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Adventures in buying and selling gold

Posted by John Reed on

I had a little adventure in gold and silver that some readers may find instructive.

My book How to Protect Your Life Savings from Hyperinflation & Depression, 2nd edition has a chapter on “Gold and other commodities.” When I started the book, I expected to recommend both. I’d always heard gold was THE hedge against inflation.

How To Protect Your Life Savings from Hyperinflation & Depression, 2nd edition book

Au contraire. It is “not a factor” to quote one of Doug Casey’s interviews. Logic suggests gold would be great in inflation. Historical reality and a closer analysis reveals it has too many disadvantages. Silver has a shorter, but similar, list of disadvantages. Here is my Web article about it:
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https://johntreed.com/…/60940227-disadvantages-of-gold-as-a…
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I recommended AGAINST both gold and silver while acknowledging the advantages of each. I never bought any of either. So how did I have an adventure involving them?
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My wife inherited both. Those were physically located in the Boston area. How do you get them to where we live in CA? Registered insured USPS mail.
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Why not take them on the plane with you? They are heavy. Luggage gets lost and there are low insurance limits on such losses. Do you really want to put gold in a tray with your cell phone and shoes with strangers behind and in front of you and strangers in TSA uniforms pawing over your stuff maybe with you not present. FedEx or UPS? I don’t know. My impression is the USPS has the best insurance and reputation for this sort of thing.
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The late diamond dealer Harry Winston was famous for sending his diamonds around with registered mail. Both the gold and silver we shipped home arrived promptly and safely in Priority Mail boxes.
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Upon our finding gold my brother-in-law hid, I told my wife we should immediately sell it because it was overpriced based on comparing the current price to the historic, long-term average, real (adjusted for inflation) price. My calculation of that long-term average is about $642 per troy ounce. My wife’s tax basis in the gold is the fair market value on her brother’s date of death, October 11, 2016. You can easily look that up on the Net. It was $1,253.20—close to DOUBLE the historical average.
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My wife wanted to think about it. She has a bit of a sentimental desire to keep it as a reminder of her brother. Also, she likes the diversification.
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I later said, “How about we sell half the gold and trade it for junk silver?” She agreed.
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Silver has two salient advantages for my hedging against hyperinflation: Its current price is near its long term historical average of $15.41 per troy ounce and, in the form of pre-1965 dimes, quarters, and half dollars, it is a great barter item because it comes in convenient denominations.
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In an inflation crisis, gold is a barter item—and probably illegal to possess. One reason it is an awful barter item is it comes in overly large denominations. Our gold eagle coins are one ounce. As of today, they are worth $1,198.79. And barter markets do not give change. What can you shop for with a $1,200 bill to be used as exact change?
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In contrast, a pre-1965 half dollar is worth $6.11 today according to coinflation.com. A quarter is half that; a dime, one-fifth of that.
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So, how do you physically trade gold for pre-1965 half dollars? It ain’t like buying a quart of milk and a cantaloupe.
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I considered on-line dealers like Apmex and JM Bullion. Too many complaints about coin quality of what they received being unsatisfactory and other service issues.
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I looked on line for local gold dealers. Many had a street view showing a house or apartment building. They usually required an appointment. That sounded too much like a drug deal.
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I decided to visit two that looked decent on street view and the neighborhoods looked okay. One told they could not give me a quote because the amount of gold I wanted to sell and the amount of junk silver I wanted to buy exceeded their inventory. They would have to see what they could buy and sell it for. The amount I had was not that great. The store, which looked substantial, was apparently hanging by a financial thread.
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The other store—Oakland Silver and Gold (OSG)—seemed squared away. Their buy and sell prices were displayed on an electronic screen in the store, changing every 90 seconds. The owner paid $10 more than the price on the screen for gold. I checked other prices. OSG was the same or only slightly different.
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Junk silver is a little different than gold. It is typically priced at a multiple of face value. I had to go in two days because they overlooked a half bag of 50¢ pieces in their vault. A full bag of junk silver has $1,000 of coins in terms of their face value. I paid 13.6 x face the first day and 13.5 x face the second. The silver price fell in between.
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I bought half bags of half dollars. They hold $500 face value which means there are 1,000 half-dollar coins in the bag. I did not buy full bags because they are twice as heavy as a half bag which weighs 27.8 pounds.
