Getting Started With Precious Metals

Transcription

1 Getting Started With Precious Metals McAlvany Financial Group A Precious Metals Brokerage & Money Management Firm Since 1972

2 Gold, Silver, Platinum and Palladium The Investment Metals Gold and silver are historically the truest forms of money. They are not only highly valued now but have a history as a means of exchange and form of wealth that goes back for many centuries. Governments have used paper to represent stored gold and silver, but no paper currencies have withstood being disconnected completely from these metals. Our own currency is suffering and is unlikely to survive its removal from the gold standard. Gold and silver are unique in the universe of investments. They have qualities (such as portability, liquidity, privacy, rarity, utility and beauty) which set them apart from any other type of investment. They are tangible assets which may gain and lose value relative to other goods, yet their value isn t at risk of evaporating as so many paper or theoretical investments can. Gold and silver are typically the most liquid of tangible assets because there is virtually always a ready buyer or trader through good times or bad. While food, water, shelter etc. are the most necessary of assets, gold and silver can still serve as an intermediary in the exchange of those necessities. Platinum and Palladium are also considered to be precious metals but have a much shorter history, or track record. They should be considered carefully and cautiously before investing in them. They are not generally viewed as monetary metals so are not as critical to own as gold and silver. The demand for precious metals has been growing in both personal and institutional portfolios. Gold and silver are important both domestically and globally as a hedge against financial and economic uncertainty and for protection against currency fluctuations. The tangible aspect of precious metals is one of its most significant characteristics. Although many investments are designed to hedge currencies and equities, they do not compare with role of precious metals. Gold mining shares fell in value following the 1987 stock market crash, while gold bullion prices actually rose, showing that mining shares are not a reliable substitute for physical gold. In addition, investors concerned about the stability of the financial markets do not always want a product based solely on the good faith and credit of an institution or government. Having title to gold or silver is not the same as possessing physical metals. Liquidity, or how easily an asset can be converted to cash, is of critical importance to most investors. Precious metals markets operate worldwide. The global nature of precious metals not only insulates investors from political risk in any one country but also provides valuable liquidity. On a local level, most communities also have retailers who deal in precious metals even though the prices aren t usually as competitive as with a larger national company. Gold and silver can also be bought, sold and stored in several other countries to provide a backup to domestic possession. 1.

3 Choosing the Right Broker/Dealer It is important to know and trust your broker/dealer before you invest. Some questions should be answered How long has the company been in business? ICA has been in this business for 40 years. Are there any complaints registered with law enforcement, regulatory or commerce groups? What is the company s reputation? ICA has the Better Business Bureau s highest possible rating. Does the company need to charge huge commissions to pay for television and major media ads? We don t, most of our business is from client referrals. Are their clients mostly one-time buyers? Or, like ICA, is their business mostly continuing clients and referrals from those clients? Does your broker listen to you and understand what your purposes are for investing in precious metals? At ICA we tailor our recommendations to your unique situation. If prices sound too good to be true, they probably are, and may be a warning sign of a scam or more often, an opening for high-pressure sales tactics to up-sell you into something expensive and unnecessary. Precious metals markets are barely regulated. Be skeptical of companies which promise high profits with low risk and be aware of the costs and fees associated with your investment. Beware of companies which will try to sell you or trade you up into the highest grade and most expensive coins that they have. There are limited reasons for having high-end coins and they should represent a minimal percentage if any of your precious metals investment. Get to know your broker/dealer and develop a level of trust. In the end, you should feel comfortable that you ll get the product and service you paid for at a fair price. Companies which deal with rare and semi-rare (semi-numismatic) coins should meet even more stringent scrutiny than those who only sell bullion. Rare and semi-rare coins require careful purchasing methods because quality along with price is a critical matter. A company must have high standards of integrity. Do they have a numismatist (coin expert) on staff? ICA has Drew Crowell, one of the country s leading numismatists on staff, overseeing all purchases of rare and semi-rare coins. 2.

