How to Invest in Gold, Silver, and
other Precious Metals
A Comprehensive Guide
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Learn the process of investing in precious metals
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Understand how precious metals are priced
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Learn how to ensure your items are authentic
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Understand storage options
“ This investment guide comes from the experience we
have gained over time from personally investing in the
precious metals sector. It will give you the knowledge to
invest in this asset class with the confidence of one who
has been doing it for years.”
Sincerely,
Investing in Precious Metals – The Process
Once you have made the decision to add physical precious metals to your portfolio the next important step will be to select a reputable dealer to work with, one who will take the time to explain the mechanics of the transaction itself. Part of our goal here is to educate any precious metals investor so they are empow-ered in their business transactions with any bullion dealers, not just MetroWest Precious Metals. This will allow you to avoid unnecessary risks such as time delays and mispricing.
Locking in the price
In any financial market the timing and execution of a transaction are paramount to understanding how and when the final pricing is determined. The process is actually quite simple if one is familiar with how the business works. When you call a bullion dealer and ask for a quote on an item they will often provide one instantly. However, the actual transaction does not occur until you formally place the order and the dealer confirms that the price is “locked” for the order. Every dealer has a different methodology for locking their prices and it partially depends on their familiarity with their clients, the size of the transaction, or the market risk they are willing to take. Some dealers may want you to have an account with them before trading while others are comfortable working with anyone either over the phone or in person. Understand that once the price is locked in that is always the final price you will pay to procure the precious metals you have ordered.
Payments
When transacting via the phone and deciding to finalize a purchase, the client often confirms a transaction verbally or in writing. What happens next is the bullion dealer should send out a confirmation in writing showing the timing of the order, the spot prices, the quantity, and the specifics of the items being pur-chased. From the dealer’s perspective, he or she cannot and will not release the metals until good funds are received. The simplest form of these funds is by wire, bank check, cash under certain conditions and sometimes by check, or credit card. These last two payment options are acceptable to many dealers but the credit cards typically add 2-3% to the purchase price which makes the all in purchase price much more costly than the other forms. The personal check is a different issue as the funds can take up to 10 days to clear and be collected to the dealer’s account so as to be irreversible.
Once the price has been locked by the dealer, payment is usually expected to be received by the dealer within a specified time frame. Smaller dealers may want to receive payment in 48 hours while higher vol-ume dealers may extend this price lock feature out to up to 5 business days while waiting for payment. So long as the funds are received within that dealer’s specified time frame your price is locked and you should expect to receive your metals in a timely fashion at the price quoted. This time frame is critical and any or-der you place should have a specific date upon which you should expect to receive delivery.
If, on the other hand the client does not remit the funds and the transaction needs to be voided, this cre-ates a different problem. Every dealer will handle this situation differently but we would encourage anyone reading this to avoid this whenever possible as the bullion dealer network is quite small and information travels quickly. If the transaction is canceled the bullion dealer may incur a loss on the transaction. This loss will be billable to the client and any failure to remit the funds incurred for the loss will then make it nearly impossible to do business with that dealer again.
Product Sourcing
When a bullion dealer takes an order they should be honest with their customers about whether they have the product “live” or in inventory, or whether they need to source it from the wholesale market or other dealers. Always ask whether your chosen items are in stock and when you can expect delivery. Again, dealers should always be able to offer you exact delivery times. If not they are likely taking your orders and then figuring out how to procure the product. Honest dealers will always source their product before com-mitting to a transaction. By sourcing the product first the dealer will always know exactly when the items are available to be shipped or picked up. If dealers do not have this information or change shipping dates you should be extremely cautious as that is often an indication of some sort of trouble within the firm. In fact, one of the largest and cheapest online bullion dealers named the Tulving Co. recently declared bank-ruptcy after continually extending delivery times for people. This is not how the business works for most dealers and they should know specifically when the items will be available. Anyone who cannot offer reli-able delivery dates should be approached with extreme caution as these people are often playing some sort of shell game internally that inevitably leads to trouble.
Once the order has been placed and the money has cleared the items should be readily available to be picked up or shipped out. Whenever possible, we encourage investors to visit the dealers, or locations they intend to work with. We feel it is important to meet the people who work at the firm and to see if they allow walk in traffic. This provides a great deal of comfort in transacting with someone you may not have previously done business with or known about.
