Education Archives - Dillon United - Focused on Making You a Better Precious Metals Investor

Q&A: Gold Coin Investing For Americans Going Overseas

Q: As an American considering retirement in Panama, whose currency is pegged to the USD, would you recommend that I purchase Gold coins minted by the US Government or bars minted by private mints?

A: Being in the physical precious metals market for more than 11 years, I have gotten this question numerous times in various forms covering various questions. Let’s analyze a few considerations.

– American Gold Eagles and American Silver Eagles are the most recognized government minted bullion coins in the world. Their popularity is associated with the popularity of the United States dollars. The advantage of buying the most popular coin can be analogized to buying an Apple laptop computer. Because of it’s visibility and demand, the international market has an appetite making a resale and an appraisal much easier than less known coins. Additionally because of the US Mint stamp, this coin is less likely to be melted for its gold content and maintain it’s premium over a simple gold bar.

– Going to Panama makes an interesting case study because the appraised value of the coin in the United States and Panama will fall in the same range. If you were going to countries under the EU, or countries were the dollar is stronger, your valuations may indeed be affected by the current temperature of the exchange rate. But for many US travelers, this is a great appeal. I have clients that prefer to travel with coins as they feel they are presented with better exchange rates for their gold in times of economic turmoil. You can find a list of global gold to currency exchange rates here.

– Depending on how you transport the metals, there may be taxes or fees or duties that should be considered.

– Learn more about the demand for gold and silver around the world and which countries are using the metal for uses other than jewelry.

Conclusion: Consider the premium charged for US minted coins not as a loss, but a placeholder of value. If you choose to purchase privately minted coins or bars for international consideration research the more popular names to ensure that your value crosses borders and you can avoid getting less than the full value of your exchange.

How Much Gold Does The US Treasury and Federal Reserve Hold?

In an extensive report from CoinNews.net, we are given a rare behind the scenes accounting of total ounces of gold held by the U.S. Treasury and the Federal Reserve. In the following table, note that the book value is not calculated by current market prices but rather the 1973 Book price of $42.22, the statutory price of gold for accounting purposes. While overall market value has fallen in the past 4 years, precious metals hedgers have made a handsome profit and experienced very little risk

This table breaks down the status of U.S. Treasury-owned gold:

	Fine Troy Ounces	Book Value
Summary
Gold Bullion	258,641,878.074	$10,920,429,098.79
Gold Coins, Blanks, Miscellaneous	2,857,048.156	120,630,858.67
Total	261,498,926.230	11,041,059,957.46

US Mint Held Gold – Deep Storage
Denver, CO	43,853,707.279	1,851,599,995.81
Fort Knox, KY	147,341,858.382	6,221,097,412.78
West Point, NY	54,067,331.379	2,282,841,677.17
Subtotal – Deep Storage Gold	245,262,897.040	10,355,539,085.76

US Mint Held Treasury Gold – Working Stock
All Locations- Coins, blanks, miscellaneous	2,783,218.656	117,513,614.74
Subtotal – Working Stock Gold	2,783,218.656	117,513,614.74

Grand Total – Mint Held Gold	248,046,115.696	10,473,052,700.50

Federal Reserve Bank Held Gold
Gold Bullion:
Federal Reserve Banks – NY Vault	13,376,987.715	564,805,850.63
Federal Reserve Banks – Display	1,993.319	84,162.40
Subtotal – Gold Bullion	13,378,981.034	564,890,013.03

Gold Coins:
Federal Reserve Banks – NY Vault	73,452.066	3,101,307.82
Federal Reserve Banks – Display	377.434	15,936.11
Subtotal – Gold Coins	73,829.500	3,117,243.93

Total – Federal Reserve Bank Held Gold	13,452,810.534	568,007,256.96

Total – Treasury Owned Gold	261,498,926.230	$11,041,059,957.46

Market Value

Of course, market conditions have changed significantly over the last 40 years with gold’s value at about 28 times higher than the 1973 set $42.2222 per ounce statutory price.

To highlight some of those changes, the chart below shows total ounces of U.S. Treasury owned gold over the last few years, the recorded book value and the approximate market value of the precious metal based on the London price of gold at the time of the report.

Treasury Owned Gold Book and Market Values

Report Date	Ounces of U.S. Treasury Owned Gold	Book Value (based on $42.222 an ounce)	Approximate Market Value
January 31, 2012	261,498,899.316	$11,041,059,487	$456,054,080,407
January 31, 2013	261,498,926.247	$11,041,059,958	$435,330,337,470
January 31, 2014	261,498,926.247	$11,041,059,958	$327,135,156,731
January 31, 2015	261,498,926.230	$11,041,059,957	$329,554,021,781
March 31, 2015	261,498,926.230	$11,041,059,957	$313,014,214,697

The market value of the gold today, May 1, is $307,509,662,300 at the latest London gold price of $1,175.95 an ounce.

