Let's Get Physical!

Every few days or so I get a question from someone about purchasing physical gold. Randall Oliphant of Barrick Gold recently said in an interview that most new gold production goes into the jewellery market, predominantly in India, and talked about the gold business benefiting from a jeweler marketing campaign.

Walking down a typical Mumbai or New Delhi Street would you then expect to see women laden down with bangles?

Of course not, and this is where the fundamental error in understanding spawns silly misguided attempts by the World Gold Council and others to "promote" gold by using fashion models and such.

Indian jeweler is usually 24 carat gold and is not meant to be worn, except on very special occasions. On her wedding day a typical middle class bride wears nearly 32 ounces of gold. Family wealth is passed along maternal lines in the form of golden dowries.

Wedding guests also give gold coins as lucky wedding gifts. Gold is deeply embedded in the Indian culture. No need to advertise gold here, its appreciation is almost instinctive.

It's not so much for adornment as for investment. As the whole of India moves upscale, the demand for gold is increasing.

Contrast: In the "enlightened" West, if you were to ask most people on the street the price of gold you would probably be surprised that most think it is worth much more than it truly is. Try it yourself.

And, if you showed them a standard 400 oz bar all of them (bar none) would estimate its value higher than it really is. A few will say "a million dollars".

Gold is also deeply embedded in the western psyche, though perhaps as "repressed memory". But it lurks there in the back of our consciousness, which is why films like "The Treasure of Sierra Madre", "Gold finger", and "Kelly's Heroes" were such big hits.

That's why rubbish gold-fill jeweler in the mall sells - people have an inaccurate idea of its value, but they know gold is valuable. Not many people are even aware that they can purchase and own a gold coin or a gold brick.

Would a "Diamonds are Forever" De Beers-type ad campaign change this? Probably not. Ostentatious display is considered vulgar, and the idea of wearing thick heavy jeweler "on those special occasions" just won't fly.

Besides, the most popular jeweler in the USA is 10 carat (only 42% gold by weight) and that is unlikely to change.

To my mind a much more effective campaign would be to target the small investor. Unlike every other commodity, the demand for gold runs counter-cycle to the price, and actually increases when the price increases.

You will see misinformed media stories forecasting doom for the gold market "when gold gets too expensive for jeweler fabricators", but history has shown that any slack in demand is always taken up by investment.

When the gold price rockets, the media reports of the lengthening queues at the gold wicket in the bank will be the best advertisement.

This will happen, in time. For now, there's a major disconnect between the subconscious perception here in the West that "gold is valuable" and the belief that is front and centre in Eastern Europe and the whole of Asia - "gotta have some for a rainy day".

Private gold ownership in Latin America is shockingly low, though gold ownership in countries like Mexico and Peru which issued their own coins was once strong.

The lust for gold was the driving force that sent the conquistadores far and wide, but now what is left sits in museums and cathedrals, and what is produced is exported.

Promoting gold in Asia is like preaching to the converted. Publicly promoting gold in the USA will not be effective unless at the same time war is publicly declared on paper currency.

The mainstream media won't have the guts to do that - not in the short term anyway.

But, the World Gold Council could do no worse than to run a continuous series of ads in the major newspapers of Latin America, exhorting their wealthy citizens to forego that trip to Disneyworld this year and sock the money away in gold, just in case your government stops doing its job.

Could there be no better alternative for wealth-preservation? Especially when the US dollar is looking shaky? Could there possibly be a more potentially receptive audience? It seems that every few years one or other Latin American country has their currency devalued into oblivion.

With the recent changing-of-the-guard at the WGC, perhaps we'll see some aggressive marketing along these lines.

There has been a lot of buzz on the internet in recent weeks about gold confiscation. Could it happen again in America? I doubt it, though it might be tried. As one person wrote on a forum, "They'll have to confiscate my gun before they confiscate my gold".

If they tried to confiscate gold there would be a Black Market in the US the likes of which have not been seen since the days of the Bootleggers and Speakeasies during Prohibition.

Remember the unheeded calls to invest in the stock market in the immediate days after September 11th, in "the name of patriotism" ? The American government no longer occupies the moral high ground that it did in 1933. We've impeached Nixon and Clinton since then.I don't know if the following story is apocryphal or true. It comes from "Silver" by Thomas Patrick Mohide, pg. 282

How to Buy Silver & Gold, and Where to Get It!

How to Buy Silver & Gold, and Where to Get It!


