Features Overview
Q: Wouldn't it be easier to sell my gold and silver to a local shop than a dealer?
A: The increases in the price of gold and silver over the past decade or so is evident in the explosion of new “cash for gold” stores all over the place. These stores are everywhere! They seem to pop up in every strip mall that has an extra bay open. Why are they popping up and how can so many of them be in business?
These stores are open because they’re ridiculously profitable, and they’re ridiculously profitable because they’re ripping people off. These stores buy scrap gold and silver in jewelry and coins. The scam is that they pay pennies and nickels on the dollar. I went into a couple of stores to verify this and was offered 50% of the value of my coins and about 20% of the value of my jewelry.
The general public simply doesn’t know how much their gold and silver are worth. Getting cash for old junk they had sitting around sounds great until they realize what the value of gold and silver truly is! These scam houses are getting away with ripping people off while appearing to be helpful and generous.
Q: Why is it never a good idea to finance gold purchases?
A: The Leverage scam goes like this: You see an ad in a newspaper or magazine saying, “Own $10,000 worth of gold for only $2,000.” You call the company, and they tell you they have a deal where you can buy $10,000 worth of gold with only $2,000 down and they’ll finance the rest. Seems great! Since precious metals are rising, you get to juice your returns and use leverage.
The first problem with this scam is that you have fees and interest. Whether gold goes up or down, you’re paying interest on the borrowed money. If gold goes down just 5%, you would lose 25% of your money instantly and likely have the broker calling you to insist you send more cash over. The second problem is that you don’t get to hold the metals. You’ve effectively bought a contract (paper gold).
One of the reasons to buy gold and silver is to eliminate the counter- party risk. Buying with leverage seems like a way to get extra return, but there’s a reason it’s being offered. It’s a winner for the dealer. In this case the dealer is the same as a casino. And just like a casino, the house always wins.
Scam #1: Wiring – When (or if) to send money to a dealer you don’t know
The industry standard is to send payment to a dealer for your metals before they ship to you. But even though this is standard procedure, it does open you up to some risk. What if the dealer doesn’t fulfill his end of the deal? When selecting a dealer to work with, the best way to avoid this scam is to use a dealer you’ve been referred to by a trusted friend or advisor who has done significant business with the dealer and had a consistently great experience. Once you wire your money, there’s no way to stop it or get it back. If you’re working with a dealer for the first time that’s kind of a mystery, I highly recommend starting with a small order and testing the dealer.
Scam #2: Confiscation – Could my gold and silver get confiscated?
Confiscation is not only unlikely; there is not a single record of it ever happening. Dealers claim FDR confiscated all of the gold in America in the 1930s. The truth is, he didn’t confiscate any gold at all when he issued his executive order in 1933. He issued an executive order to nationalize gold and made it illegal for Americans to own more than five ounces of gold personally. The gold was bought and paid for by the federal government at fair market value.
In 1933 gold was used as money and the dollar was tied to gold. Since the government wanted to make more money without making more gold, they had to nationalize gold and put dollar bills into circulation for the gold it no longer backed. Gold is no longer used as money and we are not on the gold standard. Now, all the federal government has to do to spend more money is to sell treasury bonds to the Federal Reserve central bank, which in turn fires up the printing press and prints additional fiat dollars out of thin air.
Scam #3: Bait & Switch – Selling Confusion
A lot of dealers will advertise a coin for less than the spot value or “at dealer cost.” But when you get them on the phone, they try to sell you a collectible or a rare coin at a 30% to 100% markup instead. The coins they’re selling are extraordinarily hard to sell back for anywhere near what they’re selling them to you for. Just ask them, “How much will you buy these back from me for?” It’s always a fraction of what they’re asking. Numismatics are collectible and rare by their nature. Many unscrupulous dealers deal heavily in the numismatic world because values are not transparent. They’re able to build large margins into the price and make obscene profits while screwing the public.
The coins to look out for are the Kronas, the British Sovereigns, and other international fractional coins. These coins tend to be in really odd sizes, making them confusing and hard to compute in terms of value. An example of fractional coins could be: the coin is .4 ounces and 22 carat gold. How many ounces of gold is in that? Between the odd weight and the less than pure nature of the coin, most investors quickly get lost in the story and have no idea what the coin is even worth. This is a bad idea!
Scam #4: Boiler Room Dealers – High Pressure, Low Value
In this scam you have a big room with a bunch of guys calling lists of people and hard selling them on a very rare, very exclusive deal that will be gone soon. The “brokers,” as they called themselves, used all sorts of fear tactics to lead their prospects into buying overpriced collectibles and specialty proofs.
They would often use bogus charts that focused on a specific rare coin that had done well for a narrow period of time and then use that one example as proof that the rare coin was a way better buy than the bullion coins. The true charts with long-term trends and actual large data samples showed the exact opposite result, but naturally those charts didn’t sell collectible coins very well so they were kept in the cabinets away from the target.
