/2021-australia-1-oz-gold-kangaroo-bu


There is an additional premium for U.S. bullion.  People like them better.  Since they are easier to sell, there is more demand which causes the price to be slightly higher.   

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3. Is it common to take physical delivery?  Even if you trust the broker, the delivery process seems risky.  Is delivery discreet and secure?  Do people take additional steps to authenticate their purchase once received to verify that it is not counterfeit?

Most internet bullion dealers ship in nondescript packaging with obscure return names so it is not evident that PM is in the delivery.  Personally, I wouldn't ever allow the broker or seller to keep possession of the bullion that I buy.  As far as authentication, I usually give coins the ping test and I buy from reputable dealers. 

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4. Does anyone have experience using fidelitrade as a metals broker:  https://www.fidelitrade.com/products-prices/gold-products/.   I think that this is the PM broker that fidelity investments (where I have my Roth) uses, which made me feel a bit more comfortable considering them (and they offer a vaulting service that I don’t think APMEX does).  What are the most popular brokers and why do people prefer them?


Never heard of them. I mostly buy from apmex via eBay.  But there are a few other reputable dealers.

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5. What’s the general (speculative) landscape of the metals supply say 20 years from now, assuming Earth’s population grows but per capita demand stays fixed?  Is solar power + AI going to give us low cost mining while the emerging space industry mines asteroids to send supply soaring or is it more likely that all of the easily accessible gold deposits get used up and supply goes down?  Maybe the intermediate case is presently accessible deposits get used up, but we unlock new ones in the northern latitudes due to climate change so the production rate basically treads water.

Thanks for your insights!

PM provides another asset class. I have no idea what it will do next week, year, decade or in 20 years.  But by averaging in and out of gold I can be assured that it will provide another non-correlated asset to my portfolio which asset has a history of maintaining its purchasing power.  I would be surprised if we find any more large deposits of extractable gold.  It could happen.  But there are no frontiers left.  What will happen is that as the price/value of gold rises versus labor it becomes economical to extract from more expensive deposits, and as the price of gold drops so does mining activity.

joe189man

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Re: Basic precious metals questions
« Reply #4 on: June 01, 2021, 11:39:11 AM »
1. Why is there such a large markup on coins over the raw metal?  Should I expect that markup to be durable if I later sold the coins?  Or is it generally better to avoid the coin mark up?

Quote
5. What’s the general (speculative) landscape of the metals supply say 20 years from now, assuming Earth’s population grows but per capita demand stays fixed?  Is solar power + AI going to give us low cost mining while the emerging space industry mines asteroids to send supply soaring or is it more likely that all of the easily accessible gold deposits get used up and supply goes down?  Maybe the intermediate case is presently accessible deposits get used up, but we unlock new ones in the northern latitudes due to climate change so the production rate basically treads water.

There will be more people mining PMs, production will go up, demand will go up, and the overall PM market will probably be larger than it was in 2021. More mercury will be dumped in the Amazon river, people in Africa will continue to be exploited or enslaved to mine gold, and there's no telling what any of this means for prices. I think we're a long way from mining asteroids; a period of political stability in any one of a number of African countries would yield more supply than an asteroid. The biggest game changer would be an improved refining technique, which could send the price plummeting.

I think the speculative outlook for the USD is much more interesting. By all signs, we're a decade into a Japanese-syle disinflationary trap, where central banks struggle to keep inflation above 2% and asset bubbles come and go as demographic graying slows monetary velocity. In such a world, gains from one's PM allocation will come from opportunistic rebalancing, not PM's going to the moon.   

No major or mid tier mining company is enslaving people or actively dumping mercury or other harmful chemicals into water ways or aquifers. The technology to extract precious metals from ore is constantly improving but not at levels and recoveries you may think, mining companies have a vested interest to extract as much of the PM as possible to enhance economics of a mining project. I believe silver recoveries are at least ~85% and gold is 90%+ sometimes reaching the upper 90s. Usually once an ore body is discovered, a series of studies are completed to determine if it represents a viable project, looking at all faucets of design and cost. To do this a PM price is set based upon previous metal prices. The ore body is usually segmented into zones with varying concentrations of the target metal and depending on the set metal price some portions of the ore bodies are not include in the final project at start up because it costs more to mine and extract vs the recoverable metal present. There are analyses to fine tune production rates, recoverable PM, PM price, Construction cost, operational costs, all while meeting environmental permitting requirements. Many PM projects are just waiting for favorable metal prices to justify the project.

