Storing Bullion Internationally

INTRODUCTION

“Tis the part of the wise man to keep himself today for tomorrow, and not venture all his eggs in one basket.”

Many investors internationally will wish that they had paid attention to the wise old proverb used by Cervantes in Don Quixote in 1605.

The fundamental tenet of investment theory and of wealth growth and preservation is diversification. In layman's terms one should not have all the proverbial eggs in the one basket. This concept is crucial both in terms of an entire investment portfolio but also in terms of the precious metals component of a properly diversified portfolio.

Unfortunately, in recent years the majority of investors were not diversified – with most being very overweight equities and property. Now due to the asset price deflation of recent months, many are overweight cash and bonds. Very few have any allocation to gold whatsoever.

This is not a prudent strategy especially as in the coming years we are likely to see sovereign and systemic risk remaining elevated, and significant inflation and stagflation.

TAKING POSSESSION OF BULLION AND STORING BULLION INTERNATIONALLY

Diversification of assets and diversification amongst assets is important. Thus, it is also important that the precious metals (gold, silver, platinum or palladium) component of a portfolio is diversified.

This means that bullion owners should not allow themselves to be dependent on any one investment provider or institution. This is why a combination of precious metal certificates, gold or silver bullion coins and bars and semi numismatics in your possession and storage of bullion internationally with a secure and specialist third party should all be considered.

Companies, insurance companies, trusts, banks and nations can and do go bankrupt. The great advantage of gold bullion is that it has no third party risk. Gold and precious metals cannot go bust. Thus, when owning physical bullion one of the most important things to consider is where to store your bullion and what are the legal conditions under which it is stored.

Many would rather have their bullion closer to home. This may suit those with smaller amounts of bullion or for those 'who hope for the best but are prepared for the worst'. It is prudent to be at least partially prepared for a meltdown scenario of a currency collapse and hyperinflation by owning real money, gold and silver, that will help preserve wealth. It is important to have at least some bullion in one's possession – in a residence or office. Only do so if you feel it is secure there and make sure you have insurance (home or office insurance) that covers the bullion and other contents.

Some fear that in the event of a systemic crisis then there could be enforced bank closures or extended bank holidays. In this scenario, deposit boxes in banks and financial institutions could be sealed and the bullion confiscated. Under the Gold Confiscation Act of 1933 at the height of the Great Depression, Roosevelt ordered all gold be handed to the authorities at $20.67/oz (prior to revaluing gold from $20.67/oz to $35/oz). It is possible that in the event of such a crisis many pool accounts, digital gold providers and depositories in the UK and the US might have their gold confiscated and might have their assets nationalized.

In the light of these risks, one should take possession of some of your bullion. But for security reasons, generally larger amounts would be safer stored with a secure third party.

What type of facility or institution should it be stored with and should it be stored locally, nationally or internationally? The short answer is to store your bullion with the safest and securest facilities or institutions locally, nationally and internationally and to be sure that you are outright legal owner of the gold. Also be sure that the storage company or investment provider can and will ensure delivery of your bullion in a format that you require should you need it, to the destination of your choosing and in a timely manner.

US AND GLOBAL SYSTEMIC AND SYSTEMATIC RISK

Investors buy bullion primarily to insure and hedge against macroeconomic, geopolitical and particularly systemic risk. Systemic risk includes the collapse of a financial system as a result of events such as a general stock market crash, fiat currency crash and or a breakdown of our modern day fractional reserve and derivative laden banking system. Any of these would have serious ramifications and could lead to deflation, stagflation or hyperinflation in various jurisdictions and the collapse of the current global monetary and financial system.

It is important to remember that the modern global financial and monetary system is only a few decades old. As seen in recent months, it is by no means stable and the coming months and years may test it as never before.

Systematic risk describes risks which the global economy faces such as business cycles, pandemics, peak oil, extreme natural phenomenon (such as earthquakes, floods, tsunamis and hurricanes), climate change and geopolitical risk such as terrorism and wars, including cyber warfare.

Today in our globalised and massively interconnected financial world, a systemic or systematic financial crisis could result in a chain reaction involving waves of individual and corporate bankruptcies and large financial institutions and even sovereign governments would be at risk. In this environment, all the conventional investments – paper assets such as stocks and bonds, derivatives such as exchange traded funds (including the precious metal ETFs) and property – would likely be seriously affected, may become illiquid and fall very sharply in value.

This is not alarmist doom and gloom mongering. Many societies have experienced brutal economic conditions such as the hyperinflation in Germany in the early 1920’s, the Great Depression in the US in the 1930’s and the stagflation of the 1970's. In recent years, people in Italy, Israel, Thailand, Yugoslavia, Belarus, Russia, Peru, Ecuador, Angola, Mexico, Argentina and more recently in Zimbabwe (too name a few) have experienced currency crisis and hyperinflation.

These systemic and systematic financial and economic risks create political risks. Increasing diminution of civil rights in even the most liberal western countries must give pause for thought. These authoritarian trends generally become more pronounced in times of recession or depression. Historically protectionism, trade frictions, capital controls, gold confiscation, currency devaluation, extended “bank holidays” or bank closures (when safety deposit boxes and cash deposits cannot be accessed), nationalization, nationalism, radicalism, communism, fascism and militarism can result.