Beware! Don't trade in your dollars (which are defaulted promises to pay silver or gold) for more promises of precious metal! What I mean is, we are clearly heading into another situation where delivery default is imminent!

The safest place to start buying precious metal is from your local dealer, which you can find in your local phone book -- look up "COIN DEALER

Types and Kinds of Silver Available

1. Bars:A. 1000 oz. Bars. --These bars weigh about 68 pounds, and vary about 10% as to weight. You may get a 908.8 oz. bar or a 1099.6 oz. bar, and the price is settled on delivery. These are the NYMEX bars.

Benefit: Good for NYMEX delivery to the major exchange for delivery into a 5000 oz. futures contract, and thus, the most liquid for large buyers or sellers.

Also, it is quicker to physically move them in large quantities, rather than moving hundreds of 100 oz. bars.

Drawback: They are not suitable for smaller transactions, but they are always liquid if they are sold to a wise bullion dealer who knows what they are.

The other drawback may be shipping, if you are on the west coast, since the exchange is in New York.

B. 100 oz. Bars. --These bars weigh 6.8 pounds, and are among the most popular with retail investors.

They stack well, and make it easier to inventory than 1 oz. rounds or silver bags. Popular brands are Englehard and Johnson-Matthey.

Those two brands cost a bit more than other brands, usually about 40-50 cents per ounce above the spot price, but that price may vary with market conditions.

C. Odd weight retail bars. --Stamped as 101.46 oz. or 51.23 oz., these bars cost less, and generally have a wider spread, due to the extra work it takes to calculate their value, and extra risk due to the lack of good brand name.

To test that they are silver, try a simple ring test.

Bang them with a wooden spoon, and if you hear a faint, quick, "riiiinnnngggg", they are silver.

Lead filled bars thud or thunk, and do not ring.

But you may be able to buy these as spot, and sell them at spot, depending on the dealer.

These are true "bullion" bars, and not found in quantity. Also, there is the 1 kilo bar, which is 32.151 ounces.

D. 10 oz. bars are also very popular, often harder to get, with a slightly higher cost, as they seem more "affordable" and are very neat to hold, and can act as "change" between the 100 oz. bars, and 1 oz. rounds.

2. Coins: A. U.S. minted Silver-Eagle. --This coin is .999 pure silver, and weighs one ounce. It generally sells for about $2.00 over the spot price, and is thus quite expensive. I don't recommend these.

B. One-ounce "rounds". --They are .999 pure silver, and weigh one ounce. These coins are like the Silver-Eagle, but they cost much less. They are minted by a private mint.

They generally cost about 40-50 cents above the commonly quoted price of silver--also called the "spot" price. These are often very popular, and a very good choice.

C. U.S. minted coins, dated 1964 or earlier. --These are half dollars, quarters, or dimes that commonly circulated in the U.S. Called "Junk silver", they generally contain no rare or special coins.

Sold by the "bag", each full bag contains $1000 face value of coins, such as 2000 half dollars, 4000 quarters, or 10,000 dimes.

A "bag" weighs about 55 pounds. This is typically the cheapest silver you can buy, because there is a cost to melt it down to get the kind of silver that is needed by industry.

But this kind of silver also can become very much in demand, such as prior to the year 2000, when people wanted "tradable" silver, and bags cost up to 25% more than other silver bullion.

D. Commemorative Coins. Often times, the public will buy silver at a rate of 10 times higher than the bullion content if it is made into "Elvis" coins or "Space Shuttle" coins, or "Princess Diana" coins. Often made by the Franklin mint and sold on late night TV, these are generally a rip off.

People pay so much, and sell them to the bullion dealers only for the melt value.

And you can sometimes buy these kinds of so-called collectables at the coin shops very cheap at just over the spot price, or ten times cheaper than found on TV.

So, what kind of silver is best? It depends on your situation. I own and like the 100 oz. bars, and the 1000 oz. bars the best.

But that's because I have a lot of silver. My friends and family typically like the 100 oz bars, 10 oz. bars, and 1 oz. rounds the best.

For storing large amounts, the 1000 oz. bars are most convenient. The 100 oz. bars are troublesome in very large quantities--it takes much more work to move 200 of them than it takes to move 20 big ones.

I also like the bags, but they may require counting with a coin counter which I have purchased, which takes more time. My kids like the one-ounce rounds the best.

Most people find the 100 oz. bars fascinating to hold in one's hand, and the 1000 oz. bars are typically considered too heavy to lift.

http://silverstockreport.com/buybullion.htm