December 17, 2017

Primer for Precious Metals (part one of two)

A reader and new friend recently asked me about precious metals. I don’t claim to be an expert in PM’s (precious metals). In fact, I have only recently begun to invest in them. However, I have been researching them for some time, mostly so that when I did purchase them, I made informed decisions. As I said, I am not an expert in PM’s or in the economy in general If I make any misstatements please let me know and I will correct them.
Why Invest in PM’s?

There are many reasons people invest in PM’s. One such reason is that precious metals have always had a value as currency. Many people use PM’s as a hedge against inflation. The value of gold is static. As an example; 100 years ago, an ounce of gold could buy a high quality suit. Today you could still get a high quality suit for that ounce of gold. The value of the gold remained the same. However, the value of the dollar is worth less today than it was 100 years ago.

Another reason some people invest in PM’s is that gold and silver coins are universal. Whether the coin is an American eagle, South African Krugerrand, Canadian Maple Leaf or another countries’ currency, an ounce of gold is an ounce of gold. If you have to go to another country, you could easily carry a small fortune in gold coins relatively unnoticed. The ounce of gold will have value, even if it is in another countries’ denomination, whereas the paper dollar might not.

Things to Consider

Ways to Invest In Precious Metals

There are ways to invest in gold; ETF (exchange traded funds), mining stocks, IRA, etc. The purpose of this article relates to ownership. If you buy gold take ownership of it. Don’t just get a certificate saying that you own it. I have read about companies that were selling gold certificates for gold that they did not have.
Online or in Person

Since you’re going to take possession of it, should you purchase it online or in person? This is a personal choice. I suggest you research the company you plan to purchase from. There is one reason to purchase in person and that is paying cash, if you can find a local dealer that will take it. The reason for this is the lack of paper trail.

President Franklin D. Roosevelt issued Executive Order 6102 forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States.” There are individuals who think that since it was done once, it could be done again. I don’t know if this is a rational concern or not, here are my thoughts;

We live in a different age. I can’t see many Americans today selling their gold at a debased rate of possibly 10-25% of the price they paid for it. I however would like to see them try to get it out of all those gangsters’ teeth! (haha)

For confiscation to be effective, they would have to count on Americans turning in the gold. The last time, many people sent their gold to other countries to protect it. It would be much easier to go after people’s 401k’s or other electronic investments. They could implement a tax on retirement funds and your investment company could send them the payment, all without your being able to do anything about it.
IRS Form 1099

There is a post on the Investing Blog that explains this better than I could. It says that “Starting after December 31, 2011, the 1099 will function as a tax form for ALL business to business transactions of over $600.”

Here is why this matters for precious metals:

“One industry was quick to turn against the new 1099 provision, the physical gold bullion dealers. And while they may have been very loud, and very “extreme” about the law and its effects, they did have a very good point: this law affects individuals as well.

You see, any and all transactions with a business are to be documented with a 1099-Misc form. Thus, if I were to walk into a coin shop after the law takes effect, it would be required of me to fill out a 1099-Misc and leave my tax identification number (my social security number) to sell the proprietor a single Krugerrand.

And while it is easy to defend the law on the basis that many companies and sole proprietors do have a “DBA” (Doing Business As) tax identification number, individuals are almost always dependent on their social security number.

To further drive the point: a number of states and municipalities require gold dealers and coin shops to copy the license of anyone selling gold or silver of a certain threshold value.

Consider, for just one moment, the possible dangers of giving someone your license (which has your address) and on a 1099 your social security number. Sounds like identity theft.”

After this change takes place, fractional gold coins or silver with a cost of less than $600 or silver might be your best option.
Spot Price

The spot price is the current price at which a commodity such as PM’s can be bought or sold at a specified time and place. You can expect to pay a bit over spot price, for handling fees, etc.

Primer for Precious Metals (part two of two)

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