These factors mean that having one's bullion outside of the financial system is important, if not imperative. This can be either through personal possession or storage with a secure third party who can deliver the bullion upon demand.

However, these factors also mean that besides having one's bullion outside of the financial system it may be prudent to have some of one's bullion outside of the jurisdiction in which one is domiciled or is a citizen. This lessens geographic risk. For these reasons it is important that investors consider 'internationalising their bullion' to safe haven jurisdictions.

SAFETY DEPOSIT BOXES VERSUS DEPOSITORIES

Safety deposit boxes in banks and specialist depositories can be used but allocated accounts in specialist depositories are less risky and superior.

A safe deposit box or safety deposit box is a type of safe usually located in groups inside a bank vault, in a secure room of a bank or post office or in a specialist depository. It usually holds important and valuable possessions such as important documents (wills, property deeds), family heirlooms, cash and or precious metals that a person might be reluctant to leave at home due to fear of tampering, fire, flood and theft.

In recent months, safety deposit boxes have been targeted by authorities in some countries. In the UK, authorities said that one private deposit box company was facilitating money laundering and police raided the company and the 7,000 individual safety deposit boxes confiscating assets with an estimated value of £2.5 billion. In the U.S., family heirlooms, cash and bullion held in safety deposit boxes have been raided, appropriated and sold off at auction. Some state governments claim the contents are “unclaimed property” (a safety deposit box is considered “abandoned” after just 3 years) in order to raise funds for government states in grave financial difficulty.

Safety deposit boxes in financial institutions that are close to insolvent or may become insolvent are high risk, as are safety deposit boxes in states or countries that are close to bankruptcy. Especially as the contents of safety deposit boxes are normally not insured.

A depository on the other hand, is a place where valuable objects are kept or deposited for safekeeping or storage, e.g. a high security warehouse or vault for important documents, precious works of art, valuables, heirlooms, cash and bullion. Depositories are normally private companies that are not owned by banks and thus less exposed to economic cycles or to a collapse of the financial system. They are independently insured. They make no claim over assets stored and their sole purpose is to provide the safest environment for valuable possessions. Storage is not a secondary function as it is in a bank, rather it is a primary defining function and one which is carried out to the highest standards with far less risk.

A BETTER WAY TO STORE BULLION

Ultimately, the need to reduce counter party risk and intermediation means that many investors internationally are now requiring proximity (nearness in place and time) to their bullion. This need for the closest proximity to gold, silver, platinum, palladium and or rhodium coins and bars means that many take personal physical possession of at least some of their precious metals. Due to the many of the reasons outlined in this article many also choose to store their bullion in secure vaults internationally.

Safety, security and confidentiality are of paramount importance when entrusted with the storage of precious metals. There are many specialist depositories internationally which facilitate investors but the vaults of one of Europe's largest and oldest armoured transport and storage companies are a favourite in this regard. They have secure storage vaults in all major financial centers including in the tax free zone in Zurich airport in safe haven Switzerland.

Importantly, precious metals remain the property of the investor. This eliminates counter party and intermediation risk posed by business failure and company insolvency.

PERSONAL ALLOCATED STORAGE WITH BAILMENT

Owning bullion in this way gives you the soundest protection from company insolvency – bullion dealers, digital gold dealers, ETF trustees, banks etc). When companies fail, liquidators are appointed and take control of the company's assets, sell them and arrange a fair distribution of the assets to creditors of various classes including themselves. Liquidators generally claim ownership of every asset on a failed company's balance sheet, including bullion. However they cannot lawfully treat bailments as the property of the company available for creditors' benefit.

Bailment is the legal action of a client entrusting their bullion to another party for safekeeping. Bailment describes a legal relationship in common law where physical possession of personal property such as bullion is transferred from one person or entity (the 'bailor' or client) to another person or entity (the 'bailee' or company) who subsequently holds possession of the bullion.

Through bailment, an individual gives up possession of their bullion but remains the outright legal owner of their bullion, with the investment provider acting simply as a custodian. Over the centuries there has been much less case law and legal conflict on the subject of custody bailments than on the subject of trusts. This is because the legal standing of custody bailments is well defined and confers on the owners more security than if their bullion is held in a trust. Unlike in a trust where the legal owners of a trust asset are the trustees and this can lead to litigation and potentially loss of the underlying asset.

When choosing where to store bullion it is also important to consider access to and the ability to have worldwide transportation of bullion. Very few providers can offer domicile-to-domicile solutions to all important financial centers and locations internationally. This is an important consideration as is insured storage for valuable goods in customs-free warehouse, customs clearance of shipments including neutralizing, dividing and repacking and monitoring of transit mailings.

Bullion storage should be considered from a cost and security perspective but in these very uncertain times flexibility and accessibility are also important considerations.

SUMMARY

Don't delay in deciding what the optimal storage solution is for your bullion. Decide on a storage plan and the securest location and order your bullion coins and or bars or move your existing bullion as soon as you have done your due diligence.

Importantly, be sure that you can access and ship your bullion in a format of your choosing, to a destination of your choosing at the time of your choosing.

Gold and silver bullion are the ultimate form of financial insurance and in these uncertain times all investors and savers should have an allocation and own this essential insurance in the safest ways possible.

ABOUT GOLDCORE

GoldCore, www.GoldCore.com , specialises in international bullion dealing, asset diversification and wealth preservation offering bullion storage in the US, Asia and Europe. GoldCore are experts on global macroeconomics and the gold and silver bullion markets and the company is the EU Approved Dealer for the Perth Mint of Western Australia.

