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The Best Way to Buy Gold and Silver

The Best Way to Buy Gold and Silver

Precious Metals Specialists at Money Metals Exchange field lots of great questions from customers who are new to buying physical bullion. One of the biggest is "What is the best way to buy gold and silver?"

The first rule we have often addressed is to avoid collectible or numismatic coins and the exceptionally high premiums that dealers charge for them. So we won't review this subject again here. Rather, we will discuss how to determine which of the precious metals to own and provide some guidance regarding which bullion coins, rounds, or bars will meet your objectives and how to determine which coins to buy.

Should You Buy Gold, Silver, Platinum, or Palladium?

Silver looks undervalued relative to physical gold at the moment. The gold / silver ratio is currently around 60, which is to say one ounce of gold is priced at about 100 times compared to 1 troy ounce silver price. This ratio has generally been much lower on a long-term historical basis. Combine that with some pretty compelling supply / demand fundamentals, and it appears silver will continue to outperform over the medium to long term.

Money Metals' Buying Guide

That said, during periods of extreme fear and uncertainty, gold will outperform silver and be less volatile. As the European debt crisis grew and world economies again began to slow in the fall of 2011, precious metals markets corrected. But the gold price held up better than silver, and volatility was much lower. Gold benefited from its ultimate status as a safe haven and finished up more than 10% in 2011 – its 11th straight year of nominal dollar gains. A gold portfolio has been the steadiest and most profitable asset class over the past decade.

Platinum and palladium also present an opportunity for investors who want to be more aggressive and who wish to diversify. Platinum, with its price per ounce still below that of gold (an unusual situation, historically speaking), looks particularly compelling. However, both platinum and palladium often trade more like industrial metals than monetary platinum and palladium so, in some respect, your investment is a bet on stabilization or improvement in worldwide manufacturing.

Recommended Forms Silver Gold
Long-Term Appreciation Pre-1965 90% silver coins, rounds, 100 oz bars Gold Bars, Canadian Gold Maple Leaf coins, Krugerrands, Eagles
Barter & Trade Pre-1965 90% silver coins, American Eagles, rounds Fractional rounds or American Eagles (1/10th or 1/4 oz size)
Holding in IRA Rounds, 100 oz bars Gold Bars, Canadian Maple Leafs, American Eagles
Short-Term Trading Pre-1965 90% silver coins, American Eagles, rounds American Eagles,Canadian Maple Leafs, Krugerrands

Our general guidelines:

  • Buy gold bullion if your priorities are wealth preservation and safety with lower volatility and risk – or if your investment time horizon is under 3 years.
  • Buy silver if you want a combination of wealth preservation and greater potential appreciation. The best way to buy silver at the lowest premiums possible is to invest in 100 oz bullion bars.
  • Buy some platinum or palladium if you want to diversify your precious metals holdings into alternative metals with their own unique fundamentals.

Determine the Purpose of Your Bullion Investment

In our experience, customers build a precious metals portfolio for some combination of the following reasons:

  • Long-Term Appreciation
  • Diversifying Their Cash
  • Holding inside an IRA
  • Barter and Trade Potential
  • Speculation (Including Trading the Gold / Silver Ratio, Etc.)
Gold Pros Cons
American Eagle (1 oz)

Most widely traded bullion coin, government guarantee of purity and legal tender

Higher premium

Maple Leaf Coin (1 oz)

.9999 purity, lower premium

Slightly less durable, less popular design than Eagles

Krugerrand (1 oz)

Lower premium, long history trading world-wide

Ineligible for IRAs

Fractional American Eagles or Rounds

Affordable for those with limited budgets, handy for bartering and gifting

Higher premium than 1 oz size


Low premium

Limited aesthetic value

Silver Pros Cons
American Eagle (1 oz)

Most widely traded bullion coin, government guarantee of purity and legal tender

Higher premium

Canadian Maple Leaf (1 oz)

.9999 purity, lower premium

Slightly less durable, less popular design than Eagles

90% U.S. Silver Coins

Legal tender, relatively low cost form of fractional silver.

Ineligible for IRAs

Fractional Rounds

Affordable for those with limited budgets, handy for batering and gifting

Higher premium than 1 oz size


Low premium

Limited aesthetic value

Investors focused on holding for the long term should give priority to finding the lowest premium. In a bull market for precious metals, it is the ounces you own that will produce the investment returns. The lower the premium the more ounces you will acquire. (As a general rule, premiums can be expected to fall as a percentage of the value of a coin, round, or bar as precious metals prices rise).

