PRECIOUS METALS BLOG
WHAT IS A TROY ONCE?
A troy ounce is a unit of measurement used exclusively for weighing precious metals like gold, silver, and platinum. While it shares its name with the standard avoirdupois ounce used for everyday goods, a troy ounce is about 10% heavier.
Key facts about a troy ounce
- Weight: One troy ounce is equivalent to 31.1034768 grams, compared to a standard ounce, which is 28.3495 grams.
- Global standard: When you see a price quoted for gold or silver per "ounce," it is always referring to a troy ounce. This provides a consistent, global standard for the precious metals market.
- Origin: The term is believed to come from the medieval French trading town of Troyes, where merchants developed the "troy" weight system to ensure fair transactions for valuable goods.
- Abbreviations: The troy ounce is often abbreviated as "t oz" or "oz t" to distinguish it from the standard ounce.
- Practical difference: The distinction in weight is important for investors. Forgetting that a troy ounce is heavier can lead to miscalculations when trading or valuing precious metals, especially in large quantities.
WHAT IS SPOT SILVER?
The spot silver price is the current market price for one troy ounce of silver, available for immediate purchase and delivery. This price is determined by global supply and demand and is influenced by a range of factors, including economic conditions, market sentiment, and geopolitical events. While there is no single official price, major exchanges set a global benchmark by tracking the market's activity. The most influential factors include:
- Futures contracts: The price of a silver futures contract for immediate delivery plays a major role. Most speculation happens in this market, which has a larger trading volume than the physical market. The Commodity Exchange (COMEX) in New York is the primary exchange for these contracts.
- LBMA benchmark: The London Bullion Market Association (LBMA) runs a daily electronic auction to set a global benchmark for silver.
- Supply and demand: Industrial demand from sectors like electronics, solar panels, and medical devices accounts for about half of annual silver consumption. Investment demand for silver as a safe-haven asset also drives the spot price.
- Economic indicators: Inflation, interest rates, and the value of the U.S. dollar—the currency in which silver is typically quoted—all influence the spot price.
Spot price versus retail price
If you buy physical silver, such as coins or bars, you will not pay the exact spot price. The spot price is the base price for the raw metal, but precious metals dealers sell products for a higher amount, known as a premium. This premium covers costs such as:
- Fabrication and minting
- Distribution
- Dealer overhead and profit
- Insurance and shipping
Key characteristics
- Continuous fluctuation: The spot price changes constantly during market hours, reflecting real-time buying and selling activity.
- Global consistency: The spot price is largely the same around the world at any given moment, though it is quoted in U.S. dollars and then converted into local currencies.
- Higher volatility than gold: Silver's market is much smaller than gold's and is significantly impacted by industrial demand. This causes its spot price to have more dramatic daily fluctuations than gold.
WHAT IS SPOT GOLD
Spot gold is the current market price for an ounce of gold for immediate purchase and delivery. This real-time, global benchmark is influenced by various economic and geopolitical factors and is used as the basis for pricing physical gold products and derivatives.
How spot gold works
- Settlement: Transactions for spot gold are settled "on the spot," which means they are completed within a short period, typically two business days (T+2). This contrasts with gold futures contracts, which involve buying or selling gold at a future date.
- Quoting: The spot gold price is typically quoted per troy ounce in U.S. dollars and is in constant flux, changing throughout the day.
- Global market: The spot gold market is a 24-hour, distributed network of dealers and participants worldwide, with major trading centers in New York (COMEX), London (LBMA), Zurich, and Hong Kong.
- Pricing: The spot price is not the price you pay for physical products like coins or bars. It is the raw wholesale value of the metal. A dealer's markup, or "premium," is added to the spot price to cover manufacturing, distribution, and business costs.
Factors that influence spot gold price
The spot price is determined by the global dynamics of supply and demand, influenced by a number of key factors:
- Economic conditions: Gold is often considered a "safe-haven" asset, with prices typically rising during times of economic uncertainty, inflation, or financial crisis.
- Interest rates: The price of gold generally has an inverse relationship with interest rates. As interest rates rise, investments that yield returns (like bonds) become more attractive than gold, which does not.
- Value of the U.S. dollar: Since gold is priced in U.S. dollars, its value is often inversely correlated with the dollar's strength. A weaker dollar makes gold cheaper for buyers using other currencies, which tends to push the price up.