GoldCore has an international media profile (CNBC, Bloomberg, CNN, BBC, FT, Wall Street Journal, Bloomberg, Dow Jones, Associated Press, Reuters etc.) and takes part in the Reuters Precious Metals Poll and the Bloomberg Gold Survey.

Why an Ounce of Gold Can Cost More, or Less, Than Another

Have you ever noticed that two gold bullion coins which contain the exact same amount of the same gold, can sometimes sell for a different gold prices?

For example, at the time of this writing, the spot price of gold is $787.50 per ounce. Yet, numerous dealers quote a selling price of $830.80 for the one-ounce American Gold Eagle, $826.90 for the one-ounce Canadian Gold Maple Leaf, and $819.00 for the one-ounce South African Gold Krugerrand.

Why might this be? After all, each contains exactly one ounce of gold. Should not an ounce of the same precious metal, like shares of the same company stock, always have one price at any given time?

Certainly, it seems like it should be that simple, but with precious metal bullion coins, it is not. The fact is that an ounce of a given precious metal -- be it gold, silver, or platinum – can, for a variety of reasons, cost either more or less than another ounce of the same metal in the same market.

How can this happen? Where does the additional cost for these gold coins come from in the first place, and why do the amounts paid for the Gold Eagle, Maple Leaf and Krugerrand all differ, even though each contains the same amount of gold?

Well, it's all about a pricing thing called "coin premiums."

A premium is the additional cost of a bullion coin above and beyond the market value of the precious metal commodity it contains. For example, with gold at a spot price of $787.50 as mentioned above, an investor can expect to pay a premium of $43.30 over the gold price to buy the one-ounce American Gold Eagle. On the other hand, at the same spot price, an investor will pay only a $39.40 premium (approximately ½% less than the Eagle) for a one-ounce Gold Maple Leaf, and only a $31.50 premium (or 1.42% less) for the one-ounce Gold Krugerrand.

In general, this additional cost over the spot price for any bullion coin stems from a number of factors, including the manufacturing, distribution, and administration costs incurred by the mint or refiner in making the coin, plus a "mark-up" representing the cost of sale and the profit for the wholesaler selling the coin to a retail dealer. The retail dealer, in turn, will also "mark-up" its wholesale price of the coin to cover its own sales costs and realize a small profit when selling the coin into the investor market.

This series of incremental price increases applied to the coin as it passes through the distribution chain is a typical market mechanism present in virtually every other industry in existence, from food to auto parts, and houseplants to sporting goods.

And, just as market forces of “supply and demand” largely determine the value at which all goods and services can be sold in their respective markets, the level of a given coin’s availability (supply) versus its popularity (demand) also directly influences the prices at which different coins will sell for in the market place, even though they may contain the same amount of the same metal!

In fact, in some unusual market conditions, the available supply of a given coin, when balanced against its market demand at any given time, can have a pronounced impact on the coin's premium. Unusual demand for a specific coin type can drive its premium level significantly higher than that of very similar coins in certain circumstances.

Such a disparity occurred between the American Eagle and the Canadian Maple Leaf bullion coins at the end of 1999, when concerns over potential Y2K-related computer debacles created widespread fear about the stability of the US banking system and world economy as the new millennium approached. This fear, in turn, led to an unprecedented demand for U.S. American Eagle Silver coins, in the belief that their owners could spend these U.S. government-guaranteed bullion coins in the surviving economy for the food and other necessities they would require to live should the banking system fail. At the same time, the Silver Maple Leaf legal tender bullion coins, which not only contain the same amount of gold and silver, but were minted in higher purities, were left sitting in dealers' vaults.

Specifically, in late 1999, the premiums for the 99.9% pure (i.e., “3 nines fine”), one-ounce Silver Eagle coins were at one point 300-400% higher than were the premiums on the 99.99% pure (i.e., “4 nines fine”) one-ounce silver Canadian Maple Leaf coins, even though the price of the one-ounce of silver they contained changed very little during the period. While the prevailing spot price of silver averaged about $6.50 per ounce during this time and the price of the silver Maple Leaf remained in the $7.50 vicinity, inordinate demand drove the price of the Eagle to more than $12.50 per coin at one point. Astonishingly, many investors were willing to pay up to four times more in premium costs than they had to for a silver bullion coin in the belief the American Eagle would be readily negotiable in whatever economy might be functioning in post January 1, 2000 period.

[Note: these inflated premiums collapsed to their more rational market levels immediately after January 1, 2000, when it was clear that an economic and banking Armageddon was not going to occur.]

On the other hand, a lack of market demand, or the outright dumping of a particular coin by market participants, can create a negative premium, causing the coin to sell at a price that is actually less than the current "spot price" of its metal content. This is what happened to the gold Krugerrand when its importation into the United States and numerous other countries was banned by many national governments in 1985 to demonstrate their countries’ displeasure with the former apartheid policies of South Africa, the home of the Krugerrand. Few investors wanted to buy the Krugerrands that continued to trade in local markets, and dealers would only buy them at prices discounted below the prevailing "spot" price of gold. It was truly one of the few times that gold – in the form of Krugerrands -- has traded in the market below the spot price.

