I’ve got to be the cheesiest person alive today, but I can’t help it. I’m sitting here thinking of all of the ways I can introduce today’s topic (you’ve probably guessed it… physical gold and silver), and all I can think of is the cheesiest song in the world (with apologies to all of my Aussie readers!):

“Let’s Get Physical”, by Olivia Newton-John.

I know, I know. It’s cheese. Pure Velveeta. Have a little wine with all that cheese. Seriously. I can’t even believe I am mentioning it. And I may just have to find the equally cheesy picture of Olivia in the sweatband to go with it…

Olivia Newton-John Montage

How about those leg warmers? Hot hot hot... Physical indeed!

(To my Aussie readers: I do like Olivia Newton-John, but we here in America who were alive in the early 80’s have heard this song approximately, oh, 100 million times, conservatively speaking!).

So heaven help me, and I apologize in advance if this song is stuck in your head all weekend (“Let me hear your body talk, your body talk, let me hear your body talk…”)…but in the interest of making finance fun (especially on Fridays, right???) I am going with it.   🙂

I’ve received so many questions on “the physical” metals lately it’s astounding. And not just on the new Hard Assets Alliance, although there’s plenty of those, too, which I will get to in a moment, but also simply on physical metals in general.

Apparently you all want to own the “real deal” as much as I do, instead of possibly-questionable paper (CEF and a few other notable options excepted…) and I applaud you!

And on that note, I have a success story to share with you today before I dive into your questions!

I received a great email a few days ago from Kim, who said:

KFG…. I DID IT! 🙂

Purchased my first set of silver coins and one gold coin from my local coin dealer. My heart was thumping and I was so nervous. 🙂 I must be a girl because all I could think was “oh, how pretty!”  lol!  It’s addictive, but I walked away with a few lessons learned.

Although, I was a bit shocked to hear they charge $2.65 per coin above spot. That’s like 9%. Is that normal? Gold was 4% over spot.

Thanks for giving me the courage a bit of knowledge to take the dive. I feel better, and can’t wait to get more.

Congratulations Kim!  I am so happy for you, and am laughing and can relate to your “oh how pretty” remark. (It’s fun to buy “real” assets sometimes, versus abstract pieces of paper!). Also, if you would ever like to share your “lessons learned” we would love to hear them and I’m happy to run a guest post from you (that goes for ALL of you with investing lessons learned…please send them in!).

And yes, the premium/mark up for coins is much higher than for bars, particularly for desirable and well-known coins like Eagles—it costs more to produce a legal-tender coin and engrave the pictures/etc. on it, and it varies with supply and demand, too. (e.g. if there is a shortage of one particular type of coin sometimes the premiums spike up somewhat, but you also can sell coins back for much more than the spot price of bullion, so it tends to work out).

Great job on taking that first step; I’m so excited for you!!! Now you will catch yourself checking the spot price all of the time…keep a tab on it of course, but try not to obsess about it every hour of every day (as I did at first). Remember why you bought it and continue to add to your position on “the dips” until you are happy with its percentage in your portfolio.

Congratulations!

Now onto your questions…

First, Maile asks,

Oh please do the gotchas of physical gold and silver.  Have fun in LV, must be hot!

Sure! The main “gotchas” of physical gold and silver are theft and fire (if you store them on your own at home), or storage/insurance fees (if you store them at a vault). Also, they are taxed at the commodities rate, which is currently higher than the capital gains tax rate (28% vs. 15%, although that may change at any moment…). This is one reason I’m a big fan of the new Hard Assets Alliance (yes, shameless plug…but I wouldn’t recommend it if I weren’t using it myself—more on that in a moment!) because the storage fees are very competitive—only 0.5% to 0.7% per year for gold, and 0.6% to 0.8% for silver).