- Geopolitical events: Political instability, war, and other global crises can increase market volatility and drive investors to seek the safety of gold, causing prices to rise.
- Central bank activity: The buying and selling of gold by central banks can have a significant impact on its price by affecting both market supply and sentiment.
PRECIOUS METALS BLOG
COINS VS BULLION BARS
When to choose gold bars
- You are a high-volume investor who wants to accumulate large amounts of gold at the lowest price per ounce.
- You prioritize maximizing your gold content for every dollar spent and are less concerned with aesthetics or collectible appeal.
- You intend to hold your gold for the long term and don't expect to sell off smaller portions of your investment.
- You have secure, in-home storage or are planning to use a professional depository for a large, efficient holding.
When to choose gold coins
- You are a new investor starting with a small budget or want to add to your holdings incrementally.
- You value flexibility and liquidity, as popular coins are easier to resell in smaller quantities.
- You want maximum recognition and assurance of authenticity, as government-minted coins are universally accepted by dealers.
- You are a collector interested in the historical significance and aesthetic appeal that can potentially increase a coin's value beyond its gold content.
A balanced approach for investorsFor many, the optimal strategy is a hybrid approach that combines the best features of both options. You could use large bars for your core, long-term wealth preservation and keep a smaller allocation in fractional or 1-ounce coins for potential liquidity needs. This allows you to balance cost efficiency with flexibility, adapting to different market conditions and personal needs over time.
PRECIOUS METALS BLOG
GOLD VS SILVER
When deciding whether to invest in gold or silver, it's essential to consider your investment goals, risk tolerance, and the unique characteristics of each metal. Gold is typically seen as a more stable, long-term store of value, while silver is cheaper, more volatile, and has a greater connection to industrial demand. Many financial advisors recommend holding a mix of both for a balanced approach. Gold: The traditional safe-haven assetGold has been a reliable store of wealth for centuries, primarily acting as a hedge against inflation and economic uncertainty. Pros:
- Stability: Gold is significantly less volatile than silver, offering greater stability during market turmoil.
- Portfolio diversification: Gold has a consistently low or inverse correlation with stocks and other traditional assets, making it a powerful diversifier during market downturns.
- Central bank demand: Unlike silver, central banks are consistent net buyers of gold, which provides ongoing demand.
- High value density: Gold is far more valuable per ounce than silver, making it cheaper and easier to store for significant investments.
Cons:
- No income: Like silver, gold does not generate passive income, such as dividends or interest.
- Higher entry cost: The high price per ounce makes gold less accessible for smaller investors.
- Storage costs: Owning physical gold requires secure storage, which can incur additional costs for safe deposit boxes or insured depositories.
Silver: The industrial-driven growth assetSilver's price is heavily influenced by industrial demand, particularly from green energy and electronics. Its volatility offers greater potential for growth but also carries higher risk. Pros:
- Higher growth potential: Due to its price volatility and sensitivity to industrial demand, silver has the potential for greater percentage gains during bull markets and periods of economic expansion.
- Lower entry cost: Silver's lower price per ounce makes it more accessible and easier for small investors to acquire physical metal.
- Growing industrial demand: With significant use in solar panels, electric vehicles, and electronics, industrial demand is a strong long-term driver for silver's price.
Cons:
- Higher volatility: Silver is historically 2 to 3 times more volatile than gold, meaning more significant price swings in both directions.
- Lower liquidity for large amounts: While a single ounce is easy to sell, moving large quantities of silver can be less liquid than gold.
- Higher storage costs: Due to its lower value-to-volume ratio, storing a high dollar amount of silver is bulkier and more expensive.
Which should you choose?Your choice depends on your specific investment goals and appetite for risk:
- Choose gold if you prioritize stability and wealth preservation. Gold is the superior option if your primary goal is to hedge against inflation and economic uncertainty. It is a more conservative precious metals investment.
- Choose silver if you seek higher growth potential and accept more volatility. Silver's industrial demand can lead to larger gains during economic growth periods, making it an option for more aggressive investors.
- Consider a mix of both for balanced exposure. Combining gold for stability with silver for growth potential can provide a diversified precious metals portfolio that performs well in a variety of economic conditions.
The Gold-to-Silver RatioThe gold-to-silver ratio measures how many ounces of silver it takes to buy one ounce of gold.