In fact, as noted at the outset of this article, though its premium has long since been positive, the Krugerrand continues selling at a lower premium than do the Eagles and Maple Leafs, reflecting its diminished popularly among investors and dealers still today.

Because gold coin premiums can vary significantly among gold coins and in different market conditions, they are an important aspect for buyers of gold bullion coins to understand today. Investors are well advised to inquire about and compare coin premiums before making their purchase of bullion coins. And as always, it is best to seek the advice of a reputable and trusted gold bullion dealer concerning any aspect of precious metals investing about which one may be unsure.

Michael B. Clark is a consultant to Gold and Silver Investments Limited (info@gold.ie), Ireland's Asset Diversification and Wealth Preservation Specialist. He is the President of Solidus Associates, LLC of Wilmington, Delaware, and has served in the precious metals industry for 25 years. He oversaw Deak-Perera's Precious Metals Certificate Program, America's largest precious metals investment program, in the early 1980s. Later he became Vice President of Precious Metals at Wilmington Trust Company, and President of both Delaware Depository Service Company and First State Depository Company. He obtained licenses for Wilmington Trust and DDSC to operate as Nymex and Comex depositories.

Gold Bullion Investments: Which to Buy, Gold Coins or Gold Bars?

By Michael B. Clark

Precious metals have been one of the top performing asset classes over the past six years, and investors wanting to add a precious metals component to their portfolios are often overwhelmed by the number of investment vehicles available to them today. Alternatives include precious metals futures and options contracts, government certificates, “digital gold,” exchange traded funds (ETFs), mutual funds, mining shares, as well as buying the physical bullion itself. All enable an investor to gain exposure to the precious metals markets and participate in what many investment experts foresee as a continuing multi-year secular market.

Having exposure to gold, in particular, the world’s pre-eminent tangible asset, either through a direct purchase of the physical asset itself, or by adding one of the other aforementioned alternative vehicles, is highly recommended in today’s environment.

But to be sure, there is no “holy grail” of gold investing; it should never be an "either / or" scenario. Just as prudent investors hold a range of investment types to minimize their dependence on a single asset class in their overall portfolios, investors should also consider further diversifying their holdings by acquiring a number of these precious metals vehicles within this particular component of their portfolios.

As an example, a smart, holistically diversified investor might hold a combination of physical gold in his/her personal possession, government certificates and physical gold in an allocated account, and “digital gold,” along with some exposure to the mining sector via equities.

But, each of these vehicles is unique and can be complex. Thus, investing in them requires a thorough understanding of not only their various advantages and potential rewards, but of their relative risks and individual disadvantages, as well. Therefore, an investor should carefully study, and perform proper due diligence on all aspects of a contemplated gold investment. Credit risk associated with the company selling the investment, the company (or companies) behind the offering, and the custodian holding it, if applicable, should be of paramount concern in the investor’s mind, as a sound credit rating of these entities is as important as their business history and professional experience.

Ultimately, the crux of the answer as to which to buy rests with the investment objectives and risk tolerance of the investor. Indeed, there is no single, correct answer for every investor, and seeking the assistance of a reputable, trusted investment expert is the best approach for most investors when contemplating making a gold or other precious metals investment.

But for many investors, perhaps the simplest and most straight forward way to gain exposure to the precious metals markets, and eliminate many of the uncertainties and/or complexities associated with the alternatives, is to own physical precious metals outright, by buying gold, silver, or platinum in the form of Bullion Coins or Bullion Bars.

But first, why would an investor want buy physical precious metal commodities to begin with? Good question…

As a physical asset, bullion is inherently valuable. This is to say, physical precious metals have tangible, intrinsic and innate value in and of themselves, and they are, therefore, the only asset class that is not some outside entity’s or third party’s liability (as is the case with a stock or bond). Thus, the investor who owns the physical asset directly, and whether held in his/her personal custody or stored safely in his/her name in an insured account at a qualified facility, will enjoy the sense of security one derives from knowing that their investment portfolio is strengthened by the presence of an actual tangible asset with an intrinsic value, and not just a piece of paper, or derivative product, that serves as a proxy for precious metal.

In contrast, “paper precious metal” investments present considerably different risk-reward considerations. For example, buying shares in a mining company provides ownership in an entity that produces gold or silver, but not direct ownership of the commodities themselves. Management and accounting competence, environmental risks, hedge book exposure, potential political turmoil, and a host of other vital considerations need to be taken into account when deciding to buy shares of a mining company to add to one’s portfolio.

On the other hand, precious metals futures and options are legal contracts that can leverage one’s gains, but they can be complicated investments and they can exacerbate one’s losses.

Exchange Traded Funds (ETFs) are derivative vehicles that track the price of gold and silver. Two of the more popular are the New York-traded streetTracks Gold Shares (NYSE:GLD) and the London-traded Lyxor Gold Bullion Securities (LSE:GBS). As derivative products, they do not provide their owners with title to the underlying asset, as one has when holding gold in an allocated account or in one’s personal custody. Thus, ETFs are often used by day traders, hedge funds and institutional players speculating on short term movements in the gold price.

From the investor’s perspective, although the price of a gold ETF will move in tandem with the price movements of gold, owning an ETF is not the same as owning gold directly. In fact, owning an ETF may defeat the very purpose many investors buy gold as a physical, inherently valuable asset (and tangible currency) to begin with. For many investors, the primary reason to own gold is that it is the ultimate safe haven physical asset to have in times of economic or geopolitical uncertainty. ETFs, on the other hand, are a form of debenture.

