Precious Metals Investing
We’re doing this web site for those of you who are interested in basic investing in the metals market, especially silver, which is a staple metal of that market, and who, like me, don't have a college degree. We will be using good old common sense and a watchful eye for our investing.
I want to say that this is for long term investing, but that may or not be the case with you personally. It just depends on how much time you want to ride the market out.
This does have fantastic long term potential assuming you follow the instructions and take the key points very seriously.
The one reason why it may be better as a long term investment plan is that sometimes the metals prices go years without any dramatic change.
If you keep your cool and follow the instructions you can pretty much invest in the metals markets risk free.
First things first. The key is, as it always is in investing, diversity. Diversify your portfolio as a whole, don’t ever put more than 30-35% or so of your resources into the metals market unless you are in the unique position of being able to ride the market out for possibly even years. When I say diversity, I mean invest in other areas other than metals because some times years of patience are required. This isn’t a get rich quick scheme of any sort, but on the contrary, is more of a game of watching and waiting and knowing when the time to buy or sell possibly has come.
I’ve been kicking myself in the head for a few years now because I was in a great position to buy when Rhodium was only a few hundred dollars an ounce in first quarter of 2004, but I had to make a few personal decisions that needed immediate attention, so I opted not to invest.
Rhodium is currently selling for more than $8500 an ounce. In 2004 when I was at the point where everything inside me was screaming “BUY” the price was a bit over $300 an ounce. I’m sure you can do the math and understand my anguish.
I’ve always been able to turn a few bucks in the metals market, but its almost always been a waiting game. This article is more for those of us who simply love the look and feel of gold, silver and platinum and who want to control their own investing instead of turning it over to someone else who might not care about your money as much as you do. The wife got a bit interested in buying silver herself so we bought silver at about $7.50/ oz that is currently spotting at $14.53 /oz.
Again, its not too hard to do the math and see the profit there per ounce if we decided to sell today. We only bought that silver within the last couple years, so for us this would have worked out far better than a 401k or some other plan that we don’t have much control over.
As previously stated, diversification is a must. Once you’ve determined just how much you want to invest, be sure not to get caught up in one metal. Yes, we all love gold, but gold tends to do more poorly short term than silver or platinum which are both much more volatile for whatever reasons.
Let’s use a nice round number for simplicities sake. We’ll assume you have $10,000 you’re wanting to invest. Immediately divide that amount by 4. So you have 4 increments of $2500 each. You’re going to want to split that by the number of metals you’ve chosen to invest in, which I strongly suggest is at least 3 different ones....gold, silver and platinum being the most easy to buy and sell because the US puts out Eagles in all three of these metals.
Check out the daily metals prices for today at Kitco.com. This will give you an idea of what you are looking at as far as how much metal you are going to end up with.
Keeping an eye on the daily prices will give you the heads up if the prices start to fall. There are supply and demand issues that come into play that affect the market, but believe me, without watching every single possible precursor that might affect the price, there's little to no way you are going to predict what the metal will do in the future.
Instead of worrying about what the metal will do, keep your eyes on what it has done and is currently doing ...forget the future at this point ..tomorrow will get here soon enough. What we’re interested in at this point is when to invest to maximize our profits over the life of our investment(s).
What to buy, what to run from My first suggestion that you must get ingrained into your very soul is the word ‘spot’. Eat it, drink it, breath it, sleep it until ‘spot’ is on your mind day and night.
Spot is the price that is being paid for any particular precious metal. Spot is your bread and butter, down to earth, goodness why did I pay so much for this worthless ‘collectible”, life saver. Don’t get caught up in the collector end of the game. Don’t buy that overpriced Eagle just because its a low mint year. When the crap hits the fan in world economics, no one is going to care about how many were minted, all that matters in the end is how much gold is in your hand.
If you can’t get Eagles for just over spot, then find another medium such as the old Engelhard bars (you can find these all over Ebay). Trust me, some coin shop dealer is going to try to talk you into paying for collectible Eagles. You tell him you are only interested in paying 15% or so over spot and not a penny more. Remember, MOST of the metals I’ve bought were purchased on ebay and most of that was either at spot or just over. Don’t let anyone strong arm you into a purchase. That door you walked in through is just as much an exit.
When its all said and done your metals are only actually worth the value of the metal itself. That shiny new Gold Eagle that you paid twice spot for might look nice, but when you can’t find a buyer willing to pay more than spot for it, you’ll be kicking yourself in the head. Its far easier to sell around the spot price when you do go to liquidate. Buy name brand bars and rounds if you cant get Eagles at close to spot.
What you want to buy is any reputable bar or round (or coin) that you can get for no more than 15% over spot, less if you are buying more than just a few ounces at a time. If you have to buy more to get that price, then take that route. Anything to keep from paying a huge premium.
When to invest, how to invest
I guess the things about metals investing that I enjoy are that firstly, I am in control of my buying and selling and secondly, who doesn't love to look down at a shiny chunk of pure gold. There is just something about the feeling of the metal in your hand that adds a bit of romance to metals investing that no other market seems to offer.
