Secondary market products – coins, rounds, and bars that are being resold rather than sold for the first time as brand new – can be the most cost-effective option for investors, provided they can be purchased at a discount.
Unfortunately, that hasn’t been very often in recent years.
However, a recent phenomenon of a plentiful supply of top-tier secondary market items is presenting a value opportunity to buyers not seen for most of the last 15 years.
When Money Metals’ Specialists urge our clients to choose the lower-priced secondary market products, it is common for clients to ask whether anything is wrong with them. They wonder if perhaps the coins have been damaged.
The answer is usually “no.” Ethical dealers will always disclose condition issues. Unless the buyer is specifically alerted that the items they are buying are tarnished, spotted, scratched, or otherwise marred, they can expect products to be delivered in good condition.
Secondary market items have a discounted premium simply because the supply is plentiful. That’s because long-time holders have used the recent price rally to sell some of the metals they’ve owned over the years.
The “premium” is the amount over the melt value for gold or silver in the bullion product. It includes the dealer’s profit, but also incorporates the wholesale premiums and/or fabrication costs the dealer must pay to acquire the inventory.
What’s happening with premiums is the best indicator of demand in the retail bullion markets.
There are a variety of reasons for the recent lack of enthusiasm for gold and silver among the U.S. retail investor, even as Asian demand – and demand for gold and silver ETFs – has been very strong.
Bullish moves in the U.S. stock market and early enthusiasm regarding President Trump made many investors more optimistic. The price action in gold and silver markets was stagnant until very recently.
But given rising global tensions, an economic slowdown, and renewed interest rate cuts, cheap gold and silver are a gift for those looking to hedge against future threats.
Unless there is a particular reason to pay more, such as wanting the current year Silver Eagles or Gold Eagles to complete a date set for instance, it is wise (and financially prudent) to take advantage of lower premiums on secondary market coins while they last.
The truth is that the 2019 Eagles will be identical in value to the secondary market in just a few months from now anyway.
The South African Gold Krugerrand is another great option and allows investors to save 1-2% compared to American Eagles and some of the other popular 1-ounce sovereign coins. Krugerrands have been minted since the late 1960s and hoards of coins are being sold back into the market.
Buyers may also want to consider some Pre-’33 U.S. gold, such as the $10 or $20 Liberty or Saint Gaudens coins, which have seen the premiums generally collapse in recent years as many large stashes have been sold back to dealers.
Pre-1965 90% U.S. coinage, aka “junk silver,” is also a screaming buy as of this writing. Premiums on 90% coinage are near record lows as dealers like Money Metals Exchange have spent much of the last few months buying back more of this popular product than we have sold it.
When demand for bullion picks up and the number of sellers pushing supply back into the market evaporates, the current discounts could evaporate almost overnight.
About the Author:
Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer named "Best Overall" by Investopedia. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government, and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales, logistics, and precious metals investing. He also puts his longtime broadcasting background to use, hosting Money Metals' weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.