Thus, should an ETF provider go into liquidation, its investors will become general creditors of that provider, since ETF assets are not held as allocated assets, titled in the individual names of the investors. Direct ownership of gold bullion, on the other hand, either by holding it in one’s personal custody or having it stored it in a physically allocated account (and off the custodian’s balance sheet), and titled in the owner’s name, insulates the investor from the potential losses experienced by general creditors in bankruptcy scenarios.

In other words, owning the physical precious metal directly removes most of these ancillary, but critically important considerations.

So, once a decision has been made to invest in physical bullion, bars and coins are the choices available. But, which does one buy? Let’s review their respective characteristics.

Bullion coins are highly refined precious metal products that are round in shape (as opposed the rectangular shape of a bullion bar), and produced to exacting specifications by numerous federal governments throughout the world, specifically for investment purposes. These coins are produced in large quantities and come in a variety of sizes, which are convenient to own and trade -- typically one, one-half, one-quarter, and one-tenth troy ounces. Their content – that is, the weight and purity of precious metal they contain -- is guaranteed by the governments that produce them.

The United States Mint describes a bullion coin as: “a coin that is valued by its weight in a specific precious metal. Unlike commemorative or numismatic coins valued by limited mintage, rarity, condition and age, bullion coins are purchased by investors seeking a simple and tangible means to own and invest in the gold, silver, and platinum markets.”

Moreover, while bullion coins are ascribed legal tender status in their country of origin, they are actually valued by the market for their precious metals content, plus a small premium representing the cost of production, shipping handling and the seller’s profit added to their price. They are readily bought and sold by investors through a world-wide network of precious metals retailers, wholesalers, banks and brokerage firms. The current prices for most major bullion coins are published daily both on the internet and in financial publications such as the Wall Street Journal, internationally. Thus, bullion coins are an excellent choice for most investors.

Bullion bars, on the other hand, are rectangular blocks of investment grade precious metal (also referred to as “ingots”) manufactured by commercial refiners. (Note: the most reputable and prominent commercial refiners have standing with, and are recognized by the world’s leading precious metals exchanges.) Bullion bars are produced in a wide range of sizes – from 1 gram (or less) to 400 troy ounces (or more). They typically bear four distinguishing marks that uniquely identify them, including their refiner’s mark (i.e., the bar’s brand name), the gross weight (usually in troy ounces), the metal fineness (or “purity”), and the bar’s serial number.

Having been produced commercially, they have no legal tender status, but reputable refiners stand behind the quality and authenticity of the bars that bear their brand name. Both small and large sized bars are also highly liquid and easily traded worldwide, provided the larger bars are not held by the investor personally (more about this point appears below). And, like bullion coins, the price of these bars varies with the market value of the precious metals they contain, plus a modest premium representing the cost of production, shipping, handling and the seller’s profit.

An important distinction between coins and bars that a precious metals investor should understand is that, while bullion coins produced by mints and small “investor bars” produced by refiners are specifically designed to contain an exact weight of the metal they contain (e. g., exactly one-ounce or one-half-ounce of platinum), larger sized bullion bars (e.g., 400-ounce gold bars or 1000-ounce silver bars) are not. To keep production costs down and their associated premiums to a minimum, large bar weights and metal purities are maintained within internationally acceptable ranges. (Example: a so-called “400 ounce” gold bar may actually weigh 404.360 troy ounces and have a pure gold content of 99.65 %. By multiplying the bar’s gross weight and the fineness together, the investor can calculate the exact amount of pure gold the bar contains -- 402.944 troy ounces, in this example.) While this manufacturing method keeps the premiums paid for these large bars low, thereby allowing the buyer to get more precious metal in his/her investment, it requires the owner to use fractions to calculate the bar’s absolute metal content. This may prove a confusing and inconvenient requirement for some investors; thus, large bars are usually traded among large companies and sophisticated investors.

There are, in reality, three important aspects for an investor to consider when choosing between bullion coins or bullion bars for investment. Each of these aspects can affect the cost of the investment and affect the flexibility the investor has over his/her investment. These considerations include the following:

1) Premium – as discussed above, this refers to amount of money an investor is charged for the product over and above the value of the metal the coin or bar actually contains. As stated earlier, the premium represents the cost of production, shipping, handling and the seller’s profit. A higher premium is normally paid for smaller-sized coins and investment bars (i.e., 5% - 20% depending on size) than is paid for large investment grade bullion bars (i.e., 2%- 5%). This is because, like with most products, it costs the manufacturer – in this case, a mint or refiner – more money to make, say, 400 one-ounce perfectly shaped, designed and inscripted pure gold coins, than it does for that mint or refiner to produce the single inexact weight and pure “400-ounce” gold bar described above.

2) Custody -- An investor may desire to hold his/her bullion coins or bars close at hand and, therefore, may request personal delivery. This is fine for bullion coins and small investment bars, as neither will typically require assay (unless they are materially damaged) at the time they are ultimately sold. But, because the content of large bars can be manipulated or altered in ways that are difficult to detect by visual examination, even by seasoned professionals, a time-consuming and costly assay will be required if the investor has taken personal possession of them and presents them to a dealer for sale. Thus, investors who buy large bars for their portfolios are advised to leave them in storage (in an insured account titled in their name) at a reputable recognized precious metals depository. If a large bar is kept in such a storage facility, its liquidity will not be affected at the time of sale.