Always remember to consider the marketability of what you buy – you will most likely want to sell at some point! Most investors should avoid 1,000-ounce silver bricks, for example. These large bars carry low premiums, but they could be discounted when it is time to re-sell – unless the bars have been kept in an approved storage facility (thereby avoiding a reassaying fee). There will also be a smaller pool of prospective buyers for bars of that size – especially if you are in a hurry or try to sell back to a small coin shop rather than a large national dealer like Money Metals Exchange.

Investors think about personal finance with a self-directed precious metals IRA should focus on low premiums, as they are also oriented toward long-term appreciation. However, certain low-premium options, such as pre-1965 90% silver coins or gold Krugerrands, are not allowed in an IRA because of federal rules relating to purity. Neither are "rare" coins, but those tend to be a poor investment anyway except for individuals who are true rare coin collecting experts.

Even as some in the financial establishment begin to warm up to precious metals, they continue to scoff at the possibility of a total fiat currency collapse and the necessity of using precious metals for barter and trade. However, those who pay attention to history and to current events know better than to rule out that possibility.

History, including examples from the past decade, is replete with currency crises precipitated by governments that borrow, spend, and devalue their currencies to the point they utterly fail as media of exchange. The prudent are adding some component of smaller-denomination bullion in trusted and recognizable forms to their overall metals portfolio. Fractional-sized gold (American Gold Eagles and rounds) and silver ("junk" silver and rounds) will give you more flexibility in barter situations.

Don't Lose Your Position in Precious Metals by Trading In and Out

In regards to short-term trading, we caution people to avoid trading in and out of their core holding of physical metal. We are in a bull market for metals, and we are living in uncertain times. World events can move markets suddenly and without warning, so you absolutely cannot risk giving up your core position in this environment. However, there are opportunities to increase the ounces in your overall holding by swapping one metal for another – trading the gold / silver ratio.

Currently at levels above 80, we think this ratio favors over-weighting silver. Should silver prices move violently upward in relation to gold, it may then make sense to swap silver for gold. Savvy metals investors have used this technique to reap even greater returns – without ever abandoning safety or gambling their position in this bull market for precious metals.

Keep Transaction Costs Low

When it comes to choosing a bullion form best suited for trading, investors should focus especially on keeping the transaction costs as low as possible. In physical bullion, there are two components in the transaction cost; the buy-sell spread (also known as the bid-ask spread or the difference between the premium you pay to buy your metal and the premium or discount you receive to sell your metal back) and the shipping expense. Money Metals Exchange Specialists can help you identify which forms currently offer the lowest buy-sell spreads as purchase gold and silver and build your portfolio. They can also help you arrange storage at a secure vault if you would like to avoid shipping and insurance expenses (although there are storage fees).

And finally, in many jurisdictions there is a third component in your transaction costs that must be considered – sales tax. Some states impose sales taxes on precious metals, but fortunately many more exempt some or all forms of precious metals investments.  For more infomation on which states impose sales taxes, check out the Sound Money Index found here.

As a general rule, the buy-sell spread is low and does not vary a great deal from one bullion form to another. However, you will pay a little more to buy Silver Eagles (from United States Mint) versus other forms of gold or silver bullion. You can expect to get a little more for them when it is time to sell back, but the premiums on them are unlikely to rise as much as the metal itself.

Some appreciate that the American Gold and Silver Eagle coin are beautiful and well recognized, and they are happy to pay a bit higher premium to buy them. Others prefer things like pre-1965 silver coins because they generally offer the lowest premium, are widely recognized and salable, and are legal tender for their face value (just like Eagles). Buyers of pre-1965 coins don't mind that the coins are worn and that the metal content isn't displayed.

Above are charts outlining some of the pros and cons of the most popular bullion forms to help you zero in on which forms will best suit your needs, preferences, and budget. Some regard the Silver Buffalo Round for its rich history in its depiction of the Native American.

Prudent investors who know they should take prompt action to build a position in physical precious metals sometimes delay doing so simply because they are unsure about what to buy. We launched Money Metals Exchange to help new investors get their questions answered and get started. We hope this article will help, but customers often tell us the best thing they did to get started was pick up the phone, call 1-800-800-1865, and talk to one of our Precious Metals Specialists. They are happy to answer any questions and will never pressure you to buy.

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