Rip-free Gold and Silver

How to avoid rip-offs when investing in gold and silver.

With the US dollar weakening, there is a lot of hype about buying gold and silver as a guard against financial woes. It is up to you to decide whether or not to buy gold or silver. But if you decide to buy, use these calculations to protect yourself against rip off artists.

The hard part is figuring out what to buy. After that, a simple formula gives pricing. We discuss both. You need:

  1. A decision to purchase physical gold or silver as an investment.
  2. The current price of gold and silver from a reputable web site, e.g., from
  3. A calculator.

There are just 21 easy steps. (yeah. right!)

1. Know the difference. The first step is realizing that there is a big difference between numismatics -- the study, cataloging, and collecting of rare coins -- and investing in gold bullion. If you mix the two, you become a target for coin shysters. Anyone can start investing in gold bullion within an hour or two, but it takes years to become a knowledgeable coin collector. Feel free to pursue one or the other, but not both with the same goal.

This advice is seldom given. Many gold dealers want to sell exotic, rare, numismatic coins as gold investments. Don't buy them unless you are a seasoned coin collector. This article addresses gold investing with the idea of having your investment tied directly to the worldwide gold market, not to coin collecting. Gold bullion coins are just that, gold bullion. Numismatic gold coins are old, rare collectible coins that once circulated in the United States and around the world. Be sure to realize the difference, as explained more fully below.

2. Prefer bullions coins. The second step is a direct result of the first step. Buy gold coins that are dated after 1964 and have been produced as bullion coins, not as coins made for commerce, circulation, or collecting. Back in the old days gold coins circulated freely to support commerce, but they became too valuable for circulation during the mid 1900s. If you buy gold coins rescued from circulation, you add significant risk to your purchase. These are numismatic (coin collector) coins, and they are subject to the whims and nuances of numismatics. Stick with modern gold coins such as the American Eagle (since 1986), the Canadian Maple leaf (1988), the South African Kruggerand (1967), the Chinese Panda (1982), and other gold coins minted by reliable governments and described as bullion coins.

The big thing about buying collector coins is that you pay a premium over the bullion value of the coin, and the gold investor doesn't need to do that. The risk lies in the fact that most gold investors have no idea how much this premium should be.

3. Gold is risky business. Adjust your investing strategies accordingly. Gold has tremendous upside potential. But it also has equally tremendous downside potential. If you follow the advice in this article, your investment will be tied to the worldwide gold market. If you ignore this advice and buy numismatic gold coins instead of bullion gold coins, your investment will carry additional risk, and most of the additional risk is on the downside. We are not against numismatic investment, but we think it should be done by people who know the ropes of coin collecting, not by the general public.

4. Buy in one ounce increments. If you buy small gold bullion coins instead of the large one-ouncers, you will be paying too much for minting and handling cost. Instead buy coins that weigh one ounce or more, not less. Traders summarize the international gold market by constantly adjusting the 'spot' value of gold based on market supply and demand. You can easily find the spot price of gold, silver, and other precious metals on the Internet. The price reported is for one troy ounce of pure gold. Troy is understood when talking about ounces of precious metal, as discussed further below.

5. Consider silver. Silver runs roughly 1.5 percent of the price of gold, but it is a precious metal much desired by millions of people. Unlike gold, silver has broad industrial application, which keeps demand high even in difficult economic times. People will do without gold jewelry, but they won't easily give up dentistry, photography, electronics, mirrors, medicine, and other industrial uses of silver. You can buy silver bullion coins just as easily as gold bullion coins, only cheaper. Forget about other precious metals, like platinum and palladium, until you are comfortable with gold or silver.

6. What about junk silver? Many people do not know this, but US 'silver' coins are not really made out of silver. They are made from copper and nickel. The change from true silver to silver look-alikes happened during the mid-1960s in the US. Other countries changed at about the same time. This means that US dimes, quarters, and half dollars dated 1964 and earlier are made out of silver. All these coins are long gone from circulation, but you can buy them from silver dealers in rolls or bags known as junk silver. This is a viable way to invest in silver, in addition to silver bullion coins.

You can not simply weigh the coins to find out how much silver they contain because they are not pure silver. To compute the number of troy ounces in a pile of junk silver, first count the face value of the coins, then multiply by 0.715, which accounts for typical wear from circulation on silver coins. For instance, a roll of pre-1965 Washington quarters carries $10 US dollars face value. It therefore contains 10 x 0.715 = 7.15 troy ounces of silver.