That’s really it…physical gold and silver (particularly well-known coins and bars) are very liquid and have held intrinsic value throughout history, from the earliest civilizations until today. That’s not to say that you don’t need to pay attention, though…when certain conditions exist (e.g. real interest rates rise as they did in the 1980’s under Paul Volcker) then it will be time to sell and/or trade your metals for another asset class. (And of course if our crazy fiat monetary system collapses beforehand, you will be very, very glad you have some precious metals to your name!).

Next, Anton asks,

I have always enjoyed and trusted your many opinions. I am a bit afraid that some of your readers might question your guidance with regard to Hard Asset Alliance since, I understand, you will be receiving compensations from them. I personally believe that you are above this… but… it might be a good idea to clarify exactly what your role & compensations are. Just a thought …

While I am on the subject of gold, I have two questions:

1) Which makes more sense: to buy gold bars or gold coins?

2) In an economic breakdown, how would one be able to USE their gold to purchase goods? You would not want to convert back to rapidly deteriorating fiat currency…?

Hi Anton,

THANK YOU for pointing that out!

YES, that was my first-ever “affiliate” email and I am definitely not trying to hide anything! I just put a huge P.S. on the original post and will clarify in this QnA in case people don’t go back to the original post to see that.

As you know, I am in favor of complete “radical transparency” and would never recommend something that I didn’t believe in and use myself – that is completely against my moral code.

You can read the P.S. on the original post so I won’t repeat it here, but yes, I will receive a very tiny fee as an affiliate of the Hard Assets Alliance (I am a “Founding Member”, and am honored to be one, and I truly believe it is a great way to buy and store metals overseas and have opened and funded an account myself).

Like most affiliate relationships, however, it’s a very, very tiny amount, and the whole point of the service is to make it easier and less expensive for people to buy and store precious metals internationally, which is currently rather difficult to do.

(I’ve tried many options myself, even sending Kung Fu Guy to Singapore to open up a safe deposit box over there, which he did…but then we have to buy metals in Singapore and get them to our box, and/or ship metals we already own, both of which are rather complicated with customs and attempting to insure shipments or carry them on the plane ourselves…It truly is not a trivial matter!)

To your other questions, it really depends on why you are buying them…bars are typically less expensive than coins (they carry less of a premium) and easier to store (you can stack them), but coins are easy to carry around with you (and supposedly easier to “spend” in a hyperinflation, as they are very recognizable and portable).

So if we suffer an economic upheaval like a hyperinflation where you need to “spend” your coins (or bars), the idea is that they are widely recognized as being valuable. Almost every single person in the entire world thinks gold and silver have value…from ancient times (Greek, Roman, Chinese empires) to pirates to everyday people today.

So you wouldn’t need to exchange your gold or silver to rapidly deteriorating fiat currency first…whoever you were negotiating with would much rather have your gold/silver at that point and you would just agree on how many ounces whatever you were discussing was worth and pay accordingly.

Thanks very much for your great comment (and for helping me clarify the affiliate relationship—I do not want to be murky about that at all, although I also don’t consider it a “big deal”…I did a lot of due diligence before deciding to participate and I truly believe it is an outstanding solution for people who want to buy and store metals internationally).

Next, Matt asks,

Hey KFG-

What’s your unbiased opinion of the Hard Asset Alliance? Why’s it better than the other services out there?

Thanks,
Matt

(KFG Note: I swear this is not a “plant”…   🙂   Matt is a good friend of mine who emailed me wanting my honest and unbiased opinion, which of course I want to share with all of you.)

To me, the best benefit is its flexibility.

I like it better than GoldMoney.com (which I think is probably the closest to HAA) because you can buy and store gold/silver coins and small bars (you can take delivery of small bars with GoldMoney, but they literally melt down a good delivery bar (the huge 400-oz one) and then recast it (and of course you have to pay for that– it’s 4% of its weight for a 100 gram ~3oz. bar, and 2.75% of its weight for a 1000 gram ~32oz. bar). Then if you want to sell those bars, you can “sell”/return them to GoldMoney, but they charge you 2% for each returned bar and add it back into your account, or you could take them to a dealer, but it seems to me like that might be slightly more difficult than a more “typical” bar– the dealer would most probably have to assay it.