4 Delivery and Custodial Services Taking possession of your gold and silver has advantages but also some drawbacks. When taking personal possession, your metals are typically shipped to your address via the US Postal Service, registered and insured. You will have control of your investment and may not need to worry about finding a commercial custodian. There could be shipping and handling costs if you decide to sell your gold or silver at some point in the future and want to get the best price possible rather than selling to your local market. If you take possession, you should consider your product protection and your personal safety. There may be risks from loss through theft, and physical damage from fire, flood, or other means. Most buyers prefer to take delivery and keep their metals where they have ready access to them. They may be comfortable with hiding their gold and silver, have a safe at home or choose to store in a local safety deposit box. Custody (commercial storage) of your metals also has both benefits and disadvantages. When holding your gold or silver in commercial storage you do not have to worry about your personal safety. Reputable custodians have high-security and insured vaults. Holdings are protected through the use of proprietary systems, stringent internal controls, state-of-the-art security systems, and insurance coverage. Your precious metals are considered to be a bailment, not a deposit or consignment, therefore, they cannot become the property of the custodian and are not subject to any claims by creditors of the custodian you don t risk loss of ownership. A drawback of commercial storage accounts is that you don t have immediate access to your metals if you want to take possession quickly or if you find yourself in a situation where you need to trade or barter now. Your custodian should have the capabilities, insurance coverage, and credentials to protect your investment. We trust and work with Delaware Depository in Wilmington, Delaware, and also contract with them for storage in Toronto and Zurich. If you store through a DDSC account, selling back to us is fairly quick and easy because your metals can be transferred directly to our account instead of being packed up and mailed to us. 3.

5 Frequently Asked Questions Why are the prices quoted for precious metals by dealers different than the prices listed in the newspaper? Most newspapers show either New York or London spot prices. The New York prices are for the standardized U.S. futures contract. The London prices are the fixing prices set by the world s largest market makers to balance their books. Both New York and London prices provide a good indication for the changing value of gold (as well as silver, platinum, or palladium) but spot prices do not represent the price of deliverable physical metals. Consequently, dealers and/or wholesalers monitor the New York and London prices to determine a starting point from which they can calculate a price for a particular product. Why coins with the same amount of gold or silver have different prices? A coin s (or bar s) premium is the additional cost of a bullion coin above and beyond the market value of the precious metal commodity it contains. For example, an investor can expect to pay about 7-10% over spot to buy a one-ounce American Eagle gold coin. On the other hand, at the same gold spot price, you might pay 6-9% above spot for a one-ounce gold Krugerrand. In general, the extra cost of any bullion coin over the spot price is the result of a number of factors, including supply and demand along with manufacturing, storage, distribution and administration costs. There are costs incurred by the mint or refiner that made the coin, along with the mark-up representing the cost of sale and profit of the wholesaler providing the coin to the retail dealer. The retail dealer will have to mark-up the wholesale price to cover costs and realize a small profit when pricing the coin for the investor market. The series of incremental price increases applied to the coin as it passes through the distribution chain is a typical market mechanism present in virtually every other industry in existence, from food to other commodities and products. The issue of supply and demand has a significant influence on the premium value. For example, in some market conditions, the demand and supply of a particular type of coin or bar can have a great impact on its premium. Sometimes unusually high demand for a specific coin type can drive its premium significantly higher than that of very similar coins. This occurred with the American Eagle gold and silver bullion coins at the end of 1999, when concerns over Y2K created unprecedented demand for U.S. manufactured bullion coins. At the same time, the same sized gold and silver Canadian Maple Leaf coins had relatively small premiums. A lack of market demand or the outright dumping of a particular coin on the market can actually cause its premium to go negative, causing the coin to sell at a lower price than the spot price of its metal content. This happened to the gold South African Krugerrand when its importation into the United States and other countries was banned by many national governments in 1985 as a measure intended to demonstrate national displeasure with the former apartheid policies of South Africa. Few investors wanted them and dealers would only buy them at prices discounted under the prevailing spot price of gold. 4.

6 Frequently Asked Questions BRITISH SOVEREIGN Is it better to purchase coins or bars? Bullion, Semi-rare or Rare? That depends on your concerns and reasons for buying. Some of each may provide the best results. When in doubt, bullion coins are a good way to start. You can add more and vary your purchases over time. Bullion coins and bars are produced in a variety of weights and forms. The most popular bullion coins range in size from 1/10 to 1 ounce. The most popular bullion bars range in size from 10oz. to 1,000oz. for silver or 1oz, 10oz., kilo, and 100oz. bars for gold. Large bars (100-ounce gold, 1,000-ounce silver) generally have lower premiums and smaller bid/ask spreads, thereby making them the lowest cost alternative when buying. However, they require a larger investment and can only be liquidated in large units. Delivery can be burdensome and redelivery for liquidation may require assay and refining. Storage costs must be factored into the decision. Smaller bullion bars and coins generally have higher premiums and wider bid/ask spreads than larger bars. However, they can be bought and sold in small unit sizes, are easily shipped, and typically do not require assay when redelivered for liquidation. They can be easily stored in a commercial vault or safe deposit box. Coins are usually the most liquid and convenient form of gold and silver because they are so easily recognized and in demand in a local market, and are much easier to sell to an individual, a small shop, or anything other than a commercial buyer. Bullion coins are produced in mass quantities by government and private mints. Some are legal tender in their country of origin. Bullion coins sell for a smaller premium over their metal value than numismatic or semi-numismatic coins. Bullion coin prices are tied more directly to spot price. What are the differences between bullion coins and rare or numismatic coins? Numismatic or rare coins are collected and valued for their scarcity, individual beauty, uniqueness or historical significance. Special collectible qualities may render rare coins far more valuable in the marketplace than the value of any gold or silver that they may contain. Semi-numismatic or semi-rare coins may carry advantages of both bullion and rare coins with fewer risks. They will have some collectible value, but much less than the truly rare coins. They are usually considered to be safer to own in the event of a government confiscation as we had in the U.S. in 1933 DUTCH 10 GUILDER SWISS 20 FRANC FRENCH 20 FRANC AMERICAN EAGLE SOUTH AFRICAN KRUGERRAND CANADIAN MAPLE LEAF 5.