The type of boiler rooms that sell these high markup coins using scare tactics are neither honest, nor are they acting with integrity. Best to work with dealers you’ve been referred to by people you trust and who are financially savvy.
Scam #5: Pyramid Scams – The “Silver Snowball” Con
The Silver Snowball Scam goes like this: you (the target) buy a couple of silver Eagles each month and recruit others to buy a couple of Eagles as well. For every three people you enroll, you’ll get a free eagle. Sounds like a great deal – except the price you’re paying is 40% over the spot price. It only works for the people at the top of the pyramid. Here’s the math:
For this example, let’s assume the spot price on silver is $30.
You buy three Eagles for $42 each from Snowball, Inc.
You then recruit three people to do the same. They each buy three Eagles from Snowball, Inc., and you get a free Eagle.
Now you have four Eagles and paid a total of $126 – an average of $31. The actual fair market value is about $34 for an Eagle. So you’ve done well – you got the Eagles at a 10% discount on average.
But your recruits bought three Eagles for $42 each and didn’t sign anyone up. Their average price is $42 per coin – 30% more than they would have if they bought them from a reputable dealer. Part of that extra went to subsidize your Eagles, and the rest went to the company running the Silver Snowball Scam. If it sounds too good to be true, IT IS!
Scam #6: Leverage – The Interest Trap
The Leverage scam goes like this: You see an ad in a newspaper or magazine saying, “Own $10,000 worth of gold for only $2,000.” You call the company, and they tell you they have a deal where you can buy $10,000 worth of gold with only $2,000 down and they’ll finance the rest.
The first problem with this scam is that you have fees and interest. If gold goes down just 5%, you would lose 25% of your money instantly and likely have the broker calling you to insist you send more cash over. The second problem is that you don’t get to hold the metals. You’ve effectively bought a contract (paper gold).
Scam #7: Cash-For-Gold Stores – Quick Cash at a Huge Price
The increase in the price of gold and silver over the last twelve years is evident in the explosion of new “cash for gold” stores all over the place. Why are they popping, up and how can so many of them be in business?
These stores buy scrap gold and silver in jewelry and coins. The scam is that they pay pennies and nickels on the dollar. I went into a couple of stores to verify this and was offered 50% of the value of my coins and about 20% of the value of my jewelry.
Q: What does the bait-and-switch scam look like?
A: A lot of dealers will advertise a coin for less than the spot value or “at dealer cost.” But when you get them on the phone, they try to sell you a collectible or a rare coin at a 30% to 100% markup instead. The coins they’re selling are extraordinarily hard to sell back for anywhere near what they’re selling them to you for. Just ask them, “How much will you buy these back from me for?” It’s always a fraction of what they’re asking. Numismatics are collectible and rare by their nature. Many unscrupulous dealers deal heavily in the numismatic world, because values are not transparent. They’re able to build large margins into the price and make obscene profits while screwing the public.
The coins to look out for are the Kronas, the British Sovereigns, and other international fractional coins. These coins tend to be in really odd sizes, making them confusing and hard to compute in terms of value. An example of fractional coins could be: the coin is .4 ounces and 22 carat gold. How many ounces of gold is in that? Between the odd weight and the less than pure nature of the coin, most investors quickly get lost in the story and have no idea what the coin is even worth. This is a bad idea!
We recommend .9999 pure gold like a Gold Maple Leaf or Gold U.S. Buffalo. Or stick with an American Eagle, which is 22 carat gold, but still contains one full ounce of gold (The Eagle weighs just over an ounce because of the additional weight of the impurities. These impurities are intentional and make the coin more durable.). There’s no mystery about what you’re buying or what you have in your portfolio. These are very common, and they’re very easy to sell back to any reputable dealer for cash quickly and easily.
Q: What does the bait-and-switch scam look like?
A: A lot of dealers will advertise a coin for less than the spot value or “at dealer cost.” But when you get them on the phone, they try to sell you a collectible or a rare coin at a 30% to 100% markup instead. The coins they’re selling are extraordinarily hard to sell back for anywhere near what they’re selling them to you for. Just ask them, “How much will you buy these back from me for?” It’s always a fraction of what they’re asking. Numismatics are collectible and rare by their nature. Many unscrupulous dealers deal heavily in the numismatic world, because values are not transparent. They’re able to build large margins into the price and make obscene profits while screwing the public.
The coins to look out for are the Kronas, the British Sovereigns, and other international fractional coins. These coins tend to be in really odd sizes, making them confusing and hard to compute in terms of value. An example of fractional coins could be: the coin is .4 ounces and 22 carat gold. How many ounces of gold is in that? Between the odd weight and the less than pure nature of the coin, most investors quickly get lost in the story and have no idea what the coin is even worth. This is a bad idea!