Product Verification
Once you receive your metals go through them to make sure they are exactly what you ordered. Most dealers have testing kits to ensure authenticity, but many people choose to do their own testing as a final check. This is a good practice and encouraged. Although not very common in the industry, if there is ever a problem with any purchased item you should be able to communicate that with the bullion dealer directly. They should be able to rectify the situation immediately by replacing any substandard product. This is a very rare occurrence in the industry but it does happen from time to time, so make sure you understand how the dealer handles these issues before finalizing any transaction.
In Conclusion
Every dealer may have his or her own process for transacting with their clients. Trust is everything in this industry and working with an honest, knowledgeable bullion dealer will often prove much more valuable than saving a few cents per oz transacting with some online company that will never have to look you in the eye. Do your homework, ask a lot of questions, but ultimately working with a company that you can trust will make the purchasing and transacting experience that much easier and even enjoyable for you.
How are Precious Metals Priced?
Buying precious metals as a hedge against inflation, for wealth preservation in the face of a falling dollar or for speculative investment purposes should be kept as simple as possible. However, investors should perform proper due diligence to understand all the costs involved when making a purchase as extraneous expenses can quickly add up.
Price Comparison
In comparing pricing across different dealers it is critical to always calculate any hidden commissions, any shipping or insurance costs, and any financial transaction costs such as bank wires. This will provide your all in price to use when comparing prices on a per item basis. Every dealer handles this differently but all of these factors should be taken into account to ensure the pricing is competitive. As the physical precious metals markets are extremely efficient do not expect to see large price differences between different deal-ers. In order to further understand the pricing it is also important to be knowledgeable about how dealers charge for their products and also how they make money.
Precious Metal Spot Pricing
All prices for Precious Metals are based on what is called spot pricing or the cash market. This spot price is set largely by the trading of electronic futures contracts by various market participants all around the globe. This spot price is derived from what is called the front month futures contract. There are many great web-sites that offer these for free so always be sure to understand what spot pricing your dealer is using when they are quoting you Spot +/- a certain dollar amount or percentage for any particular item.
Premiums and Discounts to Spot prices
The last piece of the puzzle is what is called the premium or discount to spot. This premium or discount is based completely on supply and demand for each individual type of physical bullion in the marketplace. These premiums and discounts will also vary based on lot sizes, years, conditions and other factors. This is because every single item is priced based upon the supply and demand of each individual product at any given time in the physical market. There is no set or fair pricing with regards to premiums or discounts because the market is constantly changing and one dealer may have a lot of demand for a certain product while another may have very little. Always check prices across dealers to make sure their prices are com-petitive and that they do not engage in price gouging particularly when dealing with newer investors. To figure out the premium over spot, calculate how much the precious metals will cost on a per ounce basis by dividing your total cost by the number of ounces. Then look up the spot price. The difference between the spot price and the coins, or bars you are purchasing is your total premium per oz over spot. This premium is quoted for certain items in percentages and dollar amounts for others so always question how the items are being quoted.
Dealer profit margins
Premiums vary by item so it is difficult to say what is fair. Generally a fair profit for a precious metals dealer
to charge is a certain percentage over their wholesale cost that can range between .5% and 5% typically, depending on the size of the transaction. These are just estimates though, and dealers will sell items for whatever pricing the market will effectively bear. As the market is incredibly efficient, though, any ineffi-cient pricing will quickly get noticed and cause clients to migrate elsewhere. Lastly, more well-known coins such as American Gold Eagles or Canadian Maple Leafs will often fetch higher premiums than generic, private minted gold rounds because they provide a higher level of confidence and security for the buyer. Most dealers will charge you less of a premium over spot if you buy in large quantities. There are often small price breaks when buying in quantity as the dealers typically receive better pricing when placing larg-er ordlarg-ers. These price points vary by item but 10 or 20 oz of gold can often knock the price down somewhat while it takes hundreds or even thousands of ounces of silver to receive even a slightly better price.
How do I know The Precious Metals are Authentic?