3) Flexibility – Does the investor intend to just buy, hold and then ultimately sell his/her precious metals for profit? If so, then perhaps buying bullion bars may be best, as the premiums paid at the time of purchase will be lower. Or, is this a long-term investment that may be a permanent part of one’s estate that will be passed on to a number of heirs? If this is the case, then buying bullion coins may be preferred. One thousand one-ounce bullion coins can be readily distributed among five heirs, where as two 400-ounce and two 100-ounce bullion bars cannot.

To summarize, an investor should carefully consider his or her investment objectives, the amount of money he or she plans to invest, their need for liquidity, and the current geopolitical, macroeconomic and systemic risk when making an investment in precious metals. And while the variety of bullion products may seem somewhat overwhelming, the "best" product, in all likelihood, will differ for each investor. However, it is the abundance of investment products available in the marketplace that allows investors to tailor their portfolios to meet their particular needs.

Consultation with a trusted precious metals advisor can help the investor determine the best precious metals products to satisfy their individual risk tolerance and specific investment objectives.

Michael B. Clark is a consultant to Gold and Silver Investments Limited, www.goldandsilverinvestments.com , Ireland's Asset Diversification and Wealth Preservation Specialist. He is the President of Solidus Associates, LLC of Wilmington, Delaware, and has served in the precious metals industry for 25 years. He oversaw Deak-Perera's Precious Metals Certificate Program, America's largest precious metals investment program, in the early 1980s. Later he became Vice President of Precious Metals at Wilmington Trust Company, and President of both Delaware Depository Service Company and First State Depository Company. He obtained licenses for Wilmington Trust and DDSC to operate as Nymex and Comex depositories.

Bullion Coins

By Michael B. Clark
President, Solidus Associates, LLC
Wilmington, Delaware

The precious metals markets have been on a tear. In fact, precious metals have been the top performing asset class in recent years and with this trend looking likely to continue, many investors want exposure to these markets. But how does one go about making a precious metal investment that safely affords the investor with such exposure?

To be sure, there are numerous precious metal investment vehicles available to the individual investor today – including futures and options contracts, government certificates, digital gold, exchange traded funds (ETFs), mutual funds, mining shares, as well as direct ownership of physical bullion itself. All enable an investor to add a precious metals component to his/her investment portfolio and participate in what is likely to become another multi-year secular market.

However, each of these vehicles is unique in its nature and complexity, and investing in them requires a specific understanding of their individual advantages/disadvantages and risks/rewards. This article provides an in-depth discussion about what is perhaps the easiest and most convenient way for individuals to acquire and directly own physical gold, silver, and platinum– by investing in precious metal products known as Bullion Coins.

Bullion coins are highly refined precious metal products that are round in shape (as opposed the rectangular shape of a bullion bar), and produced to exacting specifications by numerous federal governments throughout the world specifically for investment purposes. These coins are produced in large quantities and come in a variety of sizes -- typically one, one-half, one-quarter, and one-tenth troy ounces. Their content – that is, the weight and purity of precious metal they contain -- are guaranteed by the governments that produce them. They also are ascribed legal tender status in their country of origin, but are actually valued in the market for their precious metals content.

South Africa introduced the first investment bullion coin -- the gold Krugerrand -- in 1970. Since then, many more countries began to produce their own series of gold, silver, and even platinum bullion coins, including the United States (American Eagle), Canada (Maple Leaf), Australia (Kangaroo), Austria (Philharmonic) and China (Panda), to name but a few. For example, the United States Congress directed the U.S. Mint to produce the American Eagle Gold and Silver bullion coins in 1986 and later, the American Eagle Platinum bullion coin, in 1997.

To further understand the nature and function of a bullion coin, consider this excerpt from the United States Mint web site:

“A bullion coin is a coin that is valued by its weight in a specific precious metal. Unlike commemorative or numismatic coins valued by limited mintage, rarity, condition and age, bullion coins are purchased by investors seeking a simple and tangible means to own and invest in the gold, silver, and platinum markets.”

Bullion coins are referred to as “un-circulated coins,” because while they are bought and sold in the precious metals market place on a daily basis, they do so at values reflecting their precious metals commodity content, and they do not actually circulate in any of the world’s national economies, nor are they used as money, or as a medium of exchange, anywhere in the traditional commercial sense.

Today, bullion coins are widely traded as a form of precious metal commodities throughout a world-wide system of dealers and retailers, and their market values are globally publicized on a daily basis. Though ascribed legal tender status by the governments that mint them, bullion coins trade in the marketplace at a modest premium above the prevailing value of their precious metals content, typically 3 - 15%, depending on the size of the coin. Thus, their actual market value bears no direct relationship to what a given coin’s assigned legal tender (or “face value”) may be.

As an example, at the time of this writing, a one-ounce American Eagle gold bullion coin, which has a U. S. legal tender value of $50, was trading in the market place at about $700.00 (USD), while gold itself was trading at a “spot price” of approximately $665.00 (USD) per ounce. Thus, the price of the 1-ounce gold Eagle included a $35.00 (USD) premium (5%) above the prevailing gold bullion price.

