So, you want to buy precious metals bullion for investment. 
I'm glad you're doing your due dilligence.  It's a start. 

Here is my sentiment regarding investments and timing: "When is the BEST time to plant an oak tree?  The best time is 20 years ago, but the SECOND BEST time is NOW."

Although the precious metals bull is already on the run, there is still time to make a profit.  Of course, you would have made more money if you invested 5 years ago, but hey, it's better late than never.  Okay.  Here's my look at the investing game:  Always learn about the investment vehicle before you invest in it.  Otherwise, it's just like throwing the darts at a moving dart board while blind-folded; it's very hard to win the game.

Now, here's my disclaimer:  I am NOT an expert.  I am just a beginner in this investment game with precious metals.  Better yet, Do Not listen to my advice.  Do your own due dilligence.  Ask yourself WHY you want to invest in precious metals physical bullion. 

This is NOT a guide for buying rare coins.  This is a guide for investing in the precious metals for the value of the metals themselves.  That said, I do buy precious metals bullion from eBay and other sources for investment, and I have physical bullion in my possession for investment.  I do not buy rare coins (numismatics), I buy bullion for the value of the metal and not for the rarity of the individual coin. 

Here are my reasons "WHY" I invest in Precious Metals & Physical Bullion:

#1.  Precious metals are in a commodities bull market that will last for approximately 5 to10 or more years from now (2006).  There is still time left for capital gains.  It is a good long term investment.

 

#2.  Precious metals are a good hedge against the currency devaluation and currency inflation.  The value of the US dollar currency and other major currencies in the world are in decline, i.e., $1 can buy less and less quantity or quality of goods as years go by, while precious metals (such as gold) can hold the value.  The value of the paper dollar has declined 95% since it was first created.  The current US account deficit is growing, and to add fuel to fire, there is an upcoming Social Security crisis and an even larger Medicare crisis.  The US government is in debt to the public, and that debt is growing, and will go critical when the baby boomer generation retires beginning 2008.  In order to pay for the Social Security and Medicare of the 75 million baby boomers, the US government will have to print more money, which in turn will cause hyper-inflation.

#3.  Precious metals are under-valued if you consider asset price inflation, and the global supply and demand.  Especially, silver is still relatively cheap compared to other precious metals, and according to rarity (gold is only 5 times rarer than silver).  My favorite is silver, because it is the cheapest and the most undervalued asset among the precious metals.  Industrial use of available silver is 90%, while gold is only about 20%, and the demand is out-pacing supply in the silver industry.  In the industrial use of silver, very little is re-claimed, and the supply dwindles as a result, while there are more industrial applications for silver since it is relatively cheap.  This means there will be a shortage of silver in the few years ahead, and as a result, the price of silver will sky-rocket.

#4.  Physical bullion allows you to have physical possession of the metal, as different from holding certificates in precious metals or precious metals stocks, funds, or trusts (Exchange Traded Funds).  You have the privilege of knowing that it's there, and you can see it and touch it.  Stocks, ETFs, and certificates are paper assets.  Paper assets give you possession of the paper that says you own such and such amount of precious metals.  You have the right to claim delivery of the physical bullion, but you can't touch it or see it until you ask for delivery.

#5. Silver and Gold have been used as money for thousands of years, and they are the most stable form of money in the world.  In contrast, the current US dollar (and most of the world's 'money') is paper currency with no intrinsic value, i.e., it is a fiat currency that is backed only by the government's promise and law (not with silver and gold as it used to be).  When you have governments with very little fiscal discipline and knowledge, the value of the currency goes down due to the governments' mis-management of the nations' finances and resources.  However, when this happens, the value of silver and gold goes up against the paper currencies.  See (honestmoneyreport.com)

****

Okay!  If you're still reading this, you've ignored my disclaimer, or are curious to learn whatever you can from me before you go.  Good for you.  Read on!

Types of Precious Metals & Uses

Precious Metals available in bullion or coin form are Gold, Silver, Palladium, and Platinum.

• Gold is used primarily as jewelry and as bullion reserves (coins, rounds, and bars), and also used in dentistry, medicine, electronics, and other industries. 
• Silver is used in jewelry and as bullion, and mainly used as electrical contacts, and in photography, water purification, and as germ killers in food processing, advanced fabrics, and medicine. 
• Palladium is used in jewelry and as bullion, and used industrially in automotive pollution control. 
• Platinum is used mainly in jewelry and as bullion, and used industrially in automotive catalytic converters, and as labware. 
• Other metals in the Precious Metals category are ruthenium, rhodium, osmium, and iridium.  These metals are commonly used as alloys with other precious metals for industrial purposes and as alloys in jewelry.  These metals are not available in bullion form.

