I haven't made my first gold and silver purchase. It's on my "list of things to do". I don't see any particular urgency, since the collapse of the US government is still 20-50 years away. In the present, I don't know any employers willing to hire me and pay me in gold or silver. I don't know any businesses where I can buy things with gold or silver.
I have done my background research, and am sharing my conclusions.
I asked about buying gold on the Ron Paul Forum. That discussion is worth reading. I'm summarizing the details here.
The tax treatment of gold and silver is extremely unfavorable. If I buy gold and silver, it would be something to hold onto until after the US government collapse, unless I can find people willing to trade with me "off the books". It would also be a good inflation hedge. If you're investing in physical gold or silver, you're targeting an inflation-adjusted return of 0%. The bad news is that might really be the best investment out there! It's hard to compare gold and silver to other investments, because the gold and silver price is heavily manipulated.
Gold and silver are treated as collectibles, which means you pay a 28% capital gains tax rate, instead of the 15% rate on stock investments. Of course, if you have gold or silver, you may be able to find someone willing to buy and pay you in cash, without reporting the transaction. Legally, your options for using gold and silver as money are severely restricted. Fortunately, gold and silver are excellent choices for people who want to trade anonymously, without reporting their transactions to the government.
First, don't buy the GLD or SLV ETFs. They won't be trustworthy once the US government collapses. They loan out their holdings for short sales, and could be stuck in the event of a default.
Some people advocate buying gold and silver mining companies, but that is also risky. If you assume a complete collapse of the US government, stock in a mining company isn't going to be worth anything. Many mining companies have sold short their future production, which means that they won't fully benefit from a rising gold price. In fact, a rapidly rising gold price would force them to incur mark-to-market losses on their hedges, potentially forcing them into margin calls and bankruptcy.
I also don't trust electronic vendors like eGold. First, they are required to report all transactions to the government. Second, you can't be sure they aren't secretly practicing fractional reserve banking. In other words, they tell you they have physical gold equal to deposits, but don't really. Finally, there's no guarantee that the IRS or government won't seize their assets and shut them down. People who invested in electronic Liberty Dollars lost their entire investment.
State sales tax laws discourage coin dealers from operating in many states. There is no coin dealer that sells at a reasonable price near where I live. Unfortunately, gold and silver are taxed as "collectibles". Gold and silver are not legally recognized as money.
Where to buy?
The Internet dealer most commonly cited on the Ron Paul Forum was Apmex. The second choice was Northwest Territorial Mint. The Tulving Company was the third choice, but I was disappointed with the quality of their website. A commonly cited information source is 321gold, but I don't think you can directly buy coins from them. I didn't find the 321gold site to be that interesting, but a lot of other people refer to it. I've also heard Kitco mentioned a lot.
On Apmex, I noticed the following things worth considering.
- One ounce gold bars are sold for $14 over spot.
- Gold shot is sold for $5 over spot. Gold shot is pure, uncast gold. Gold shot would only be useful if you had your own jewelry business. Gold shot would also be useful if you wanted to trade with gold and make small transactions, but I prefer to use silver coins for small purchases.
- Apmex also sells gold coins smaller than 1 ounce, but I would prefer to use silver for small transactions.
- One ounce generic silver coins, called "rounds", are sold for $0.55 over spot.
- Apmex also sells 1/2 ounce silver coins, but I don't see any point dealing with silver coins smaller than 1 ounce.
- Apmex sells 100 ounce bars for $0.40 over spot.
- Apmex sells 1000 ounce "COMEX good delivery bars" for $0.20 over spot.
- Apmex sells 1 kilogram gold "COMEX good deliver bars".
Northwest Territorial Mint charges $0.50 over spot for 100 ounce silver bars and $18 over spot for one ounce gold bars.
Assuming that both Apmex and Northwest Territorial Mint are trustworthy sellers, Apmex looks like the better deal. Northwest Territorial Mint appears to be slightly more expensive than Apmex. I didn't analyze Tulving here, because their prices are higher and their website is poorly designed.
Kitco seemed to be slightly cheaper than Apmex, but I found their website to be inferior to Apmex's and Northwest Territorial Mint's. If you're buying from an Internet dealer, you would expect them to have a nice website. Kitco sells laminated gold slivers, like I mentioned in Protect Your Gold and Silver Coins.
I'm thinking of buying 100 ounce silver bars and 1 ounce gold bars. I'm planning to hold onto them until after the US government collapses. If necessary, I can "get change" for a 100 ounce silver bar with 98-99 one ounce coins. 100 one ounce coins cost more than a 100 ounce bar because of the effort required to cast individual coins. Once I start, I'll make small purchases every few months until I've reached my "target" holding of gold and silver. I'm thinking of putting 5% of my savings into physical gold and 5% of my savings into physical silver.
That handles the first issue. If I'm going to buy gold or silver, I'll buy online from Apmex. I'll probably start with a 100-ounce silver bar purchase to see if they're trustworthy. Northwest Territorial Mint is also worth considering. Enough people have said Apmex is decent, so I'd try them first.
Unfortunately, I have no idea if Apmex is reporting my transactions to the red market. If I keep my purchases under $10k, there's no reporting requirement. I probably won't find out if my privacy is being protected until it's too late.
I heard that some people had success with eBay. I wouldn't try that unless I found someone who lived in the same city as me and was willing to trade in person.
Where to store your gold and silver?