Roosevelt dimes, Washington quarters, and Franklin halves are the denominations in junk silver. Kennedy halves dated 1964 are also junk silver, but later-dated Kennedy halves are not. Don't buy other types of coins as junk silver. If you have any doubts about junk silver, go with bullions coins instead.

7. What about collectible proof coins? Minting technology today is a delightful combination of metallurgy and artistry. All gold coins are beautiful. Proof gold coins are breathtaking. But proof coins are made for collectors, and buying them violates our rule against investing in collectible coins. Maybe you will do this someday, but not at first, please. Sure, you want desirable, attractive, fully uncirculated bullion coins in your investment portfolio. But you needn't invest in coins that knock your socks off. If you would like to buy proof coins, there are plenty of exquisite, inexpensive examples that you can own, put on the coffee table, and show off to your friends. Don't make them your investment portfolio, make them your coin collection. These are two different things.


8. What about numismatic slabs? In the middle 1980s a new feature took numismatics by storm. It was called third party grading, and it remains in full swing today. Coins mounted in slabs carry less risk than 'raw' collectible coins because the slabs add stability, security, and reassurance. There can be, however, a few numismatic pitfalls with slabbed coins, even with the well-trusted slabbers PCGS, NGC, ICG, and ANACS, including counterfeit slabs. And then there are third party slabbers that fall directly in the 'crook' category. It costs between $25 and $75 US dollars to have a coin slabbed. There is no reason to pay this price if you are simply investing in bullion coins. Wait until you become a coin collector somewhere down the road. Then buy slabs.

9. Gold bars are ok, aren't they? Tungsten weighs about the same as gold. I recently read an article about a fellow who purchased several tungsten bars that had been plated with gold. He was unhappy when he learned his gold bars were made of tungsten. They looked cool, anyway. Gold and silver bars have a lower premium over spot than bullion coins, but they are more susceptible to counterfeiting than coins, and are therefore more difficult to sell. Stick with coins.

10. Now the hard part. Recap the instructions above and search the Internet or visit a bullion dealer to choose which coins you might buy. Remember:

  1. Gold bullion coins or silver bullions coins dated after 1964, or
  2. Junk silver dated before 1965 (see step 6)
  3. Issued by a reliable government
  4. One ounce or more
  5. Not proof
  6. Not slabbed
  7. Not bars

Don't buy anything yet. Once you have your list of candidate coins, return here to figure out how much to pay.

11. Find the weight in troy ounces. All modern bullion coins are marked with the amount of precious metal they contain. Annotations such as 'one ounce pure gold' or '0.9999 fine silver' tell you the number of troy ounces of precious metal in the coin. Sometimes gold is mixed with other metals to make it stronger for minting. The annotation tells how much gold, not other metals, is in the coin.

When dealing with bullion, troy ounces and ounces are the same thing. The 'troy' is understood. Sometimes you see massive coins advertised to contain one full pound of silver. That is a lot of silver, but not as much as you may think. There are 12 troy ounces in one troy pound, not 16. To convert from pounds to ounces of precious metal, multiply by 12, not 16.

For even more confusion, consider a Mexican libertad coin with one kilogram of pure silver. There are 32.15075 troy ounces in a kilogram (look it up), so if you have 5 kilograms of silver, that is 5 x 32.15075 = 160.754 troy ounces.

12. Start price calculations: Compute the melt value. The first step in pricing gold or silver is computing the melt value. The melt value is the intrinsic value of the precious metal. It is as if you took a blowtorch and melted a coin into a puddle, then traded the puddle on the open market.

You compute the melt value of gold coins by multiplying their weight by the current price of gold, which changes continuously but is easily accessible on the Internet. For example, if your are considering three Canadian gold maple coins, each coin with one ounce of gold, and if the current price of gold is $1200 US dollars per ounce, multiply the gold weight (three ounces) by the gold price ($1200): 3 times $1200 = $3600 melt value. It is the same thing for silver. If the spot price is $16 per ounce and you have a 12 ounces of silver, the melt value is 12 x 16 = $192. That's easy!

By way of example, let's assume you are buying a single 1 ounce American gold eagle and the spot price of gold is $1200. The melt value is 1 x 1200 = $1200.