7 Frequently Asked Questions Coins Allowed in Your IRA AUSTRIAN PHILHARMONIC U.S. BUFFALO (UNCIRCULATED) AMERICAN EAGLE AMERICAN EAGLE PROOF CANADIAN MAPLE LEAF Are precious metals allowed in IRAs? Yes, they are and a Precious Metals IRA may be right for you. Prior to 1997, only American Eagle Gold and Silver Eagle coins were allowed in IRAs. However, the Taxpayer Relief Act of 1997 expanded the types of bullion to include other bullion coins and bars that meet certain requirements. The law allows for the inclusion of gold, silver, platinum and palladium bullion meeting the minimum requirements for Comex or Nymex delivery. Some of the allowable forms of gold and silver also include Canadian Gold and Silver Maple Leafs, Austrian Philharmonics, U.S. Buffalo Gold bullion coins, Mexican Libertad silver, Australian Kookaburra silver coins and a variety of others. We offer precious metals IRA s which hold physical metals, that you actually own, in storage. If you have an IRA, Roth or a 401k or other retirement account which is eligible for rollover it is a very simple process to get them converted to gold and silver. We have strategies for growing your total ounces and value of your accounts that we can discuss with you. When you are ready to take distributions, you can liquidate metals and receive funds or you can have your own gold and/or silver shipped to you. AMERICAN EAGLE SILVER BAR CANADIAN MAPLE LEAF What is the best choice for me? Generally, the bulk of a precious metals portfolio should be in low cost bullion or semi-rare coins. You will get the most gold for your money with bullion, but semi-rare may give you some safety if bullion gold were to be confiscated again. For someone who wants to be prepared for a barter situation or may need to liquidate small increments of value, silver and small gold coins would be most suitable. A person who prefers quality and collectible investments and plans to hold long-term, a portfolio could be weighted more heavily toward rare and semi-rare coins. Most of our clients have a mix of bullion and semi-rare, or all three types of coins. We are available to help clarify which mix of metals is best suited to your goals. 6.

8 Other McAlvany Services McAlvany Financial Group offers wealth management services. These services are helpful for investors who have lost confidence in the status quo and are looking for an Advisor who has a broad view of the global economic, monetary and political environment. When stability returns to our economy and financial markets we will suggest a reduction strategy. We may recommend incrementally rolling out of a large defensive gold and silver position into other investment opportunities, but always keeping some precious metals as a safety net. McAlvany Wealth Management, LLLP (MWM) is a SEC Registered Investment Advisor located here in beautiful Durango, Colorado. Please call or me with questions or for more clarification. I can also introduce you to the McAlvany Wealth Management team to see if they would be beneficial in meeting your needs. 7.

9 Precious Metals Investment Choices and Alternatives Investment Advantages Disadvantages Bullion Bars and Coins Easy to buy, sell, transport, and store Highly liquid Tangible asset / inherently valuable Competitively priced, low premium Purchase with bank wire or personal check Requires secure storage - large bars best kept in commercial storage Greater risk of confiscation (gold) Less chance of increased premium value Rare coins Sentimental value Potential for increased premium value Considered to be safer from confiscation Purchase with bank wire or personal check Collector appeal Subjective market valuations Requires secure storage Quality important, needs to come from a reliable source Somewhat less liquid than bullion and semi-rare due to other market variables semi-rare coins Many benefits of both bullion and rare coins Potential for increased premium value Considered to be safer from confiscation Moderately priced Collector appeal Purchase with bank wire or personal check Should be sold to knowledgeable buyer for best price, but are still liquid Requires secure storage Quality important, should only be purchased from qualified dealer Re-strike and/or post 1934 coins should usually be avoided 8.