With respect to the 20 year outlook, who knows? PM prices go up in times of uncertainty, which is what we saw during the great recession and now. I can tell you the current pulse in the industry is towards extreme safety and environmental stewardship. Several high profile tailings dam failures over the last decade have worried institutional investors and insurance companies towards requiring more stringent and comprehensive designs.

https://www.icmm.com/en-gb/news/2020/gistm-new-global-benchmark

joe189man

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Re: Basic precious metals questions
« Reply #5 on: June 01, 2021, 11:49:14 AM »
Hi,  Most of my savings is in low expense ratio index funds, but I was considering diversifying a little of the cash portion of my savings into precious metals.  However, that community seems less standardized than the ishares world that I’m used to.

Here are a few beginner questions as I survey that market:

1. Why is there such a large markup on coins over the raw metal?  Should I expect that markup to be durable if I later sold the coins?  Or is it generally better to avoid the coin mark up?


Quote

5. What’s the general (speculative) landscape of the metals supply say 20 years from now, assuming Earth’s population grows but per capita demand stays fixed?  Is solar power + AI going to give us low cost mining while the emerging space industry mines asteroids to send supply soaring or is it more likely that all of the easily accessible gold deposits get used up and supply goes down?  Maybe the intermediate case is presently accessible deposits get used up, but we unlock new ones in the northern latitudes due to climate change so the production rate basically treads water.

Thanks for your insights!

PM provides another asset class. I have no idea what it will do next week, year, decade or in 20 years.  But by averaging in and out of gold I can be assured that it will provide another non-correlated asset to my portfolio which asset has a history of maintaining its purchasing power.  I would be surprised if we find any more large deposits of extractable gold.  It could happen.  But there are no frontiers left.  What will happen is that as the price/value of gold rises versus labor it becomes economical to extract from more expensive deposits, and as the price of gold drops so does mining activity.

To clarify question 5, new ore bodies are discovered all the time and current mining projects often, through continued exploration, expand the "mine-able" ore around the existing project. As time goes on however, i would hypothesize that ore bodies will get smaller and smaller, requiring ever higher PM prices to justify the cost to extract smaller amounts of PM from smaller/ lower concentration deposits.

As the price of gold goes up, ore bodies with lower concentrations of PM become economically viable. If PM prices drop too low, some mining projects stop production and go on stand-by until prices rise to make the project viable again.

v8rx7guy

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Re: Basic precious metals questions
« Reply #6 on: June 01, 2021, 02:22:34 PM »
Hi,  Most of my savings is in low expense ratio index funds, but I was considering diversifying a little of the cash portion of my savings into precious metals.  However, that community seems less standardized than the ishares world that I’m used to.

Here are a few beginner questions as I survey that market:

1. Why is there such a large markup on coins over the raw metal?  Should I expect that markup to be durable if I later sold the coins?  Or is it generally better to avoid the coin mark up?

2.  Why are Kangaroos cheaper than buffalos?  Looking at apmex, 1 oz 0.9999 purity American buffalos are currently: $2075  While 1 oz 0.9999 purity Kangaroos are:  $2005.  The are both “reputable”, what accounts for this difference?
    1. https://www.apmex.com/product/223496/2021-1-oz-gold-buffalo-bu
    2. https://www.apmex.com/product/217664/2021-australia-1-oz-gold-kangaroo-bu

3. Is it common to take physical delivery?  Even if you trust the broker, the delivery process seems risky.  Is delivery discreet and secure?  Do people take additional steps to authenticate their purchase once received to verify that it is not counterfeit?

4. Does anyone have experience using fidelitrade as a metals broker:  https://www.fidelitrade.com/products-prices/gold-products/.   I think that this is the PM broker that fidelity investments (where I have my Roth) uses, which made me feel a bit more comfortable considering them (and they offer a vaulting service that I don’t think APMEX does).  What are the most popular brokers and why do people prefer them?

5. What’s the general (speculative) landscape of the metals supply say 20 years from now, assuming Earth’s population grows but per capita demand stays fixed?  Is solar power + AI going to give us low cost mining while the emerging space industry mines asteroids to send supply soaring or is it more likely that all of the easily accessible gold deposits get used up and supply goes down?  Maybe the intermediate case is presently accessible deposits get used up, but we unlock new ones in the northern latitudes due to climate change so the production rate basically treads water.

Thanks for your insights!