It is important to understand that the premium charged for a bullion coin over the current “spot price” of the corresponding commodity it contains, reflects the costs of production, insurance, transportation, handling, and storage, as well as the manufacturer’s and the selling dealer’s profit, all of which are associated with the manufacturing, delivery and sale of the coin. This premium is not a value ascribed to the coin as the result of any scarcity or uniqueness considerations, as is the premium paid for rare coins. In fact, bullion coins are purposely manufactured in large volumes by federal governments to specifically ensure they do not become “rare” or “scarce,” but remain as common as the many types of bullion bars and ingots that are also produced by commercial refiners for investment purposes.

[Note: It is not uncommon for a federal mint to produce a separate series of specially manufactured, limited edition un-circulated bullion coins for given mint year. These particular coins, known as “proof coins,” are produced specifically for the coin collector and hobby markets, as they do often take on rarity (numismatic) characteristics, as a result of their limited mintage. Proof coins are a separate category of the bullion coins discussed in this article.]

Recognizing precious metals bullion coins as viable and widely held investment products, the Wall Street Journal and other leading financial publications the world over each business day publish the market prices not only of gold, silver, platinum and palladium bullion, but the prices the world’s most widely traded bullion coins, as well.

To be sure, there are significant advantages for the investor wanting to own physical precious metals to do so by buying bullion coins. For example, since they are produced and guaranteed by federal governments, bullion coins are universally recognizable by bullion and coin dealers, and by many banks, throughout the world. Thus, they are highly liquid and immediately tradable without the need for a costly and time-consuming assay, as may be required for bullion bars and ingots.

Moreover, many investors have found that the large quantity of bullion coins that may own is directly divisible, allowing them to readily sell or bequeath smaller quantities of their precious metals holdings at various points over time, as they may desire. For example, investors can easily and directly liquidate or gift some portion of 100 one-ounce pure gold Austrian Philharmonics, in 20-ounce, 25-ounce, or other desired increment at the time of their choosing, without any impact on the remaining Philharmonics in their investment portfolio. Conversely, if one held a 100-ounce gold bullion bar instead, its owner would first have to sell the bar and either convert it to smaller bars (or coins), or sell it for cash, in order to distribute or liquidate some smaller portions of it. This is a time-consuming, costly and inconvenient exercise.

Other advantages to owning bullion coins are that they are highly portable and are perfectly suitable for delivery, personal transport and/or storage in a bank safe deposit box or one’s own personal vault, if so desired.

Perhaps the only drawback to buying a large number of bullion coins (400 one-ounce coins, for example) is the somewhat higher premiums that must be paid initially when they are purchased, as compared to the somewhat lower premiums paid for an equivalent amount of precious metal that can be bought in bullion bar form (a 400-ounce gold bar, for example). However, the disadvantages of owning the bullion bar, as opposed to the bullion coins, are many (including its large size, the requirement for storage, and the need for a costly assay if personal delivery should be taken.). Besides, a significant portion of the premium one originally pays when acquiring bullion coins is re-captured at the time of their sale.

Without question, if one desires to reap the many benefits of owning precious metals as a part of his/her overall investment portfolio, direct ownership of the physical commodity through the acquisition of bullion coins is an excellent choice for investors. But, you should fully understand and be entirely comfortable with making such a purchase. To learn more about the advantages of owning precious metals bullion coins, be sure as with any investment, to do appropriate due diligence, and then talk with an experienced and reputable precious metals bullion dealer before you invest in them.

Copyright © 2005-2007 Mike Clarke and Gold and Silver Investments Limited. All rights reserved.

A consultant to Gold and Silver Investments Limited (www.gold.ie), Mike Clark has operated in the precious metals industry for 25 years. He first oversaw Deak-Perera’s Precious Metals Certificate Program, America’s largest retail precious metals investment program, in the early 1980s. Later he became Vice President of Precious Metals Services at Wilmington Trust Company, and then President of both Delaware Depository Service Company and First State Depository Company. He obtained licenses for Wilmington Trust and DDSC to operate as Nymex and Comex approved depositories.

American Eagle Gold Coin

The American Eagle Gold Coin was authorized by the US Congress in 1985 and first minted in 1986. They are one of the world's most popular gold bullion coins.

The front of each coin depicts a graceful Striding Liberty design inspired by the Augustus Saint-Gaudens original design of the $20 Double-Eagle gold coins minted from 1907-1933. The reverse of the coin depicts a nest of American Eagles, symbolic of American family values and family tradition.

They are the only US gold bullion coin which have their accuracy of weight and purity guaranteed by the United States Government Mint.

They come in four different sizes:

1/10th oz American Eagle ($5) gold coin - 16.5mm in diameter
1/4th oz American Eagle ($10) gold coin - 22mm in diameter
1/2 ounce American Eagle ($25) gold coin - 27mm in diameter
1 ounce American Eagle ($50) gold coin - 32.7mm in diameter

Benefits of American Gold Eagle Coins

The coins are struck in 91.67% (22 Karat) fine gold with the total gold weight of the coin stamped on the reverse of each coin. To prevent wear and scratches which often occur in softer 99.99% pure gold bullion coins, the American Gold Eagle Coins also contain silver and copper which hardens and protects them. The percentages of gold, silver and copper contained in the coins is based on the durable gold standard established for gold coins circulating over 350 years ago.