When to invest is now. How to invest is carefully. Earlier we divided our 10,000 by 4 which is $2500. What you want to do is check the current spot prices for the metals you are interested in, then start to shop around for reputable coins, rounds and/bars (don’t be overly particular about which, ebay is a great place to start.
Once you’ve found your seller and your items, spend that first $2500, splitting it up as equally as you can between the metals you’ve chosen .Diversity will make things more secure most of the time as far as short term investing, but silver is a very good metal of you want to invest in a single metal (avoid gold at this rate) because silver seems to change more over a shorter period of time. Its going to be much more bulk since gold is worth about 50 times more and platinum is about 100 times higher.
Now, when your eyes are no longer glazed over with that look of a crazed pirate holding gold doubloons, get those pieces into a VERY secure safe or even a bank security deposit box. Tell NO ONE that you have made your purchase except a spouse and your insurance company. Just like when someone hits the lottery they suddenly have crowds gathering to their doors looking for handouts, if word gets out about your new found treasures, rest assured some less savory character might end up finding out about your stash and make a call one evening when you and the spouse are out at a movie.
Watch the market daily...
I personally like kitco.com for my spot prices. Its updated pretty much to the minute and also has a lot of interesting articles to read as well. Bear in mind, they are there to make money too, so take everything you read with a grain of salt. Just like anything else in life, if it sounds too good to be true, it most likely is. Remember, you are in this for you and your family’s security. Not to put money in someone else’s pocket. If the price goes up enough, consider selling what you have and turning a profit which you can put back with the 10,000 and reinvest when the prices drop again. It’s a cat and mouse waiting game that can be a lot of fun and make you some money if you keep your eyes open and watch the market daily. One day of not checking the market can cost you more than you might think. I sold some platinum a few years ago and made a bit of a profit, but the very next day it dropped low enough that I’d have taken a loss just 24 hours later if I’d have waited to sell. If the prices go down notably, spend another $2500 focusing on the metal that has gone down the most substantially (usually silver). If they go down a lot (say 40% or so) put in more or even all of the 10,000. My strategy is I buy now, keep track of what I’ve spent on each piece, then spend a bit at a time if the price is steady, buy like a madman if it starts falling and sell if it goes much higher than what I paid originally. There really is no way for you to lose if you have patience. The metals market is based on supply and demand so it will always go down and it will always go up. If the price drops, don’t panic, it will rise again when the supply is lower and the demand is higher. It just works that way (this really applies to silver and platinum and why I usually don’t mess with gold when we do buy). In most investment markets people lose it and sell if the price goes down, and with good reason. They usually don’t have the goods in their hands to keep until the price goes back up.
With metals though, you are holding directly onto your investment so you can wait it out for any amount of time. So don’t panic if the price drops. Instead, go buy more of whatever your buying and here’s why.
Say you spent $2500 on your metals that you have now. We’ll assume you have silver alone to make this simpler and we’ll say it cost you $10/oz This means you have around 250 oz of silver right now. The price drops by 50% so you’re starting to panic because now your silver is only worth $1250... don’t. You can use this as a huge investment advantage when everyone else is panicking and selling to reduce their ‘losses’.
If the price went down by 50% this means you will get TWICE as much for the same $2500 you spent before (this is why we break it up into 4 or 5 ‘lots’ of investing capitol) . So if silver bottomed out and you were paying $5 an ounce you would now get 500 oz for that same $2500 which means you now have 750 oz in all with a total of $5000 invested.
Here’s the magic in the method we use... Silver only needs to raise back up to a selling price of $6.70 for you to break even on the WHOLE batch ($6.70 x 750 oz = $5025) that you own and if you held out for it to go back up to $10/oz you’d be ahead $2500. Of course these numbers will vary, but the principle works really well. Using this method, the lower it goes, the more you buy, only selling if when supply and demand have driven the price up enough for you to make some money.
When to sell, who to sell to Remember earlier I mentioned that this isn’t a get rich quick scheme. So ‘when’ you are going to sell is based solely on when the prices have reached a level at which you feel you can break even or make however much money you can.
Sell and make a few bucks now and the price could jump through the roof tomorrow (actually had this happen once).
You are in control. YOU say when you sell. Do you want to sell all of your metal, do you need to? Selling off portions of it might be a much better idea as you can liquidate a smaller amount now while the price is ‘good’ then hold out for a higher price later on. You may end up holding on to your metals for 10 years before you’re happy with the spot prices, so be completely prepared for that eventuality. My silver is worth double what I paid for it a couple years ago, so I can sell it now and double my money, or I can hold on to some or all of it to see what happens later.
When you do go to sell, you can choose to unload everything at any coin shop that buys gold and silver. Or you can sell your metals off on auction sites, although that route may be a bit more haphazard and nervewracking. Another way it to sell your metals to sites such as Kitco.com, but understand that shipping costs and risks involved probably make that option much less ideal than simply finding a local buyer (your yellow pages will surely list a buyer, or even check the pawn shops and see what they offer, dont settle for less than spot).