I also like that you can store the metals in many different locations worldwide, whereas with GoldMoney it’s only UK, Switzerland, and HK, and I like the fact that local dealers compete for your business and that you can choose the region with the best price overall before you decide (for example, if it’s cheaper in Zurich than in Singapore)– my understanding is that no less than 4 local wholesale dealers, and in some cases the actual refiners themselves, bid for your business at each location, so you should get a very competitive price. (And Gold Bullion International, the partner with the trading platform, has pledged that their markup will never be more than 1% of the dealer’s price, and it’s on a sliding scale– that’s worst-case). The storage fees are very reasonable, too.

Those are my top reasons, particularly for international storage — of course you can buy coins and bars at a local dealer, but it’s harder and more expensive to ship/store/insure those metals internationally at most dealers (or to try to do it yourself).

Anyway, there are always trade-offs, and it’s not “perfect” (nothing is!) but I think it’s an awesome solution for people wanting to buy and store their bullion internationally.

Next, Mike asks,

Awesome!!

Looks like it’ll be a great fit…opening an account just now….this seems like the perfect thing for an open opportunity Ira??

Have a great week!

And Gary asks,
Your Hard Asset Alliance looks very interesting, and Kent tells me he is very interested, but we are concerned that it’s not a valid way of storing assets held in our IRA LLCs, which there are very specific rules for the vault that gold can be held in, and who the actual custodian is. I wonder if any of the alliance partners know about this?

Hi Mike and Gary,

Yes, I opened an account too and am very excited about it. I asked the head of the Hard Assets Alliance about the Open Opportunity IRA or Self-Directed IRA LLC, and that part looks like it will be a few more months to get set up– here is what he said:

“No problem Susan.
Unfortunately, we do not yet have a good IRA solution, but we are working with one. We are interviewing Trust Companies willing to provide the necessary custodial functions required by self directed IRA LLCs. We hope to have a solution in the next few months.”

So, just wanted to let you know! It’s in the works, but not available yet unfortunately.

Thanks for your comment and congrats on opening an account!

Next, George wrote in,

Readers: it’s worth noting that “Hard Assets Alliance” is simply the private-labeled, re-branded version Gold Bullion International’s trading platform. That said, there is no need for anyone to ever pay the membership fee associated with “Hard Assets Alliance.”

*NOTE: This same white-labeled platform is offered at several other firms.

**NOTE: you can also open an account directly at Gold Bullion International, however, the minimum required is a bit higher.”

Thank you for your comment (and for what I am sure is your honest desire to help your fellow readers out!); however, your information is incorrect…

You are wrong on all three counts.

Just to make sure, I asked the head of the Hard Assets Alliance and here is what he says:

Individual retail investors can no longer purchase directly from GBI. Your reader also made a comment about other private label sites. There will be no more private label sites offered by GBI, as they have agreed to direct all retail inquiries to the Alliance. And we are the lowest price for the sites that are currently offered.”

I did a lot of due diligence on the Hard Assets Alliance before agreeing to become a founding member, and I was honored to be chosen to participate. I truly do believe it is a fantastic and highly ethical service, particularly for those people wishing to buy and store precious metals internationally (myself included), and I did open my own account and have funded it (and am very excited about it).

I’ve struggled to find a great solution for buying and storing metals internationally, and GoldMoney was the next best thing, as I answered Matt above, but GoldMoney isn’t perfect…it’s difficult to take delivery of your metals.

That’s not a slam on GoldMoney at all—I think that is also a good service and I have a lot of respect for James Turk. But the HAA offers more options internationally, and additionally has very competitive prices because a minimum of 4 local wholesale dealers (and in some cases the refiners themselves) bid for your buy order, and GBI has pledged that their markup will never be more than 1% of the dealer’s price on a sliding scale—and that’s worst-case.