We recommend .9999 pure gold like a Gold Maple Leaf or Gold U.S. Buffalo. Or stick with an American Eagle, which is 22 carat gold, but still contains one full ounce of gold (The Eagle weighs just over an ounce because of the additional weight of the impurities. These impurities are intentional and make the coin more durable.). There’s no mystery about what you’re buying or what you have in your portfolio. These are very common, and they’re very easy to sell back to any reputable dealer for cash quickly and easily.
Q: Should I store my precious metals in a private vault?
A: The average investor doesn’t need much space to store their physical metals. $100,000 in gold bullion or $20,000 in silver bullion will fit in a normal-sized coffee cup in a small-to-medium gun safe. But if you don’t want to store them at home, there’s an acceptable alternative: private vaults. Here’s what you need to know.
What Services Are Provided?
Third-party, privately insured vaults differ on the services provided. Some are very large institutions that simply hold your metals for a monthly fee based on value. Others like My Gold Advisor are specialized boutiques with unique services.
My Gold Advisor offers storage services with an instant cash and wire option. With this option, a client has the ability to call the vault and sell any portion of their metals with the proceeds wired to them the same day if they’d like. They can also have any part of their portfolio shipped by FEDEX to any location in the world by simply placing a phone call. Some vaults require a week to ship your metals to a dealer to be sold, and then you could be looking at another week to get a check from the sale.
Allocated vs. Unallocated
If you ever store precious metals in a vault, we highly encourage you to choose allocated storage. This means the metal you’re storing is specifically earmarked as yours, and you can get access to it any time you’d like. With unallocated storage, your metals may be mixed with other clients’ metals.
Investors in gold and silver typically do a little selling in addition to their buying regimen. But before you sell, make sure you do so at the best times and in the most profitable ways. The most important thing is to make sure you trust the dealer you’re selling to. Make sure they have a high BBB ranking – no less than an “A.” Also make sure you can get them on the phone whenever you need to.
When you want to sell your gold or silver, give your favorite dealer a call, and tell him what you want to sell. If you have a relationship with a dealer, like the one you bought the items from, you can usually get a quote over the phone on the stuff you want to sell. If you’re agreeable, the dealer will lock in the price. Once you have a price lock, write the confirmation number down and package your stuff up to send to the dealer. Don’t forget to include your address and the confirmation code. Some dealers like My Gold Advisor will wire payment directly to you, free of charge, as soon as they receive your package.
When do I sell?
Sell when you need cash to buy something you need or when gold and silver are overpriced. You’ll have a good idea when gold and silver are overpriced when certain key ratios are met.
Just because gold and silver moves up 5% this week doesn’t necessarily mean it’s a great time to sell. The best time to sell your gold or silver is when you have another, better use for your money.
What ratios should I watch?
Watching key ratios can provide important indicators for when to hold and when to buy. These ratios help us understand when gold and/or silver are going from undervalued to overvalued. These ratios help us decide when we might want to switch some of our portfolio into another asset class.
1. Gold to Silver Ratio
One key ratio we watch is the ratio between gold and silver. The ratio of gold to silver in 2020 is about 80:1, which means it takes 80 ounces of silver to buy one ounce of gold. When this drops to 35:1, we’d consider selling some of our silver and converting it into gold. When it takes less silver to buy an ounce of gold (like 12 ounces of silver to one ounce of gold), then gold is heading “lower” and silver is heading “higher.”
During periods of history when gold and silver served as the foundation of the world’s economy, this ratio was typically between 14 and 16. Whenever we suffer a global monetary crisis, whenever people begin to fear that the world’s paper currency system will break down, the price of silver tends to rise far more than gold.
We expect this ratio to eventually reach the mid-teens again because the ongoing massive global inflation will inevitably lead to a collapse of the dollar standard and to the return of gold-backed currencies.
2. Median House to Silver Ratio
When you look at the median house price in the United States compared to silver in 2020, it takes about 10,000 ounces of silver to buy a median-priced house. When the ratio gets closer to 1000:1, meaning 1000 ounces of silver will buy a median-priced house, this would be an indicator that it may be time to switch from silver into residential real estate.
When silver can buy that much house, it would indicate prices of residential real estate have come down to a point where silver may be getting overpriced and/or housing is undervalued. We want to buy things that are undervalued (“low”) and sell things that are overvalued (“high”).
3. Dow to Gold Ratio
Another ratio we watch is the Dow/Gold Ratio. This is the ratio of the number of ounces of gold it takes to equal the Dow Jones Industrial Average. The Dow has been around 26,000 in 2020. Gold is around $2000 per ounce, so the ratio is about 13:1. It takes thirteen ounces of gold to match the Dow. When the ratio is closer to 1:1 or even 2:1, we might consider selling some gold and buying equities.