What to look for in bullion Coins, rounds and bars (some basic factors)

1.  Metal Content:  metal content or weight of the pure metal is measured in troy ounces (and sometimes in grams) and indicated on the bullion coin, round, or bar.  1 Troy Ounce = 31.1 Grams.  Don't mistake the troy ounces from grams, since some mints indicate ounces and some indicate grams.

2.  Metal Purity:  the purity of the metal should be indicated on the coin (except in American Eagles), round, or bar.  The purity is important when you want to trade.  The higher purity, the better.  Example: The American Silver Eagle coin has a purity of .999 silver, while the Canadian Silver Maple Leaf coin has a purity of .9999 (the purest measure in precious metals coins or bars). 

Example: The U.S. Mint circulated 90% pure silver coins (one dollars, half-dollars, quarters, and dimes) until 1964. From 1965 until 1969, the US Mint stopped circulating silver dollars, quarters and dimes, and circulated half-dollar coins with 40% pure silver (40% silver and 60% copper) .  After 1969, the US Mint stopped circulating coins with silver content, and instead began circulating coins with only copper and nickel - you can see the copper and nickel layer in the coin's core if you look at it from the edge.  NOTE: During WW II (from 1942 to 1945) nickels  were minted with 35% silver content because silver was used to replace nickel due to the industrial demand for nickel during the war.  This is the only time period when silver was used in nickels. These war-time nickels or "war-nickels" contain approximately 0.05 troy ounces of silver per piece (see coinfacts.com). 

3.  Condition of the Coin, round, or bar:  there are different Gradings on the physical condition of the coin, round, or bar.  The two main conditions you should be aware are: Circulated, and Uncirculated.  Circulated coins/rounds/bars are usually wear and tear and scratched and may have some dirt or toning on the surface.  If the coin is heavily worn, the features on the coins/rounds/bars will be difficult to distinguish.  In this case, the coin will have less of the metal and less value.  Uncirculated coins/rounds/bars may have slight wear and tear depending on the owner's handling, or may be shiny and new (Mint condition, or Brilliant Uncirculated).  Obviously, the better the condition, the higher the value of the bullion.  If you want to invest in US coins, you should check out this site (coinfacts.com) for detailed information about a particular coin or date.

Example: 90% and 40% silver coins minted by the U.S. Mint are mostly circulated coins, and have alot of wear and tear, and are therefore contains slightly less silver than the original amount.  Usually, an uncirculated 90% silver dollar will contain approximately 0.72 troy ounces of silver, while a circulated one will contain slightly less. 

** Note: Face Value vs. Market Value.  On legal tender coins, you will see currency denominations indicated on the coin.  This is less important than the metal content, since the market value of the coin does not depend on the face value (in currency denomination). 

Example: A silver american eagle shows a face value of $1 (1 US Dollar), but it's market value is much more than that, depending on the condition of the coin, and it's rarity.  90% silver quarters with a face value of $10 (40 quarters) will have a market value of $72 or more today (Considering today's silver spot price of $10 or more, and silver content of a roll of 90% silver quarters is approximately 7.2 troy ounces). 

4.  The Hallmark or the Brand:  know which mint has a good reputation.  Besides government mints (e.g. United States Mint, Royal Canadian Mint, Royal Australian Mint, etc.) bullion which are minted at private refiners with good or great reputation will have a better chance of fetching good prices, since people know and trust the name, and are confident at paying the top price. 

Example: Johnson Matthey, Engelhard, A-Mark, Sunshine Mining, Northwest Territorial Mint, Pan American Silver Corp., etc, all are well known, and highly reputable private refiners, assayers and miners.

5.  Assay Certificate, grading, or certificate of authenticity:  gold, palladium, and platinum bullion will fetch better prices if they have an Assay Certificate attached to individual bullion item (coin/round/bar), since it has more credibility than one without an Assay certificate.  Silver coins may be also individually assayed or graded (for a price), and usually fetch higher prices and markups according to their condition and grading. Check out NGC (Numismatic Guaranty Corporation) for coin grading services (ngccoin.com) or PCGS (Professional Coin Grading Service) at (pcgs.com).

6. Type of Bullion: coins, rounds, or bars.  Coins are legal tender bullion, and are minted by government mints, and are usually backed by the government's credibility to the metal content and purity of the coin.  Coins in uncirculated conditions can be collector items, and usually fetch higher prices than rounds or bars.  Rounds and bars are usually minted by private refiners and assayers, and they are usually cheaper to buy.  Some rounds and bars in uncirculated conditions may have high asthetic value, and can be collector's items, and may fetch higher prices.