I truly do think it’s a great option for people.

Anyway, I hope this answers your questions about it…thanks!

Next, Thalie asks,

OK – I am almost ready to purchase some gold coins. Is it realistic or practical just to buy one or two at a time? If I don’t buy in small quantities I feel that I might not buy any! What do you suggest? And…buying coins is more secure than investing in stock? Thank you.

Hi Thalie!

Yes, it is perfectly fine to start by buying just one or two at a time (particularly if you’re buying 1 oz. gold coins…at $1500+ each that’s not exactly a “small” purchase, so don’t feel “bad” or “intimidated” by thinking you’re just a small fish!).

Especially when you’re just beginning, I recommend starting out small. You can always buy more later, and once you’ve taken the first step you will have SOOO much more confidence – it’s amazing.

For your second question, is buying coins “more secure” than investing in stock, I need to do an article on risk. When you’re getting started investing, risk is one of the most important aspects to consider. I will give you a gross generalization for the sake of this QnA (but I really need to do a full article on risk!) and say that yes, buying gold coins is more secure than buying stock.

But many people (particularly the mainstream financial media…) would disagree with me, and boy, do I really need to take an article and explain exactly why I believe that!

Thanks for your great comment and questions, and good luck with your first coin purchase! Let me know how it goes!

On a similar note, Mitch asks,

So… i’m going to say something that I will never tell my mom.  She has always been right! I’m reading your blog and seeing the books you’ve read, and my mom has been giving me these books and telling me the same thing for YEARS! No joke… at least 15 years. And do I listen to my mom…. NO! If you ever meet my mom, you can’t tell her. Although, I will share your site with her as she will love it. And probably tell me to listen!

Anywho… I’m looking at buying silver and think the local coin company is the way for me to go given how easy it will be. However, what types of questions should I ask. And do I look lame saying “uh… I only want to invest $1-2K right now, to start”. I guess that has always been my fear, to sound ridiculous and so SMALL! I mean, those green boxes on one of your suggested websites is going for $15K. Wow.

Hi Mitch, welcome to Kung Fu Finance!  And as I said to Thalie above, NO you do not “look dumb” starting out small…(and I get this question OFTEN).

Basically, everyone wants to know, “is it OK to buy gold and silver if you aren’t a gazillionaire?” And of course it is, and even big-fancy-super-rich people buy slowly and in small portions and “in tranches”, averaging into their purchases a little at a time.

So please don’t worry, and just take that first step. You will immediately gain confidence (and thanks for sharing my site with your mom!).   🙂

As far as questions to ask, I think I covered that in a previous article but you want to find out first of all if they have what you are looking for in stock, what their premium (mark up) is, how much they charge for shipping (and/or storage if they offer that, and if so, where do they store it…you want a well-known insured non-bank storage facility like Brinks), how do you pay for it (personal check? bank wire? credit card? etc.)…I am probably forgetting some but those are the basics.

Best of luck, and please let me know how it goes!

———————————

Are you feeling “physical” yet?  I hope you’re ready to rock on into your weekend and have a great one!

If you’re interested in learning more details about the Hard Assets Alliance, then click here…(yes, that is an affiliate link…) They have prepared a detailed FAQ for all of us investors and you can find the answers to all of your questions (or of course feel free to ask me—I opened and funded my own account this week!).

And for those of you who do click through my first-ever “affiliate” link, thank you for helping me keep the lights on here at Kung Fu Finance!

(LOL…it’s probably not even the lights…but might cover hosting for one month, maybe…)   🙂

I apologize if you have emailed me lately and I have not responded yet, and I have more questions to answer but will save them for next week—it’s been a very hectic summer so far (and Vegas didn’t help!). But I WILL get back to each and every one of you so please keep your questions and comments coming—the whole point of Kung Fu Finance is to help YOU achieve financial success and independence!

Have a fantastic weekend, and thank you for reading…

To your financial success,

— Kung Fu Girl