Knowing if the coins or bars you are investing in are authentic is arguably one of the biggest concerns facing first time buyers. As it happens, if you are buying from reputable companies in the United States the odds of getting conterfeit items are very low. In fact only a very small fraction of all gold and silver that is sold is fake, or misrepresented.
Public vs. Private Mints
There are different forms of precious metals, some of which are produced by what are termed public or national mints, and some of which are produced by private mints. The public mints include the US Mint, the Royal Canadian Mint, the Austrian Mint, and so on. These coins and bars are stamped by the mint that produces them with a guarantee of their authenticity. The products that come from the national mints are very common, very recognizable, and very difficult to counterfeit. The private mints are a bit different and don’t automatically possess the same inherent guarantee as nationally minted products. This does not mean the products are any less pure than their nationally minted brethren, it simply means that anyone who has the proper equipment can produce generic coins or bars and put their own stamp on them. There are many wonderful private mints that produce outstanding products including Golden State mint, North-west Territorial Mint, and Ohio Precious Metals. These products are often considered generic brands and typically trade at lower premiums than the nationally minted, more recognizable products. Regardless of where an item is minted however, it should always have its own distinct markings as to weight and purity.
Verifying the composition of any precious metal product is another component for people to understand what they are purchasing. Beyond the mint marks, one can test the authenticity in a variety of ways such as the following:
The Fisch testing kit:
The Fisch is the premier coin tester used by dealers and investors worldwide. It tests tolerances, weight, shape and thickness and the test is nearly impossi-ble to beat with a fake.
Acid testing kits:
Acid testers can be very useful to test the stated karat purity (10k, 14k, 18k, and 24k)
XRF:
This is an X-ray method that continues to improve and is an
excellent way to test scrap gold. It only tests down to a limited depth, though, so is not yet an ideal solution for thicker coins and bars.
Vibration Testing:
This is a great tool to test how quickly the velocity of sound moves through any given metal, each of which has it’s own velocity of sound.
Assay testing or Melting
This age old method involves melting down the samples. It is very destructive, but is the ultimate test to determine the composition of any precious metal.
Make sure the dealer guarantees the authenticity of the precious metal products they sell and is willing to exchange it if any product fails any of the aforementioned tests. Again, reputable precious metal dealers
are the only ones that survive in the industry as word of any substandard product being sold into the mar-ketplace will spread very quickly.
Do not buy from sellers who have a no-return policy, especially sellers claiming to sell from an ‘estate’. The ‘Caveat Emptor’ (Buyer Beware) policy applies very much in this field. Also, pricing that may seem too good to be true, probably is especially if you may never receive the items you ordered.
Numismatic Coins
Be careful when purchasing antique or rare coins as well. These are a different animal all together which are priced as rare collectibles and are often graded. Unless you are an avid collector and really know the market for rare coins this can be a perilous and costly endeavor. Always consult experts in the field to verify the grading standards and check values wherever possible. These coins can also be counterfeited and are often much more expensive than just pure bullion coins so extra caution should be applied in this space. Although modern coins can be counterfited most of the fakes are usually antique or rare coins.
In Conclusion
Always buy from reputable dealers. Avoid sellers you do not know or who do not provide all the information you seek. Ensure they also have a proper physical address and contact phone numbers. You may end up sending sizeable amounts of money somewhere with only a promise that you will receive products in the future and little recourse if you don’t.
Precious Metal Storage
Part of the decision to purchase physical precious metals must involve thoughtful consideration as to how one intends to store them. There are many, many options, each with their own pros and cons, but we will lay out a few of the alternatives including home storage, private storage facilities, including depositories and safety deposit boxes.
1. Take physical delivery yourself and arrange for your own storage.
This is the preferred method for many investors who choose to either have professional grade safes
installed in any residences they may own or control. Investors who choose to take physical delivery often spread around their assets in multiple locations to mitigate their risk and only share this information with an extremely trusted family member or friend.