Why buy American Gold Eagle Coins?

American Gold Eagle Coins provide you with a convenient and cost effective way to add a small amounts of physical gold to your gold investment portfolio. They also allow you to turn small amounts of your investment portfolio into cash as required at any time. For example, say you buy 20 American Gold Eagle Coins as an investment, If an unexpected expense comes up, that requires more funds than you have on hand, you can easily sell just one or as many coins as you require to cover the expense without having to sell your entire gold investment.

American Eagles are private, non-reportable and preferred by serious gold investors for complete privacy, safety and security.

Where to Buy American Gold Eagle Coins

American Eagle Bullion Coins are not sold to the general public directly from the United States Mint. They are available from gold coin dealers in the US and around the world. Due to their internationally recognised and popular status you can also sell your coins back to the coin dealer your purchased it from or walk into just about any gold coin dealer around the world and sell your coins at the current gold coin price.

For more information and to an buy American Gold Eagle Coin try the following links:

List of Gold Coin Dealers provided by the US Government Mint.

Buy American Gold Eagles from GoldInfo.net

American Gold Eagle Coins from lynncoins.com

Gold Bullion Coins

Four Reasons to Buy National Gold Bullion Coins

If you are looking for a strategy to protect your wealth in a global economic collapse or financial crisis we recommend you buy gold bullion coins.

The following countries provide excellent National Gold Bullion Coins:

United States Gold Bullion Coin : The American Gold Eagle

Canada Gold Bullion Coin : Canadian Maple Leaf

Australian Gold Bullion Coin : Australian Nugget

South Africa Gold Bullion Coin: South African Krugerrand

Gold Bullion coins contain one ounce of fine gold. Although there are slight differences between the coins they are all an excellent protection for your wealth in an economic collapse.

Here are four advantages of buying National Gold Bullion Coins:

1. They have a low margin above the current gold price compared to other forms of physical gold that you can take physical possession of.

2. The national gold bullion coins listed above are immediately recognized worldwide. You can easily sell any of these gold coins to almost any coin store or bullion dealer in the world. In comparison, if you buy gold bars they can be difficult to sell because the buyer has to make sure they are legitimate and their stated gold content is correct.

3. Gold coins are easy to store and carry. Gold coins will fit into all kinds of discreet hiding places around a house that are simply too small for a gold bar.

4. With gold coins you can easily sell any fraction of your physical gold portfolio you wish for any reason. For example you can easily sell a single 1 ounce gold coin from your collection at any time or any number of your gold coins depending on the amount of money you require. With an easily divisible gold coin investment you are never stuck in an “all-or-nothing” mode regarding your physical gold holdings.

Source: Gold Coins

Gold Coin Prices

Are the gold coin prices you are being quoted by your gold coin dealer too expensive?

3 Factors that Effect the Gold Coin Price

1. The gold coin weight

You should expect gold coin prices for coins that weigh less than 1 ounce to be much higher than the current gold price as the coin weight decreases. The weight of the gold coin will have the biggest effect on the gold coin price you are paying. For example 1/10 ounce gold coins can cost as much as 50% above the current spot gold price. While 1 ounce gold coins generaly cost between 4 and 12% above the spot gold price.

2. The number of gold coins you are buying

There are often large discounts for buying more gold coins. If you are buying only 1 gold coin at a time you can expect to pay much much more than if you bought for example 10 gold coins at a time. Generally you need to buy at least 10 gold coins in order to enjoy a reasonable discount.

Due to the low margins which Gold Coin Dealers receive, it is common with large gold coin dealers to require you purchase a minimum of 10 coins at a time.

For example the margin above the current gold price charged by the Perth Mint in Australia on their one ounce 99.99% pure gold bullion coins is 6.5% if you buy only one coin, if you buy 10 or more coins its 4.5%.


3. The Spot Gold Price

How to calculate the gold price you are paying for a gold coin:

Always work out what the gold price per ounce you are paying is and compare it to the spot gold price. If you are paying more than 12% above the current gold price per ounce for a one ounce gold bullion coin then you are probably paying too much! Unless it is a rare gold coin. (This does not include the costs of postage and insurance.)

To calcultate the gold price per ounce you are paying for comparision to the current spot gold price use this table:

1/10 ounce gold coin : mulitply the gold coin price by 10
1/20 ounce gold coin : multiply the gold coin price by 5
1/4 ounce gold coin : multiply the gold coin price by 4
1/2 ounce gold coin : multiply the gold coin price by 2
1 ounce gold coin : the gold coin price equals the gold price
2 ounce gold coin : divide the gold coin price by 2

Example 1. How to calcultate the gold price per ounce you are paying for a gold coin

If a 1/2 ounce gold coin costs $300US. Mulitple the gold coin price ($300) by 2 = $600 per ounce. In this example you would be paying the equivilant of $600US per ounce.

Example 2. How to calculate the percentage above the spot gold price you are paying for a gold coin.

Pecentage above spot gold price = ((Gold Coin Price per Ounce(Calculated in Example 1.) divided by the price of gold per ounce) - 1.

e.g. If we have a current gold price of $440 per ounce and we have calculated in example 2 above that we are paying $600 per ounce then we have:

Percentage above spot gold price = ($600/$440)-1
= 1.36 - 1
= 0.36
= 36%
In this example you are paying 36% above the current gold price.