7. Other sources of Precious Metals:  jewelry, luxury watches, silverware, medals and commemorative coins, silver wire, gold dentures.

Other Factors to consider:

Now that you know the basics of bullion, here are other important factors you should consider:

A. The Timing.  Market Conditions:  Is the market rallying, or falling back?  You should study the precious metals market and charts, and technical analysis.  Don't buy because the market is rallying.  Buy because the fundamental forces are driving the market.  The commodities bull markets run for 20 years on average.  This commodities bull market started in 1996, the experts say, so you have about 10 more years (plus or minus 4 years) to go since this is 2006.  If you're reading this in a later year, you know where you are.

B.  The Price.  Study the spot price.  The closer the item price is to the spot price, and the lower it is, the better, because you can buy more metal for the money.  If the price is lower than spot price of the metal, it is a great deal.  If the price is more than 10% above the spot price, it is not a good deal - you're paying too much for the amount of metal (but that's just my opinion).  You would probably find the mark-up to be within 10-15% over the spot price of the metal (for bullion rounds, bars, and other sources - coins will usually have 15-25% markup).  If you're bidding, you will be better off if you bid close to the spot price of the day or week.

C. Other Sources.  You can buy physical bullion online at American Precious Metals Exchange (apmex.com) at very low markups, and also at Bullion Direct (bulliondirect.com), and Kitco (kitco.com).

D. Shipping & Insurance.  Carefully check the cost of shipping and handling, and always buy insurance if you don't want to lose your money.  Especially if you are buying more than $50 worth of bullion, it is a good idea to insure your investment in case it gets lost in transit.  In order to calculate the real cost of buying bullion, include the shipping and insurance costs.

E.  Payment methods.  Paypal is the fastest, easiest, and fully insured for losses - if by any chance you didn't receive the order, Paypal will return your money.  Other payment methods are money order, personal check, and cashier's checks.  Money orders and Cashier's checks will cost you a bit more, but it will clear faster than a personal check.  Check what payments the seller accepts. 

F.  Exit Strategy.  Before you decide on any business or investment venture, it's a good idea to know what options you have as an exit strategy (how to get out of the business venture or investment venture) so that you can choose the best strategy.  Usually, when investing in physical bullion, this means you decide what you can do with that bullion that will give you the most profit or give you an advantage in a financial situation.  Usually, you can sell your bullion back here on eBay when the silver market is rallying. 

Other options are:  Sell your bullion to a local precious metal dealer who will buy bullion, you can sell your bullion to a smelter (who buys precious metals to melt it down) at the melt value of the metals, or you can use the bullion to barter for goods - I know some people who have done this, and you can use the bullion as money to exchange for goods or other assets.  If you are thinking about using bullion as 'money' to exchange for goods or assets, you may have to explain to the other party why it is to their advantage to accept bullion.  You may have to educate the other party about the virtues of owning bullion.

Precious metals Bullion as gifts: You can also give silver (or other precious metal) coins and bullion as unique gifts to others.  When you do that, you should educate them about the value of silver (and other precious metals) so that they will appreciate it.  Personally, I have done this, and it is a good thing to distribute your wealth such as silver coins to others.  This way, you create more demand and knowledge about silver and other precious metals.  Some owners even give silver coins as unusual tips for waiters in restaurants.  This would involve a quick education about the value of silver.

G.  About Bidding and Auctions.  Bid low enough so that you are not paying too much, and high enough so that you can win and get what you want.  Use minimum and maximum bids and calculate the maximum price you are willing to pay before you enter your bids.  Remember this:  Even if you lose a bid, it's no big deal, because there are plenty of other bullion sellers if you take the time to look around.  Do your homework.  Losing a bid is not a bad thing, because you did not lose any money.  On the other hand, if you bid too high, and won the bid, then you paid too much for the item, so in a way, you lost money.

Note: Word of wisdom about buying assets: "Buy into weakness and sell into strength."  There will be market corrections or dips when prices of precious metals will be down.  In fact, this is the best time to buy precious metals because they are cheap during the market down-turns.  Take this chance to load up.  I personally find that this is the best strategy although it goes counter to market psychology.

Okay, that about sums it up.  Always learn before you invest, and start small so you don't lose much even if you make a mistake.  And always invest with money you don't need for daily expenses.  By the way, I update this guide every now and then if I learn new and important points regarding investments in precious metals.  So, come back and check again later.

Good Luck, and may you have a prosperous and golden future. 

Myo (silver_samurai_001)