- When the ratio is high, it can suggest that silver is undervalued relative to gold.
- When the ratio is low, it may indicate that gold is undervalued.
- The historical ratio has varied widely, from a fixed 12:1 in ancient Rome to extreme peaks above 100:1 in 2020.
- Some investors use this ratio to decide which metal to buy, purchasing silver when the ratio is high and selling for gold when it falls.
PRECIOUS METALS BLOG
STORAGE OF SILVER AND GOLD
For safely storing physical gold, you have three primary options: at home, in a bank's safe deposit box, or with a third-party vault and depository service. The best choice depends on how much gold you own, how quickly you need access, and your comfort level with security and cost. Third-party depository or vault serviceThis is the most secure option, especially for large gold holdings. These facilities specialize in protecting precious metals and offer insurance and strong security protocols. Pros:
- Highest security: Depositories employ advanced security measures, such as 24/7 surveillance, armed guards, and state-of-the-art vaults.
- Insured: A reputable depository will insure your gold, with coverage typically included in the storage fees.
- Allocated storage: Many services offer "segregated" storage, which means your specific gold bars or coins are held in your name, separate from other clients' assets.
- Convenient trading: If you want to sell, you can often do so instantly with the depository's associated dealer without needing to physically move the gold.
Bank safe deposit boxA safe deposit box at a bank is a familiar and relatively inexpensive option, but it has significant limitations regarding insurance and accessibility. Pros:
- Strong physical security: Banks provide robust physical security for their vaults.
- Inexpensive: A safe deposit box is typically cheaper than a professional vault service.
- Private: What you store in the box is confidential. The bank does not know its contents.
Storing gold at home gives you constant access but requires careful management of security and proper storage conditions. Pros:
- Immediate access: You have full control and can access your gold at any time.
- Complete privacy: Your assets are kept entirely out of the financial system.
- Lower cost: After the initial investment in a safe, there are no recurring fees.
Cons:
- Higher risk of theft: Home storage is more vulnerable to burglaries and puts you at risk of confrontation with thieves.
- Limited homeowners insurance: Standard homeowners insurance policies typically provide very limited coverage for precious metals, often requiring you to purchase a costly rider or a separate policy.
- Damage risk: Storing gold improperly (e.g., in a humid area or with other metals) can lead to damage and reduced value.
- Need for a quality safe: It is essential to purchase a high-quality, fireproof, and waterproof safe that is securely bolted down. A cheap safe provides little security.
Which option should you choose?
- For maximum security and large holdings: A third-party depository or vault service is the best choice, especially if the gold is part of a retirement account.
- For small holdings and controlled access: A bank safe deposit box is a secure and affordable option, as long as you arrange for separate insurance.
- For immediate access and full control: A high-quality home safe is suitable for smaller amounts of gold, but it requires careful attention to security and insurance.
PRECIOUS METALS BLOG
SELLING YOUR SILVER AND GOLD
To sell your silver and gold, you should first identify the type of items you have, then find a reputable buyer, and get multiple appraisals. Your options include selling to an online dealer, a local coin shop, a jeweler, or at an auction. Online dealers often offer higher payouts, while local options provide instant cash. Step 1: Prepare your gold and silverGather your items and determine their worth to get the best price.
- Determine purity: Identify the karat of your gold items (e.g., 10k, 14k, 24k) and the fineness of your silver (e.g., sterling .925, pure .999). This is the most important factor in determining the melt value, or the value of the raw metal.
- Sort your items: Separate your items by type. Bullion (coins and bars) is typically sold differently than jewelry or scrap metal.
- Assess for numismatic value: For coins, determine if they have a higher value as a collectible item than their weight in precious metal. Rare coins in good condition can sell for a premium.
- Do not polish: Avoid cleaning or polishing rare coins or fine jewelry, as this can devalue them. A professional appraiser can tell you if cleaning is appropriate.
Step 2: Research market prices
- Track spot price: The "spot price" is the current market price for an ounce of pure gold or silver, which fluctuates daily. Knowing this helps you determine a fair baseline for your items. You can check reliable financial news sources for the current spot price.
- Search "sold" listings: For jewelry or rare coins, check online auction sites like eBay and filter for "sold items." This will show you what similar items have actually sold for, rather than just the asking price.