Just as an FYI, all 1oz gold coins have 1oz of pure gold.  Does not matter if they are 0.999 (Buffalo, Maple Leaf, etc), 0.9375 (Gold Eagle, Krugerand, etc).  The lower purity ones just have adder metals to make them more durable (silver, copper) but still have 1oz total of pure gold.  So don't let the purity trick you into thinking you're getting more bang for you buck.

theolympians

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Re: Basic precious metals questions
« Reply #7 on: June 03, 2021, 01:01:06 PM »
I always like the idea of having a horde of gold, silver, platinum coins like Scrooge, but never pulled that trigger. I don't really understand "paper vs physical delivery". I take it physical delivery shows up at your house, while paper is held by a company.

If that is the case, paper to me seems the way to go. It is  easier to look at an online account and readily see your net worth. If you wan to sell it, it seems way easy to sell it that way. Of course, that is only how I think it would work, I haven't purchased any.

A note about physical metal. My father through the years bought silver and gold and whatever the f**k else coin he thought would be valuable. I would be looking at several dollars (at most) of face value and he would would explain how they were worth over 100s or whatever price. Toward the end of his "collecting" he bought some such gold coin for just shy of 3k. They company still charged him $15 for shipping. I looked online and a short search found the exact coin for $1500.

He was always exited about how much he had, but never had an answer as to how to get $$$ back. How do you sell the things? He sort of mumbled that he could take it to a coin store. WTF?

When he passed away who the f knows where all the coins went.

My point in this is to have a way to  get cash for what you have. Paper assets are that. They can be calculated in net worth objectively. Coins in a safe cannot.


celerystalks

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Re: Basic precious metals questions
« Reply #8 on: June 03, 2021, 01:16:38 PM »
I always like the idea of having a horde of gold, silver, platinum coins like Scrooge, but never pulled that trigger. I don't really understand "paper vs physical delivery". I take it physical delivery shows up at your house, while paper is held by a company.

If that is the case, paper to me seems the way to go. It is  easier to look at an online account and readily see your net worth. If you wan to sell it, it seems way easy to sell it that way. Of course, that is only how I think it would work, I haven't purchased any.

A note about physical metal. My father through the years bought silver and gold and whatever the f**k else coin he thought would be valuable. I would be looking at several dollars (at most) of face value and he would would explain how they were worth over 100s or whatever price. Toward the end of his "collecting" he bought some such gold coin for just shy of 3k. They company still charged him $15 for shipping. I looked online and a short search found the exact coin for $1500.

He was always exited about how much he had, but never had an answer as to how to get $$$ back. How do you sell the things? He sort of mumbled that he could take it to a coin store. WTF?

When he passed away who the f knows where all the coins went.

My point in this is to have a way to  get cash for what you have. Paper assets are that. They can be calculated in net worth objectively. Coins in a safe cannot.

You must have missed the whole bribe-the-border-guard in a SHTF/WRL scenario that we covered in the other thread on PMs.

v8rx7guy

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Re: Basic precious metals questions
« Reply #9 on: June 03, 2021, 01:59:53 PM »
I always like the idea of having a horde of gold, silver, platinum coins like Scrooge, but never pulled that trigger. I don't really understand "paper vs physical delivery". I take it physical delivery shows up at your house, while paper is held by a company.

If that is the case, paper to me seems the way to go. It is  easier to look at an online account and readily see your net worth. If you wan to sell it, it seems way easy to sell it that way. Of course, that is only how I think it would work, I haven't purchased any.

A note about physical metal. My father through the years bought silver and gold and whatever the f**k else coin he thought would be valuable. I would be looking at several dollars (at most) of face value and he would would explain how they were worth over 100s or whatever price. Toward the end of his "collecting" he bought some such gold coin for just shy of 3k. They company still charged him $15 for shipping. I looked online and a short search found the exact coin for $1500.

He was always exited about how much he had, but never had an answer as to how to get $$$ back. How do you sell the things? He sort of mumbled that he could take it to a coin store. WTF?

When he passed away who the f knows where all the coins went.

My point in this is to have a way to  get cash for what you have. Paper assets are that. They can be calculated in net worth objectively. Coins in a safe cannot.

Ok, but to be fair if it was a graded coin it could easily be worth 2X more than the exact raw coin that you found elsewhere for $1500.  Maybe it was a proof strike or had a privy mark that you don't know about and you were just comparing to a base coin.  Just because you don't understand collecting coins does not mean that your dad was an idiot for what he was doing.  It is incredibly safe easy to sell a coin to an online dealer like APMEX, KITCO, etc.  If you want to be a little more risky you can get tip top dollar on eBay.  As long as he wasn't buying ripoff plated coins from the back ads of magazines, I would seriously try to find that coin collection, it's probably worth quite a bit.
« Last Edit: June 03, 2021, 02:07:53 PM by v8rx7guy »