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Wading into the “safe harbor” of Gold

(Corrects Singapore Gold Exchange to Shanghai Gold Exchange in second paragraph.)

As the stock market stumbles and the commodity markets get hit just as hard this huge swirling and ever darkening vortex has the New Breed of Brokers scurrying about waving their arms up to the sky looking for the sign of the bull. This is not so pretty a picture for the unprepared investors and it has just been horrible with all our seniors now hanging on by their fingernails in a near zero based global interest rate forcing them into the equity markets for income from dividends or price movement. To these ranks of elderly investors the havoc is much more compounded by this current state of radical trading.

In a few of the recent breaks of the past everything from Stocks, Commodities and Real-Estate were pulled into the abyss and the safe harbor of metals didn’t work as well as they should have for an insurance policy from a “Black Swan” occurrence. This non-cyclical break in the metals really caught many traders by surprise as National Banks such as Greece just emptied its vaults of what gold was left from the Cyprus disaster and it has sold gold at a frenzied pace to raise capital to cover overstretched balance sheets as the stock markets fell. The only exception being China as it sold off paper assets such as T-Bills & bonds but continued to buy gold aggressively through the Shanghai Gold Exchange. Every day technical traders watched as the oversold numbers grew to unprecedented percentages all the while looking for the inevitable rebound point that is brought about by too much selling referred to an “oversold condition”. Finally when silver could be compressed no more, like squeezing a large coiled spring, it exploded to the upside feeding on the bear numbers that are coupled to buy stop orders in the oversold market place and gold followed its’ sister to become a steady performer climbing daily to new heights as the stock markets plummeted lead by Asia’s 33% correction in their stock markets which just proved to be too much for all the other global equity markets that are linked to the production that rumbles forth from the Chinese furnaces. The question that is being asked now is how I get into this Alternative Asset Class without having a good guide to help me from stepping into the proverbial craters in the road as the metals are acting as they should in a meltdown.

The first question that needs to be addressed is “where do I go to buy precious metals”? With just a little Googling, it will become an obvious answer as the time tested rules are as true today as they have been for many years. Here’s the premise, it is very hard to run a business, regularly deliver a good product, handle storage, ship & insure and make payroll over a long period of time. So the answer becomes very clear and that is a long standing company over time is surely a strong candidate in picking a metals house to deal with for your purchases. The one major factor that you have working for you now is the internet. A little bit of homework should allow you to discover who’s been in business for a longer period of time and also has good reviews from their client base.

The next step to start your safe harbor portfolio is to do a little online shopping and get a price comparison chart going. Very quickly you will start to see the highs and lows of the market. Use the following product as a baseline for your gold purchases. Use the American Gold Eagle in one ounce size followed by the Canadian Gold Maple Leaf coin in the same size of one ounce coin. Also you can use two of the highest quality bullion bars made which I feel are the Pamp Company Gold Bars in one troy ounce size cast in 99.99% fine and bars made by Credit Suisse is the other excellent bar bullion. Both bars are Swiss made and get extremely high marks for global recognition thereby reducing resale issues. After a short time you will start to see the extremes in prices. Throughout the high and the low prices you’ll start to get a feel for the market. It’s very important that you utilize some computer time and do this homework to protect yourself. Figure it this way if it’s too cheap to believe, it is. Simply put Gold is the oldest form of money so clearly put if someone wants to sell you a dollar bill for less than a dollar you don’t want to trust that company with your gold purchases; somethings wrong. That applies to the high end as well, it’s all the same product on the periodic chart. If its 20% or 30% over the next guy don’t bite on astronomical prices as it’s the same metal.

In this brief guide to alternative metal purchases, the real difference that you need to be aware of in the Gold Market are as follows. The first form of refined products that I feel are a good choice is the bullion bar which come in many weights. The gold bar or ingot form goes back to ancient Egypt when gold was poured into a sand cast dug in the floor of the Pharoses Treasury. After 35 years as a gold broker I’d like to share with you some of my experiences and help to get you introduced to the two most recognized Hallmarks in the Bullion Bar industry. They are both Swiss, which I mentioned before and can be resold at most banks around the world. These well-known Hallmarks are named Pamp and Credit Swiss and I recommend them without reservation as I did earlier in this article earlier. Remember when you want to convert from your hard assets back to a paper one thing you want is for the conversion to take as little time and hassle as possible and you do not want to take a mark down or what’s called a haircut due to having a lesser known Hallmark. Embrace the old adage that you get what you pay for and buy the best.

The last form of metal for you to consider investing in is the Sovereign gold coin. I was just offered a gold coin with the likeness of one of the Roman Caesars on it. To say they tend to hold their value over time is an understatement as the price was rather mind boggling. So let’s take a second just to get you to briefly understand what a sovereign coin is and why you want this as a place to put your hard earned money for preservation.

A coin that is struck by the United States Federal Mint or the Royal Canadian Mint (RCM) offers you the safe guard of purity and size denomination. These Mints also have this great thing call the US Secret Service & Royal Canadian Mounties which has heavily armed officers that will arrest counterfeiters and this helps to assure the public at large that printing your own money is a very bad idea as these laws are vigorously enforced. So for this main reason, I always try to direct my first time buyers into this investment which has safeguards options built into it which in this case is a Sovereign coin minted by a large nation.  

Closing recap for Alternative Investments and their risks 

Here's a few tips to help you with the metals market that I would like to reiterate with you. Never buy unsecured or non-certified metals, and I mean never. Always make sure you buy recognized Hallmarks on bar bullion and only use Sovereign coins produced by well-known mints representing highly recognizable countries. Never borrow to buy alternative investments as your rate of return risks jump tremendously. I like to recommend only converting about 5-10% of an individual’s portfolio into precious metals. Never be nervous about making small purchases. Always look at metals as a long term invest and not a get rich quick plan. Start small and use the time proven tool of dollar cost averaging (DCA) and add as the market moves.

Pete Thomas is a senior vice president at the Zaner Precious Metal Division. As a licensed floor broker he was a filling broker in the silver pit back in the days when silver ran to $55 an ounce. He currently manages a global cash desk which handles Refiners, Recyclers, Mining Operations and Coin & Bullion companies. He is constantly in demand for his insightful opinions drawn from his 35 years of metals trade to such news companies and magazines publishers as EconoTimes, Bloomberg News, The Guardian, Hard Assets, Kitco and Futures magazine.

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