There are many different options for investing in precious metals, each with its own risks. I’ll explain which is the best investment vehicle and why. I’ll also let you in on a little known way to save money when buying gold. In this article, I will refer mainly to gold, but the information applies to any precious metal.
ETFs and Certificates
I’m going to lump certificates and ETFs together because they work in a similar way. Essentially, some organization or government holds onto your gold and silver for you.
I don’t like ETFs and I don’t like certificates because you simply cannot trust that the metal actually exists. There is too much room for fraud, despite their promises, annual reports, and audits.
Another downside to letting others hold your gold is that, should the government ever confiscate gold again, institutional gold stored in a warehouse somewhere would be a glittering, easy target for the looters. They could steal from thousands and thousands of people with little effort. Compare this to hiding gold in your own home. Not only can you can conceal the fact of its existence from the authorities, but if you suspected that they were coming to nationalize your gold, you might be able to move or hide it in time.
ETFs can be a good choice if your investment objective is to hold a commodity for a short time (meaning a few months or less — although some traders think that a week qualifies as “long-term”). But if you want gold or silver for the long-term, stay away from ETFs and certificates.
Mining Companies
A mining company owns natural deposits of gold that have to be extracted from the Earth and refined.
The value of shares in a mining company depends upon so many factors beyond the stated value of their reserves that I would not consider investing in one, unless I first educated myself on mining. There is the small chance of fraud or nationalization, as with ETFs. There is also the chance that their reserve estimates could be incorrect, that they encounter geological limitations to mining as much gold as they had hoped, that their costs increase unexpectedly, and so on. This is not to suggest that mining companies are never worthy of investment; your risk may be greatly rewarded, but you must understand many different things in order to make a confident investment. If you wish to own gold and silver for the sake of having it, don’t bother with mining companies.
Numismatics
Numismatic coins are interesting to collectors and sell for a higher (often much higher) price than the intrinsic value of the metal in the coin. Some people invest in these coins because they have an expectation that the huge premium they paid will increase over time, or at least not fall below a certain level.
Personally, I am not interested in studying what people want or what they value. I only know what I value, which in the case of investing, is intrinsic value. If I liked expensive numismatic coins, I would collect and enjoy them whether the price went up or went down. The vagaries of a collector’s marketplace are beyond my comprehension. The continued downward spiral of the U.S. Dollar, which has been ongoing for almost one hundred years, is a safer bet. I prefer to rely on the theory that, over the long-term, precious metals will retain their value (at least roughly) relative to when you purchased them.
Confiscation
Many dealers want to sell you expensive numismatic coins because they make a huge profit on them. One of the arguments they will give you is that the government cannot confiscate them because in 1933, FDR confiscated only monetary gold, and not coins of historical or numismatic interest. Many people believe that the government would follow similar rules in the future.
Let me open your eyes to reality. What our government did or did not do at any time in the past is irrelevant when it has abandoned morality and operates on the whim of a tyrant (or many little tyrants). If our government ever again became so bold as to seize outright the property of its citizens, why would you expect it to be restrained by precedent? An out-of-control government will do anything it damn well pleases. Purchase numismatic coins if you enjoy them, but don’t believe that they are protected from government confiscation. They are not.
Whether the government will attempt to confiscate our gold again, no one can say. Gold is no longer an important part of our monetary system, and it doesn’t seem like a big target for government takeover. With the way things are going in this country, though, I honestly don’t know what to expect next. I do think that reason, rationality, and freedom will win over the long term. If I thought otherwise, I would not bother to write these words. But when I consider the atmosphere in Washington today, I have to be honest: our individual rights face a serious threat from both the left and the right. I am not counting on any politician anywhere to restrain his lust for power.
Bullion and Coins
Bullion is bulk metal, sometimes coined, sometimes in bars. This is the best way to buy precious metals. You have all the benefits of physical ownership, and bullion prices are usually very close to the market value of the metal.
The main drawback to owning physical gold is that it could be stolen. The fear of theft actually drives people into some of the other less optimal forms of gold ownership. Don’t let this stop you — reducing the risk of holding physical gold is a solvable problem.
The easiest way to protect your gold is not to tell people about it. Although it’s obvious, the rule is broken again and again. People who don’t know what you have are not too likely to steal it. Burglaries are not all random. Some thieves target homes or business that they know, through some source, to hold a big payoff. The chain of information could be long and twisted, so even your most honest and moral friends and family could unknowingly tip off the wrong people. So just don’t tell anyone.
Don’t keep your gold in one place. Disperse caches of coins throughout your house. Better yet, keep your gold at multiple addresses. You might use one or more safe deposit boxes while keeping some gold at your house. Use every secure location available to you.
Intelligently hidden bullion can still be found. I’ve heard that some thieves now use metal detectors to quickly find what they’re looking for. And don’t think that a safe offers absolute protection, even if it’s bolted to the floor. They can cut the bolts and lift even the heaviest safe right out of your home or business. All they need is the right equipment and enough time. A safe is practically a glowing neon sign screaming “Valuable stuff inside! Steal me!” It is fun to feel like Scrooge McDuck, though. 
A safe deposit box might seem like a bad choice because FDR ordered the nation’s safe deposit boxes sealed when he confiscated our gold in 1933. A government agent would wait for depositors to open their boxes under his supervision so that he could force them to exchange their monetary gold for federal reserve notes. They tried to preserve the illusion of a fair trade, but it would have been theft no matter what amount they gave you; besides, those paper dollars were devalued not too long after.
There is some risk to keeping your metal in a safe deposit box, but there is risk wherever you keep it. That’s why the key to protecting your assets is dispersing them far and wide. When you spread around the risk, if a loss event occurs, you would lose only a fraction of your holdings. It would be horrible, but less devastating than losing everything.
Gold you can hold in your hand is by far the best kind. You can sell it, move it, hide it, melt it, and use it at your discretion. You can safely possess real gold, as long as you work to reduce the risk that it could be stolen by low-life thieves. Besides the kind that work for the IRS.
The Smart Way to Buy Bullion
Bullion coins like American Eagles, Canadian Maple Leafs, and South African Kruggerands typically sell at or near the spot price of gold with a commission added on top. Some of our bankrupt states are now charging sales tax on what is essentially money, which drives the price of your purchase ever higher. You could easily pay $1100 or more for a coin that is worth $1000.
There is a smart way to find bullion coins at lower prices, and it doesn’t involve anything shady at all. It’s called coin jewelry.
Being male, I know absolutely nothing about jewelry. Imagine my surprise when I was flipping through an old department store catalog from 1988 and noticed, among the Smith Corona electric typewriters and black and white Walkman TVs, gold necklaces that used tenth and quarter ounce American Eagle coins as pendants.
I made a few calls and discovered that some coin shops will buy these pieces and remove the coins. The coins may be as small as one-twentieth-ounce Chinese Pandas. They can look beat up, nicked, or dented, which is why the price is lower. Why would you care? You’re investing for the intrinsic value of the metal, so appearance makes no difference.
The only way to get some is to call around and check in with places week after week, but it can save you a fortune on commissions.
And that is the smartest way to invest in precious metals, and the smartest way to spend your money on them.
Disclaimer to Appease Trial Lawyers and Our Irrational Government: The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company, advertiser, commodity, or other type of investment referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
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