How to Get the Most from Your Sale
Use a dealer you know, trust, and respect – and preferably one you’ve done business with in the past. Never go to a Cash4Gold or other We Buy Gold-type of business in your local strip mall.
One of the funniest parts of the gold and silver bull market we’re in is all the “cash for gold” stores popping up. It’s funny, because they tend to be an empty room in a strip mall with a window sign saying, “We Buy Gold!” Inside you’ll find a counter, likely behind a bulletproof window.
There’s a reason those things are popping up everywhere. These businesses generate huge margins and huge profits for the dealers. They do this by ripping off the consumer.
Let’s say you bring a pile of your old jewelry into one of these stores and that jewelry contains four ounces of gold. At a spot price of $2,000 an ounce, the melted value of your gold is $8,000. In most cases, these businesses will only give you about 20% to 40% of the melt value. You’d be lucky if you received $4,000.
These businesses are making 100% to 200% off of you instead of a fair margin of perhaps 5% to 15%. If you were to sell your scrap metals to My Gold Advisor, you’d receive between 85% and 95% of the melt value. We simply don’t believe in gouging people who don’t know how to value their old jewelry.
What Ratios can tell me when to Sell?
Watching key ratios can provide important indicators for when to hold and when to buy. These ratios help us understand when gold and/or silver are going from undervalued to overvalued. These ratios help us decide when we might want to switch some of our portfolio into another asset class. Here are the ratios you want to keep on your radar.
1. Gold to Silver Ratio
Lately, the ratio of gold to silver has been as high as 50:1, which means it takes 50 ounces of silver to buy one ounce of gold. When this drops to 12:1, we’d consider selling some of our silver and converting it into gold. When it takes less silver to buy an ounce of gold (like 12 ounces of silver to one ounce of gold), then gold is heading “lower” and silver is heading “higher.”
2. Median House to Silver Ratio
When you look at the median house price in the United States compared to silver in recent times, it takes somewhere around 5,000 ounces of silver to buy a median-priced house. When the ratio gets closer to 500:1, meaning 500 ounces of silver will buy a median-priced house, this would be an indicator that it may be time to switch from silver into residential real estate.
3. Dow to Gold Ratio
Another ratio we watch is the Dow/Gold Ratio. This is the ratio of the number of ounces of gold it takes to equal the Dow Jones Industrial Average. The Dow has been around 17,000, give or take, in the past couple years. Gold is around $1,200 per ounce, so the ratio is about 14:1. It takes fourteen ounces of gold to match the Dow. When the ratio is closer to 1:1 or even 2:1, we might consider selling some gold and buying equities.
Q: It seems everyone wants me to send the money first before I can get the metals I ordered. How do I make sure I'm not going to get scammed?
A: The industry standard is to send payment to a dealer for your metals before they ship to you. But even though this is standard procedure, it does open you up to some risk. What if the dealer doesn’t fulfill his end of the deal? When selecting a dealer to work with, the best way to avoid this scam is to use a dealer you’ve been referred to by a trusted friend or advisor who has done significant business with the dealer and had a consistently great experience.
If you’re working with a dealer for the first time that’s kind of a mystery, I highly recommend starting with a small order and testing the dealer. Once you wire your money, there’s no way to stop it or get it back. A wire is permanent, and the money is gone. Be careful wiring only to someone you trust implicitly.
Q: Gold dealers tell me to buy certain coins, so my investment won't be confiscated. Is this legit or a scam?
A: Confiscation is not only unlikely; there is not a single record of it ever happening. Dealers claim FDR confiscated all of the gold in America in the 1930s. The truth is, he didn’t confiscate any gold at all when he issued his executive order in 1933. He issued an executive order to nationalize gold and made it illegal for Americans to own more than five ounces of gold personally unless it was a collectible coin or they required it for business (jewelry, dentistry, etc.). However, the gold was not confiscated. It was bought and paid for by the federal government at fair market value.
In 1933 gold was used as money and the dollar was tied to gold. Since the government wanted to make more money without making more gold, they had to nationalize gold and put dollar bills into circulation for the gold no longer backing it. Gold is no longer used as money and we are not on the gold standard. Now, all the federal government has to do to spend more money is to sell treasury bonds to the Federal Reserve central bank, which in turn fires up the printing press and prints additional fiat dollars out of thin air.
The coins that unethical dealers like to sell with this scam are the graded Double Eagles. I actually like Double Eagles, but only at a fair cost. If you can buy these coins for a few percent over the spot price, you’re basically paying for the gold in the coin. I don’t see anything wrong with this type of deal. But don’t pay a giant premium and get screwed just so the dealer can get rich off of your fear.