13. Add the value of the guarantee. The gold coins we have talked about are guaranteed to contain the specified amount of pure gold. This guarantee is worth something (remember the guy with the gold-plated tungsten in Step 9?). Estimate how much this is worth to you and add it to the melt value. To me, $20 US dollars seems about right for the guarantee, but that can change with the individual and with the specific bullion coin. Using the $20 figure, that brings our $1200 example up to $1220.

14. Add the value of the packaging. Always buy coins that look nice. If a coin is stained, scratched, spotted, or otherwise marred, don't buy it. Likewise, when you buy a nice looking coin, buy packaging that will keep it that way. Velvet-lined, diamond-encrusted jewelry cases are overkill. Simple, clear, hard plastic capsules are often used for single coins. Add in the value of the packaging and associated labor cost. Maybe $5. Our $1200 example is up to $1225.


15. Give the seller a break. It costs time and money to handle precious metal transactions, and sellers often tie up lots of money buying inventory. Even a sales strategy as straightforward as eBay involves listing fees, final value fees, PayPal fees, and the expertise and labor of setting up and executing online auctions. Estimate what this would be and add it into the price. This is your best guess at the seller's mark-up. Don't beat 'em down too much, but don't let anyone take you for a ride, either. You will become more comfortable with this after you complete a few transactions.

For a $1200 coin, a stable market, and a low-overhead sale like eBay, $30 to $80 seems a reasonable mark-up. Our $1200 melt coin is now up to $1200 + $20 + $5 + $50 = $1275.

16. Stop adding. This is where a coin collector would add the numismatic value of the coin. It could easily double our $1200 number to $2400. Since we've ruled out numismatics, stop adding and start shopping.

17. Start shopping. Shop, shop, shop to see how close you can get to the price just calculated. If you get within a few percent you are doing well. Maybe you can even beat the calculated price.

As always, avoid 'too good to be true' prices and shady sellers. Counterfeits abound in the numismatic coin market. Reputable sellers steer clear of them. Be sure the seller guarantees that the coins are genuine. While rare for bullion coins, underweight coins can creep in. Do a reality check on all sellers until you know you can trust them.

I have had plenty of success buying and selling gold coins on eBay, but I would not recommend it in general. Use the large, established, well-known gold houses when you are just starting out. If you would like a list of CoinQuest's favorite dealers, use the Contact Us link and ask.

18. Buy. Buy one or more coins, but not too many. The usual method is to take direct possession of the gold or silver and put it in your safe deposit box. There are other venues, but physical ownership is common when starting out. Don't worry about sending gold through the US mail. Registered mail is extremely secure.

Don't blow your entire investment budget until you have completed the next step. It is a difficult step, and one guaranteed to take a loss. To me, however, it is worth every effort. I wish I had done it when I started down this track.

19. Sell your coin back. Sell your coin to another person, not the one you bought it from. Do this immediately, before the financial picture changes. Any bullion dealer worth his or her salt will give you a quote immediately upon seeing the coin. Get a few quotes and take the best one. Run the transaction through to completion and compute the net loss you took buying and re-selling the same coin. For single coin transactions in the $1000 range, a 15 percent loss ($150) is pretty typical -- more if the transaction is smaller, less if it is larger. That means the market has to go up 15 percent before you start making money. Maybe you can do better than that. See how well you can do.

You might want to skip this step, and it is certainly optional, but the perspective changes when you are on the seller's side of the table. To me it is worth 15 percent to learn both sides early.

20. Buy and sell in bulk. Now that you understand how gold bullion works, proceed cautiously to the big time. Reputable dealers will reward you handsomely if you buy and sell in bulk. That 15 percent margin on a single coin can come down to 3, 4, or 5 percent for bulk transactions.

21. Move to numismatics. After you have success in the bullion market, it might be time to move toward numismatic investment. The coin in our picture is an Austrian ducat. Pretty, isn't it? The Austrian ducat is an example of numismatic gold, but only when it is not dated 1915. Coins dated 1915 were produced later than 1915 and are made for bullion transactions, so they are worth their weight in gold. Coins dated between 1867 and 1914 were made during the year specified and carry numismatic premium over bullion. Investing in numismatics can be tricky. Be sure you know what you are doing.


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Sun, 23-Oct-2016 07:49:37 GMT, unknown: 8674673