It’s been a while but I’d like to hear from you about recent experience or success purchasing physical gold and silver. I’ll get the ball rolling by relaying my conversation earlier today with Mr. Hannes Tulving of www.tulving.com. They have good quantities of silver Eagles, silver Olympic Maple Leafs, and gold Eagles. The premiums are substantial but that is precisely why there is inventory. As Jason Hommel of www.silverstockreport.com has been hammering home for weeks, the only way dealers can keep any inventory in stock is buy raising premiums to account for the excess of demand over supply.
I’d be careful buying at these premiums especially if this will be the first or single purchase in the past few months (or for many months into the future), but those who have substantial new money to commit to bullion can buy in moderate quantities and be just fine. If you do have $20,000 or more to invest, I would definitely go with wholesale bars of 1,000 oz. silver or kilo gold which Tulving and others are selling at very small premiums (near historical norms). No longer do you have to take delivery of COMEX contracts to get wholesale metal; the dealers are now bringing it to you (see more discussion below). Some of you may want to let Jason Hommel, Ted Butler, David Morgan and others know about this development, which could turn out to be pretty huge in the scheme of the gold and silver markets.
Otherwise, one way to deal with the premium issue is to perhaps split the investment into two and place one half into bullion and the other half into an ETF, or other metal-backed investment vehicle, such as GLD or SLV. Make sure there is true metal backing and adequate legal protection for investors. GLD, SLV, the Swiss ETFs from ZKB, and the physical metal ETFs from ETF Securities in London offer adequate protection. If you are considering others but you are unsure of their safety, please get in touch with me.
Note that while Central Fund of Canada is a perfectly fine outfit (I still owe you my report on them and the fact they are not experiencing “delays” as alleged by Ted Butler) and may be a great way to invest in precious metals, the shares now carry a very sizeable premium (11%) so that would not be an appropriate substitution for physical purchases. This is especially true in the case of gold Eagles which can be purchased from Tulving and others for about $70/oz. (8%) over spot. Yes, this is steep premium but if you put half your intended investment in the gold ETF GLD and the other half in gold Eagles, the average premium is only $35/oz. This works even better in the case of silver, where the premium on silver Eagles is currently $4/oz. (35%). Put half in SLV, however, and the average premium is reduced to $2/oz. Indeed, the large premium on silver bullion products is probably a main reason why Central Fund itself is trading at such a high premium considering it holds approx. 50% of its assets in the form of silver bullion.
If and when retail premiums subside somewhat (or premiums on ETFs rise), the second half could then be moved into bullion. Don’t believe the anti-ETF hype, the ETFs I discuss above have the metal and are among the safest alternatives to bullion held in your own secure possession. I suppose the cost of disagreeing with me on this is that you will pay $4 over spot for silver that you can buy at spot now (through the ETF). Should the rampup of retail bullion manufacture eventually catch up with demand, which is highly likely, I promise that you will see a steep opportunity cost attached to your tinfoil-hat-tinged disbelief.
In addition, the allocated account programs at Perth Mint, FideliTrade and others are passable alternatives for larger accounts where metal deposits are in the form of wholesale bars and where you are provided with bar numbers or a warehouse receipt specifying the exact bars that you own. Despite the negative press and hand-wringing, it might also be acceptable, though only as a last resort, to consider the unallocated program at the Perth Mint. This is only because the Mint is fully backed by the Government of Western Australia in case of insolvency.
Along these lines, I would consider it imprudent to consider new investment in unallocated accounts or pool accounts offered by private entities such as Kitco, banks and dealers. Normally the fact that you pay no storage fee or premium might be an acceptable tradeoff against the default risk, especially if these accounts are used for trading in and out of the market, but given the current circumstances of the world’s financial system the risk of default is way too large. If you are currently in one of these pool or unallocated accounts, please look for opportunities to get out soon.
One more thing. I have noticed a very large increase in the quantity of wholesale bullion offered by retail dealers, and in the case of at least Mr. Tulving, wholesale bullion being sold. For example, note that www.tulving.com has “over 200″ 1,000 oz. COMEX acceptable silver bars in stock. And for delivery by the week of October 13, Mr. Tulving has “over 100″ of kilo (32.15 oz.) Johnson Matthey COMEX acceptable gold bars. He has apparently been selling these like hotcakes. Where are these bars coming from? Mostly from the refiner. This is nothing less than the beginning of retail investment demand sucking wholesale metal out of the industrial market. I’ll have more on this later to the extent Jason Hommel, Ted Butler and others do not start to adequately cover the topic now that I have let the cat out of the bag.
In closing, please consider providing your own recent physical buying or selling experience in the comment section below.
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