10 Precious Metals Investment Choices and Alternatives Investment Advantages Disadvantages ICA/DDSC Swiss Storage Easy to open account and do transactions Can be held in a Trust Low storage fees Is managed by a U.S. company Minimum investment only 10,000 Gold is deliverable at a reasonable cost Purchase with bank wire or personal check Slightly higher premiums than domestic on initial purchase Transactions can be slightly slower to settle. Only holds gold, and in limited forms Stored in Switzerland so no immediate access to your metals ICA/DDSC Toronto Canada Storage Easy to open account and do transactions Can be held in a Trust Low storage fees Is managed by a U.S. company Minimum investment only 10,000 Gold and silver deliverable at a reasonable cost. Purchase with bank wire or personal check Slightly higher premiums than domestic on initial purchase Transactions can be slightly slower to settle. Hold gold and silver in limited forms Stored in Toronto so no immediate access to your metals, but most of us can drive or fly there easily. 9.

11 Precious Metals Investment Choices and Alternatives Investment Advantages Disadvantages Mining stocks Current prices widely quoted Highly liquid May yield dividends Storage not an issue Industry knowledge required Geopolitical / environment, other risks Prices are more volatile than bullion No actual ownership of physical metals Mutual funds Prices widely quoted Highly liquid Professional portfolio management Dividend income possible Diversity reduces stock risk Some industry knowledge needed Many risks same as with mining stocks No actual ownership of physical metals Exchange traded funds ETF is a legal entity, subject to the liabilities of such entities No actual ownership of physical metals Risks associated with securities business No actual ownership of physical metals Risks associated with securities business ETFs are legal entities, subject to the liabilities of such entities 10.

12 Some Common Forms of Gold & Silver US 20 LIBERTY BRITISH SOVEREIGN SOUTH AFRICAN KRUGERRAND AMERICAN EAGLE CANADIAN MAPLE LEAF US BUFFALO PEACE SILVER DOLLAR US MORGAN SILVER DOLLAR US SILVER EAGLE CANADIAN MAPLE LEAF AUSTRIAN PHILHARMONIC 90% OR JUNK SILVER 11.

13 Payment information Wire funds to: Bank of Colorado 1199 Main Avenue Durango, CO Phone ABA Routing # For Credit to: International Collectors Associates, Ltd. 166 Turner Drive Durango, CO Tel # Account # Checks: Made out to ICA or International Collectors Associates (We cannot accept cash, cashier s checks, money orders, credit cards) Mail checks to: ICA Attn: Robert 166 Turner Drive Durango, CO To overnight a check: Send to address above. Use our phone number Bill us as recipient on Air bill (FedEx mailing label) Use our FedEx account number We don t accept cash, Cashier s Checks, Money Orders or Credit Card payments COINS USUALLY SHIP 10 DAYS AFTER RECEIPT OF PAYMENT BY CHECK OR OFTEN FASTER WHEN FUNDS ARE WIRED. Contact Information Broker. Robert Goodin 12.

14 Worksheet - Allocation This worksheet is provided to help you determine how much and where to invest. We usually recommend that 1/3 of your liquid assets be invested in physical precious metals. By liquid, we mean cash or easily liquidated accounts. These can be in personal accounts or in IRA and in Roths and some other retirement accounts. We generally recommend allocating liquid assets in thirds: 1/3 in physical precious metals, 1/3 cash/ currencies and 1/3 in securities such as ETF s stocks and bonds. Current economic or financial conditions may call for modification of the Triangle model. You may want to call to discuss how this might affect your allocation. A Total Dollar Value of liquid assets: Cash Savings Stocks, Bonds, ETFs, etc. IRAs/Roths/Convertable 401K s/retirement funds Other Total A: B Adjustments How much of this do you need access to cover the next year or so? Approx. the value of precious metals you own now if nay. Total B: C Subtract B from A D Multiply line C by.33 and enter on line D. If you own substantial non-liquid assets such as real estate or business investments, you may want to increase your physical precious metals to up to 1/2 of line C. Allocate for gold and silver - D The standard starting mix of gold and silver is 1/3 silver and 2/3 gold. That recommendations will be modified by: 1) The current price ratio of silver to gold 2. Your storage space 3. If weight of metals is a problem 4. Whether you are interested in ratio trading 5. Are anticipating bartering or trading metal for goods and services? 6. Your personal preferences or concerns about gold confiscation 13.

15 Request For More Information Please mail this request to: ICA, Att: Robert, 166 Turner Drive, Durango, CO Name Address City State Zip Please send more information about the following checked topics: Gold Silver Platinum/Palladium IRAs/Roths US Foreign Physical Storage Current Free ICA DVD Info about ICA Info about McAlvany Wealth Management Resource list for personal and family preparedness Other? I would like to be called. The best days/times/phone numbers or other remarks I d be happy to send information to your friends, family and associates Name Address State Zip May I say that you referred them? Other Notes: Name Address State Zip May I say that you referred them? Other Notes: Phone City Phone City 14.