Reduce Risk With Precious Metals Hedging

The following article is for information purposes only. New, inexperienced and most retail investors should consult a financial professional.

So many investors point to the volatility of precious metals as a major reason to avoid taking positions in precious metals. This makes sense. Why invest in an asset class that could experience rapid price swings when one could easily add their money into a money market account that pays a whopping 0.9%, but is guaranteed not to fluctuate? In a bubble this argument works. When one does not take into consideration that even modest inflation of 2% makes the real return on the money market account an actual negative return. However, one of the best kept secrets of precious metals investing is that for many professional investors volatility is good. Really good. In an oversimplified look at this method, when investors take a position in precious metals, they also take an alternate opposite position to protect their overall downside risk. Therefore if the value of their position goes up they see profits that are reduced by the costs of their hedge positions. Yet conversely if their portfolio goes down their total position has more protection at the hedge offers an insurance that limits the downside risk.

Let’s look at the world of precious metals hedging, a strategy that we recommend for serious precious metals investors to understand (via VisualCapitalist).

WHAT IS HEDGING?

In a nutshell, hedging is the process of playing both sides of a market to provide protection against the market’s fluctuations.

For bullion dealers and seasoned precious metals investors, hedging means that the dealer/investor has to offset all of their long positions with short positions, and vice versa. By ensuring they never have a long or short overall position in the market, the dealer ensures they are immune to market movements, and lock in their margins between their purchase premiums and sale premiums.

Long positions: Any inventory the bullion dealer/investor holds or has priced/ordered from a supplier. The dealer benefits from upwards price movement in the gold or silver price.

Short positions: Any orders that the bullion dealer/investor has yet to fulfill or is holding in their portfolio. The dealer/investor benefits from downwards price movement in the gold or silver price.

Net house position: Equal to the bullion dealer’s long position minus short position.

Courtesy of: Visual Capitalist and JMBullion

Silver As An Investment via Visual Capitalist

Silver has had double digit gains in 7 of the last 10 years. In this infographic, we look at the investment properties of silver as well as its chief differences with gold. Highlights include a study on silver correlation, volatility, performance against the US Dollar and money supply, and portfolio diversification. Via Visual Capitalist.

Benefits of Investing in Precious Metals

BENEFITS OF PRECIOUS METALS INVESTING

Precious Metals such as gold, silver, platinum, palladium and even copper are physical commodities. If you own a metal, you actually own a piece of that precious metal. This is opposed to things like a share of stock, which only exists on paper and can actually decrease to a value of zero.

Before we get into the benefits of investing in precious metals, lets look at a few of the reasons why you would not want to invest in precious metals:

Precious metals do not pay a dividend/income. Unlike some stocks, REITs and mutual funds, precious metals do not pay a monthly or quarterly dividend. Precious metals can be thought of on the same investment plane as real estate, art, automobiles, stamps, wines and non mineral/farming bearing land purchases.
Storage. Storing your precious metals (real money) at home, bank vault or storage facility is simultaneously a benefit and a draw back.
Volatility. Precious metals are traded on a global market and are subject to external factors such as commodity regulation and manipulation, government debt loads and global supply and demand. All investments contain volatility. And for the record, a savings account that pays negative or less than 1% is not an investment.
Tax considerations. Some precious metals such as bullion are taxed at rates higher than other investments. Other precious metals such as numismatics are taxed more favorably. Consult a tax advisor for your specific tax consideration.

The decision to invest in precious metals is a personal one and should not be entered into without the considerations above. Most investors see precious metals, specifically gold and silver as the missing piece of their total investment portfolios. Precious metals have historically offered a counter balance against inflation, currency devaluations, wars, terrorist attacks and bank runs. Below are the top reasons that investors flock to precious metals.

Physical, portable and tangible. – Not many investments can be held in your hand or in a suitcase that have immediate recognition globally. Precious metals offer this very advantage.
Globally recognized. Does your share of Ford stock hold value in South Africa, Norway, New Guinea or China? Precious metals are absolutely recognized around the world and can be quickly changed into a currency of your choice.
Privacy. – Whereas real estate requires a registered deed, automobiles require registration, stocks require a trading account and IRA’s require disclosing tons of private information, most precious metals can be purchased rather discreetly. This is not an invitation to launder money, so indeed check with your accountant for specific details.
Volatility. Precious metals are traded on a global market and are subject to external factors such as commodity regulation and manipulation, government debt loads and global supply and demand. All investments contain volatility. And for the record, a savings account that pays negative or less than 1% is not an investment.