Step 3: Choose where to sellEach option has pros and cons regarding convenience, payout, and speed. Sell to an online precious metals buyer
- Pros: Often offers a higher price than local buyers due to lower overhead. The process can be done from home and is highly secure and insured with top companies.
- Cons: You must ship your items and wait for payment, though many reputable buyers offer quick payments.
- Best for: Sellers prioritizing the highest possible payout and who have a large amount of bullion or scrap gold and silver.
- Examples: APMEX, JM Bullion, and Cash for Gold USA.
Sell to a local coin shop or precious metals dealer
- Pros: You can complete the transaction in person, which provides immediate cash and a face-to-face negotiation.
- Cons: Dealers have higher overhead costs and typically offer lower prices than online dealers. Offers may also be inconsistent between shops, so you should compare options.
- Best for: Sellers who want to get cash quickly and have peace of mind from a face-to-face transaction.
Sell to a jeweler
- Pros: Jewelers may be interested in higher-end or antique jewelry that can be resold. They will also pay for the metal content of broken items.
- Cons: Jewelers specialize in finished pieces and may not offer the best price for bullion or collectible coins.
- Best for: Selling gold and silver jewelry, especially high-end, vintage, or designer pieces.
Sell to a pawn shop
- Pros: A very quick and convenient way to get cash.
- Cons: Pawn shops are known for offering lower-than-market-value prices, as they need to resell at a profit.
- Best for: Getting immediate cash when convenience is the top priority, but not for maximizing your return.
Sell through online marketplaces or forums
- Pros: Can attract collectors willing to pay a premium for specific items.
- Cons: Requires more effort, including creating listings, handling shipping, and dealing with potential scammers.
- Best for: Rare, collectible coins or unique jewelry where the item’s value is more than its melt value.
- Examples: eBay or Reddit forums like r/pmsforsale.
Key tips for a smooth and secure sale
- Compare offers: Always get multiple quotes before you sell. This is the best way to ensure you are getting a fair price.
- Prioritize security: When selling in person, choose a reputable buyer and, for extra safety, consider a public meeting place if dealing with a private buyer. When selling online, use an insured shipping method.
- Listen to your gut: If a buyer is using high-pressure tactics or offering a price that feels wrong, walk away.
PRECIOUS METALS BLOG
BUILDING WEALTH ONE SILVER COIN AT A TIME
Investing in one silver coin a month is a form of "dollar-cost averaging" that allows you to build wealth over time and hedge against inflation. This strategy removes the stress of timing the market and promotes consistent savings. However, it is a long-term play that comes with costs related to storage, insurance, and dealer fees. Benefits of buying one silver coin monthly
- Affordable and disciplined savings: Buying one coin is an accessible entry point into precious metals investing, especially for those on a budget. The monthly habit builds consistent financial discipline.
- Dollar-cost averaging: You buy a fixed dollar amount of silver at regular intervals, regardless of the price. When prices are low, your fixed amount buys more silver; when they are high, it buys less. Over time, this lowers your average purchase price and reduces risk from short-term market volatility.
- Hedge against inflation and economic uncertainty: Like gold, silver is often seen as a safe-haven asset that can retain its intrinsic value during times of economic turbulence or high inflation.
- Tangible asset ownership: Owning physical silver gives you direct control over your investment, unlike with paper assets, which many find psychologically reassuring.
- Diversification: Adding silver to your portfolio can offset exposure to traditional, riskier assets like stocks and bonds because it often performs inversely to the market.
How to get started responsibly
- Find a reputable dealer: Purchase from established online retailers, such as Silver Gold Bull or a trusted local coin shop.
- Choose your product: American Silver Eagle and Canadian Maple Leaf bullion coins are popular, highly liquid, and easily recognizable options. Silver rounds are also an option and often come with a lower premium.
- Check prices: Research the current silver spot price to ensure you are paying a reasonable premium. The lowest premium per ounce is typically found on large bars, but a small premium for a coin can be worth it for increased liquidity.
- Set up your budget: Commit to a specific amount or coin each month to follow the dollar-cost averaging strategy. Some dealers offer monthly subscription programs to automate this process.
- Plan your storage: Decide on a secure storage solution and budget for insurance costs. Secure, third-party vaults provide peace of mind, though you can also store it at home.