Another thing you can do is when you buy your metals, individually tag each piece or each group with how much you actually paid per ounce for it. Then when you go to sell, only sell those pieces you are making money on. I know that its nitpicking because its all the same in the end, but in my own mind I look at it like a product being sold. I dont want to take losses. So if say silver goes back up and you are breaking even on the whole lot, but some was bought at higher prices and those havent been reached yet, you could sell off the metals that you are making money on, and keep the rest as your original investment for the next run, or wait to sell if the price goes higher.
Personally, Id always keep some back regardless as your foundational investment. The reason Ive found out this is a good idea is once you sell all of your metals, its very easy to lose the motivation to keep investing...and in the long run this will cost you money and security.
Don't Panic when the price drops
I've mentioned this a few times already, but we really need to establish this point as being one of the more critical points to the success of the investment plan. Let's say you were to panic because the price just bottomed out and your metal is only selling for half of what you paid. So you sell and lose half your investment. Someone will buy your silver (or other) gladly at the reduced price...when the price does go back, as it always will at some point, HE is the one who gets to reap the rewards instead of you. If you had just held out, and even purchased more silver when the priced dropped, you'd be the one lining your pockets when the price increases.
I have to stress this very important concept to NEVER panic when the prices drop. Instead buy more. The lower it goes, the more you buy because as the price starts to rise again, the more you bought at the lower prices (instead of a panicked sell) the shorter increase in selling price until you've covered any losses' for the metals you purchased at the higher prices.
Always keep in mind that you own the physical metal...this isn't stocks and bonds that you don’t have the commodity directly in your hands. This is one reason why the metals market is pretty much a sure thing *IF* you play it wisely (don't panic), watch the spot prices daily, and be sure to buy the metals and have them in your possession.
Notes
I cannot stress this enough. Buy the bullion yourself and keep it either in a safe or in a safe deposit box.
If you join a pool account with some company and something happens you never know where your metal is going to be. Get the metals in your hands, get them safely tucked away somewhere and if its on your property, contact your home insurance immediately and see if you can get it covered in case of theft.
There are many sources in just about every large town or city and the internet is probably the best source there is for metals. I managed to get a really nice platinum eagle proof at just a few bucks over spot that was PCGS sealed and graded 69, so it was also had some collector value.
I would like to add that gold isn’t really one of my favorites for investing in this manner because it doesn’t behave as dynamically as platinum and especially silver do. When splitting up your $2500 (¼ of your total investment) you might use more for silver than platinum or gold if you want to see more action in the short term.
Here’s an overview of the basic system that will help you never lose any money and make metals investing really interesting.
You have $ 10,000 working capital (can actually be any amount) Divide into 4 investment “packets” of $2500 each. Don’t worry too much about the current price of the metal, just be sure to only invest one packet of $2500 initially.
Now sit back with your investment and watch the daily spot prices. Don’t worry about about the market itself, the price will always fluctuate over time, it’s inevitable. All you are interested in is the actual spot price itself.
Don't ever sell for a loss but when prices drop buy MORE instead because the more you buy at the lower price the less the price has to rise for you to get to the break even point for your entire investment and when the price does go back up to decent levels (which is what the metal producers themselves want and directly control) you will be sitting on a gold mine.
If the price remains steady, just sit tight and hold onto your investment.
If the price were to rise dramatically, you have an amount of metals worth selling and making a buck. So you only made a few hundred dollars this round. It’s ok because we’ll be repeating the whole thing again at some point when the price goes down again.
If the price drops by say 20%, spend another $2500 focusing mainly on the metal that dropped the most substantially (my guess is that it will be either silver or platinum, and most likely it will be silver). If the price goes down another 10% or more, spend another $2500....and so on.
Each time you buy at the new lower price, you are ensuring that the price won’t have to rise as much to get to the break even point for your entire investment as per the example I presented before. Remember, you aren't like wall street investors, you have the metal in your hands and can hold on to it until YOU are ready to sell. If you own 1000 oz of silver, 1000 oz silver it will remain. If the whole economic world comes crashing down, silver and gold (and to a lesser extent platinum) will always have value in the world of men.
Silver considerations
Silver tarnishes easily under certain conditions, so atmospheric considerations need to be kept in mind. If it does tarnish, DO NOT use any chemicals to clean it. These literally remove a small portion of the silver. You can put a large sheet of aluminum foil in a metal pot (aluminum also if you have one). Put the tarnished silver in the pot so that it is in direct contact with the foil and fill with water to about an inch or so above the metal. In another pot mix 1 Gallon of water (if this is enough to completely cover the silver) and 1 cup of Baking Soda and bring it to a boil. Pour it over the silver which should almost immediately cause a chemical reaction that coverts the tarnish back into silver. If there is still any tarnish, reheat the water/baking soda mixture and reapply.