The consensus is that banks are for dumbasses. If you store your metal in a bank safe deposit box, it's like begging to be robbed. There were stories where the contents of bank safe deposit boxes disappeared, and the bank denied responsibility.
Further, the bank may be required to report safe deposit box contents to the government. In an economic crisis, you may not be able to get into the bank and recover the contents of your box.
People told stories where safes in their house were broken into or stolen. Apparently, it's only safe to store metal in your house if nobody knows it's there.
The best solution I can think of is to store some of my metal in my house, and have friends and relatives hold the rest for me. If your metal isn't all in the same place, then you're at less risk for being robbed.
There are two types of criminals who can steal your metal. There's the ordinary criminal. There's also the criminals wearing shiny badges and uniforms. I'm not sure which represents the greater threat! If you're planning to operate an off-the-books business, you're at risk for a red market raid.
The issue of "where to store your metal" is a huge problem. If you store it in a bank safe deposit box, you risk having it stolen by the bank or the IRS. If you store it in a bank safe deposit box, you risk that the bank will report your box contents to the red market. If you store the metal in your house, you risk theft by common criminals and you risk theft by red market bandits. There is, literally, no safe place to store metal coins.
There is one creative solution. You can practice full-reserve banking! If you are a participant in an agorist economy, you can lend your metal coins to other people who want to start agorist businesses. Individuals have a hard time borrowing from a bank, especially if they're borrowing small sums of money. The fees charged for small uncreditworthy individuals make it impractical to borrow from a bank. If you only make small loans to each individual, your risk is low. You would be charging interest rates of only 0.25% or 0.50%, but you would be getting security by spreading your wealth. You would be making metal-denominated loans instead of Federal Reserve Point-denominated loans, so you would be guaranteed to keep your purchasing power if there is no default. The IRS may seize the metal in your possession, but the IRS won't be able to seize metal owed to you by others.
The reason that you might be able to find willing borrowers is that borrowing from you would be more attractive than borrowing from a bank, for uncreditworthy individuals. Plus, you would be encouraging the growth of an agorist economy. If you found enough willing borrowers, you could start accepting deposits from others and start an agorist banking business. In a truly free market, banking is not exploitative.
How do you know you weren't cheated?
I haven't come up with a good answer for this one. If you buy gold or silver bars or coins, how can you be sure you're getting the genuine metal? I've heard of specific gravity tests and chemical tests, but I haven't heard any stories of people actually testing their metal after purchase. It would be nice if I knew some assay service that would help me verify that I didn't get ripped off. The only test I could perform easily myself is a specific gravity test.
Someone said that "drilled out bullion" is a problem. For example, if you buy a 100 oz silver bar, the core could be drilled out and replaced with other metals. If you use an alloy of metals, where one is less dense than silver and one is more dense, you would not get caught. Some people said that trick was more common in the early 1980s, when the price of silver was very high relative to other metals.
I don't understand why that same trick won't also work for 1 oz coins.
There also are professional assay services, but I didn't notice any specifically recommended.
Someone mentioned that there are services that will take your 100oz bars, melt them, and re-forge 100 1oz coins. If you were suspicious about your bullion collection, you could take a random sample and have them melted and re-cast.
Instead of buying silver, maybe you should buy the cheapest metal available. That way, you know you aren't being cheated with alloys of other metals! However, gold and silver are generally recognized as money; other metals are not. If you use cheaper metals, you need a larger volume of metal to store the same value. On the other hand, if you're storing iron or aluminum bars in your basement, who's going to steal them?
Does gold and silver outperform the stock market?
I've been considering this issue, and find it to be really disturbing. Central banks are selling/leasing their gold and silver reserves to drive down the price. There is downward manipulation of the gold and silver price, although it's hard to say how much exactly.
Some people have performed studies where they analyzed "stock market price" divided by "gold price" over time, and gold came out favorably. It's hard to be sure if that's a good indication for the future. If central banks are selling off their gold and silver to keep the price down, they will eventually run out of metal. The analysis I saw didn't consider the effect of dividends, which adds around 2%/year to the stock market returns. Gold and silver are the best inflation hedges. Gold and silver investments have storage costs and transaction costs.
If gold and silver really do outperform the stock market, I find that to be incredibly disturbing. That would mean that, even with their massive government subsidies, large corporations lose money for their shareholders relative to an investment in gold or silver.
Gold and silver can also be used to dodge estate taxes and other taxes. If you buy metal and give it to someone, that's practically untraceable. If you want to do an anonymous large transaction, it may not be practical to launder a large quantity of Federal Reserve Points. Large transactions by check are reported to the red market. If you withdraw or deposit a lot of cash, your bank is required to report you to the red market. If you hand someone 20 ounces of gold, that is practically untraceable. Plus, by holding the physical gold, you have an inflation-hedged investment.
I'm seriously considering investing in other metals, in addition to gold and silver. For example, if you invest in platinum or palladium bars, they might not be recognized and seized by red market looters raiding your house. Platinum is currently more expensive than gold, and gives you more value per unit of mass. The platinum market isn't manipulated like the gold market.
I'm also considering investing in cheap metals. If I buy gold or silver, I risk being cheated and buying alloys of cheaper metals instead. If I buy the cheapest available metal, such as aluminum, I'm at much less risk for forged metal. There's no cheaper metal available to use as a substitute! Further, thieves would recognize and steal gold and silver. They may not recognize other metal bars in my basement as being worth stealing.