2. Leave your metals in a pooled or unallocated account
This is probably our least favorite means of storage as there is no guarantee that you will get your met-als back when you want them. By entering into one of these arrangements investors essentially become
unsecured creditors of the entity that is “holding” their metals for them. This is a long used practice by many different banks and bullion dealers and not a storage method we believe people should use under any circumstances. Many reputable dealers will not offer this service as it can put their entire businesses at risk if they are not able to procure the metal back if/when the client ultimately wants to take physical delivery. The carrot for this product is usually a smaller “storage fee” but often times your metals don’t even remain in storage, so make sure to read the fine print of any storage agreement you may enter into. We are not a fan of these programs and do not currently offer them and have no plans to do so.
3. Store your metals in a safety deposit box
This is a difficult one because banks and safety deposit boxes have historically been thought of as “safe” while also being inexpensive. While we are not fans of this option due to the potential for bank
shut-downs and insurability problems, many people are comfortable with this storage solution. Just be aware
that if there is another systemic banking crisis like we had in 2008 and 2009 there is the potential for you to lose access to your precious metals at the time when you may need them most.
4. Store your metals in a private, insured, non-bank affiliated depository
This option is becoming a very prudent one and demand for secured non-bank depositories has ex-ploded worldwide. This is a very viable option but everyone should do their own due diligence on any
entity they choose to store their metals with. There are many, many companies in this space including Brinks, Viamat, Malca Amit, and other smaller firms as well. Anyone can essentially be in the storage/ vaulting business, so knowing whom you’re dealing with and can trust become two of the biggest issues
Other key thoughts to consider when taking physical delivery personally and not leaving the metals in a depository.
Any metal that has been removed from the custody of the bullion dealer network has to be tested when investors choose to sell their products. The dealer must be sure that the metal is authentic before remit-ting payment and due to the fraud and counterfeiremit-ting that is becoming more prevalent dealers have to be extremely cautious when buying things back.
If you do choose to take delivery make sure you keep your metals in their original packaging whenever possible. This helps to preserve their value and gives the buyer additional confidence that the product is authentic.
Make sure you properly store any silver you own in some sort of climate controlled facility so it does not tarnish. Gold does not tarnish so this is not much of a concern, but tarnished or damaged silver will likely be less valuable when you go sell it than properly maintained and packaged items that can still be considered essentially uncirculated.
These are just a few things to consider when purchasing physical precious metals, as the storage compo-nent is just as important as the items you purchase and the price you pay. It will be helpful if you actually think about storage first before you even look to purchase the metals. There are a lot of options out there and decisions to be made but dealers who have done all of these things themselves should be good sound-ing boards and able to discuss the pros and cons of all the options with you.
BY APPOINTMENT ONLY
508.276.1568
241 Boston Post Road, Suite 5 Wayland, MA 01778
MetroWest Precious Metals, LLC was born out of a deep passion for the precious metals business. The company was co-founded by Jonathan Buchman and Michael Rothschild in 2012, after the two immersed themselves in studying and learning about the monetary system and what had pushed it to the brink of collapse in 2008. They realized the issues that caused the problems haven’t gone away and have only gotten worse as countries around the world continue to add to their bloated debt loads and central banks persist in their broad based currency debasement practices.
After starting to purchase precious metals for themselves and their families in 2008, the partners became inundated with requests as to what they were doing and how to do it. For years the two sent people to a long established, trustworthy bullion dealer in the heart of downtown Boston. Sadly, this store closed in 2011 and with no place to transact any longer Jonathan and Michael realized there was no other place they could physically go to transact in a private, discreet, setting with people who were as passionate and knowl-edgeable as they were. Thus the business was born by accident and now a few years, hundreds of clients, and millions of dollars in transactions later we continue to share with people what we have done, why we do it, and how you can too.
Education is our passion and it is something we do every day and take great pleasure in. For us the journey into this space is as much about educating people and working towards extricating oneself from a flawed system as it is about deriving the modest economic benefit this type of business offers. People often ask us why we do what we do and the answer is actually quite simple – because we love it!
We hope this precious metals investment guide answers many of your questions regarding investing in this sector but if you have any other questions please feel free to call us. This guide should help eliminate some of the mystery surrounding this sector and give you the same confidence we have developed over the past several years.
Sincerely,
Michael Rothschild and Jonathan Buchman Co-founders and Managing Directors MetroWest Precious Metals, LLC
241 Boston Post Road Suite 5Wayland, MA 01778
508-276-1568