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Pre-1965 silver U.S. coins are 90% silver and 10% copper. The industry says the average full bag of such junk silver contains 715 ounces of pure silver. That means the whole bag’s contents, if melted down would yield 715 ounces of silver. If you divide that by 90%, you learn that a full bag’s TOTAL weight would be 715 ÷ .90 = 794.4 troy ounces counting both silver and copper.
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You get the lowest price when buying metal if you buy BARS. But that means a person who buys from you may require an ASSAY to PROVE it’s really gold or silver. That is NOT the case with silver coins which people can tell are what they claim to be. They are worth too little to bother counterfeiting. Gold coins, to me anyway, are too valuable for me to not get an assay to prove they are 99% pure gold.
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What denomination? We dug up my brother-in-law’s junk silver in his yard after he died. He had about 70% quarters and 40% half dollars.
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I only bought half dollars. Why? You have to pay a premium for silver dollars. Screw that. Often, you have to pay a lesser premium to buy half dollars.
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I did not if I bought half dollars that were in inventory. If I wanted more, and the owner had to order them, he would get charged a premium and would pass that ought to me. I bought out all his inventory and told him to call me when he got more in because it still had not spent all the gold I wanted to get rid of.
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What about quarters and dimes? Wear is an issue with junk silver. The larger the denomination, the less the wear for a same-year coin on average. In other words, the average, say, 1955 half dollar has more wear than the average 1955 silver dollar. 1955 quarters have more wear than same-year half dollars. 1955 dimes have more wear than same-year quarters.
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The more wear, the less silver and copper in your half bag. But since they sell by the 500 or 1,000 coins, not weight, you get less silver for your money in smaller denominations.
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On the other hand, the OSG owner said many people prefer Walking Liberty half dollars (1916 to 1930) to newer Franklin (1948 to 1963) or Kennedy half dollars (1964 only). Barber half-dollars are even more valuable and more worn.
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That is numismatic (rarity) rather than bullion value. I have zero interest in numismatic value. To hedge against inflation, you need a commodity. Silver and copper are commodities, I prefer coins to bars to avoid assay issues, but all I want fundamentally is the silver and copper.
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Rarity is probably not valued in hyperinflated countries like Venezuela where it is hard to find toilet paper, food, and crucial medicine.
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In intended to count the coins and make sure each was pre-1965 IN the store. That was too time-consuming. I did confirm that they were silver by looking at the edges. Post 1964 silver colored coins have brown copper edges.
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When I got home, I counted and sorted the coins by type (Barber, Walking Liberty, Franklin, Kennedy). The count was exactly correct and each and every coin was pre-1964. The counting and dating are essentially done by finding a dealer you can trust.
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When I went back to find the additional half bag, I just made sure the denomination inside the bag was half dollars. When I got home, I counted and sorted them. Again the count was correct and they were all junk silver.
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I was also concerned about robbery after leaving the store and brought my son the first day. Not for muscle, but to call 911 in sight of the perps while I was getting robbed.
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The owner said that was not necessary. He was right on Wednesday. OnThursday when I had to go back to buy the other half bag, we just carried the white canvas bag in plain sight and dumped it into my trunk and I drove away with no son convoy. Still, leaving a gold store carrying a heavy bag strikes me as sort of asking for it. Although, it could actually be a good weapon.
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I do not like that the coins are filthy. But having seen Antiques Roadshow, I am terrified of cleaning them. Sure enough, the on-line advice is NOT to clean them except by soaking them in clean water. You can’t even rub them with a cloth. I put the ones we dug up in the bath tub in MA because they were muddy. But I used no soap. I got the mud off, but I don’t think they got clean. Experts can sometimes raise the value of a coin by cleaning it, but they use special products and are highly skilled.
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I AM NOT RECOMMENDING THAT YOU BUY JUNK SILVER or any other kind of silver. I bought it because that was all my wife was willing to do with half of her inherited gold.
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Gold is a sell because it is overpriced. Silver is okay in that respect. If the gold were all mine, I would have sold it and used the proceeds to buy hard assets and selected foreign currencies. I tell you here about my little adventure with silver because it is mildly interesting and I know a lot of my readers buy or consider buying such things.


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