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Being a successful and prudent bullion investor means asking questions and getting informed. Here are some common questions and answers that will help you to get started.
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Q: Why Invest in Precious Metals?
A: Investment experts have long-recommend portfolio diversification and that 10% to 20% (and sometimes more) of an investor's assets be devoted to tangible assets such as gold, silver and platinum bullion and bullion coins. That's prudent asset diversification strategy at any time. But in today's uncertain political and economic environment, there are many (and very sound) reasons to consider investing in precious metals. Here are three:
- Precious Metals Have Been a Solid Hedge Against A Declining U.S. Dollar. The value of the U.S. Dollar declined more than 30% from 2001 through 2004, plunging 5% in just a few weeks. For a long list of reasons, including massive increases in U.S. government deficits totaling trillions of dollars, the cost of a prolonged war against terrorism and a massive trade imbalance, this trend may be just the beginning. This means U.S. Dollars could now be worth less and less every day, which also means that investments pegged to the U.S. Dollar could be worth less and less every day. Gold, silver and platinum, though, are held and traded throughout the world . . . and their true value (that is, their purchasing power) is not solely or directly dependent on the falling fortunes of the U.S. Dollar. Precious metals, therefore, can be a form of protection against a falling U.S. Dollar. As demonstrated during 2003 and 2004, as the value of the U.S. Dollar declined, gold and silver prices and the value of precious metals expressed in dollars increased.
- Precious Metals Have Been a Proven Safe-Haven in Times of War, Political Strife and Uncertainty. Today's financial markets are increasingly at risk from terrorism, political instability and war. As we saw so clearly after the 9/11 tragedy, financial markets can be closed down, and remain closed down, for extended periods of time. As terrorism incidents continue to increase around the world, it is not unreasonable to expect further (and potentially more severe) disruptions in financial markets, banking and commerce in the future. Whenever and wherever tension or hostilities break out, people everywhere quite naturally gravitate toward the assets they trust most. And today, even in our high-tech driven 21st century, the asset class millions rely on in times of trouble is gold and silver. Precious metals have always been, and likely will continue to be, a valued form of "wealth insurance" in good times and bad.
- Precious Metals Can Offer Outstanding Price Appreciation and Profit Potential. After the infamous stock market "bubble" debacle in early 2000 wiped out trillions of dollars of investor equity, the major stock indices have failed to return to anywhere close to their previous highs. Gold and silver prices, on the other hand, have increased dramatically - more than 40% - during that same time period. Which means precious metals may produce impressive investment returns even when (and sometimes, especially when) returns from stock, bond and other paper investments decline in value or evaporate completely. And many financial experts have predicted and continue to forecast rising gold, silver and platinum prices in the months and years ahead.
Q: Why invest in Gold?
A: - Gold is a precious metal par excellence and remains the ultimate safe haven asset. For thousands of years, gold has occupied a special place in the hearts and minds of people. Gold is deeply embedded in the consciousness of all societies in the world. Consider the frequency with which the word gold is used to signify superiority or excellence - a gold card, go for gold, a golden era, a golden handshake or parachute, the golden mean, a gold-digger, a golden rule , a golden age, a heart of gold and the gold standard. Gold is the ultimate insurance against economic and financial difficulties. While gold has taken a secondary role to stocks, bonds and property in the last 20 years, an unprecedented era of prosperity for many in the developed world, many astute financial analysts recommend that between 5% and 20% of every investor's portfolio should consist of the ultimate of hard assets gold. The price of gold typically moves contrary to other investment vehicles, thus giving balance and protection in a changing economy. Over the long run, gold has maintained an excellent track record in maintaining its purchasing power relative to other financial assets. In addition to the security offered by gold, it is perhaps the most private asset one can hold. Your bullion purchases are never reported to any government or private agency.
Q: Why invest in Silver?
A: - Silver like gold has been used as money for many centuries. It is also commonly used in jewelry and collectible coins. Silver has extremely valuable industrial uses such as malleability, thermal and electric conductivity, and its resistance to corrosion is unmatched among precious metals. Everybody knows the old expression warning against selling the 'family silver' but not everyone appreciates its wisdom. Silver like gold has been and is increasingly again being regarded by investment managers and financial advisers as a great financial hedge against terrorism, war, fiat currency crises, inflation, stagflation, deflation or a combination whereby the western world experiences inflation in essential goods for society to function such commodities such as wheat, grain, rice, natural gas and oil and deflation in non-essential items such luxury goods and assets like equities and property.
Q: Why invest in Platinum?
A: - Platinum is more than just a hard asset, it's an investment. Platinum is also an essential industrial commodity which is used worldwide in the manufacture of 20% of all consumer goods. It has a resistance to corrosion, an extremely high melting point, excellent electrical conductivity, and high durability. It is a precious metal that is constantly used in new industrial applications and is increasingly important in environmentally friendly applications in the transport sector. 90% of world supply comes from two countries, Russia and South Africa, thus political or economic problems in either country may greatly affect the supply and thus price of this precious metal.
Q: What Forms does Precious Metal Bullion come in?
A: - Precious Metals Bullion Products are available in various forms, which carry premium costs. This premium is called a "Fabrication Cost" or "Bar Charge". These charges are in addition to the Ask Price charged, and will vary depending on Market conditions and the quantity being purchased. These products previously received a premium above the "Bid" when being sold, but this is now dependent on Market conditions and the quantity being sold.
Q: Do dealers buy bullion back at the same price they sell it?
A: - No, the "spread," or difference between the buying and selling prices allows dealers to stay in business and is much the same as when banks charge more interest for loans than they pay for savings accounts. The precious metals bullion business is a very competitive one, and the profit margin, or spread, is very small compared to almost any other inventory business.
Q: How do I go about selling my product that I have in my possession?
A: - Depending on the Type of product you have, you may sell it to:
- Local Coin Dealers
- Your Original Dealer
- Some Banks may be willing to buy it from you
- Other Retail Dealers
Note: Once you have product in your possession, and you wish to sell it, you may be asked to have the product re-assayed, at your expense, prior to being given a Sale price. Generally, Assay costs are charged as a percentage of product or product value. This will ultimately reduce the amount you receive. There are also Security risks involved in handling the product, such as theft, or loss. During the time it takes you, once you have decided to sell your product, to safely get it to a Buyer and lock in a price - the price may go down and the price you receive may be significantly lower than when you made your decision to sell. Finally - depending on the size of Bars you have, you are limited to selling the entire Bar, when perhaps you would prefer to sell only a portion of that Bar. Example: 1000 oz Bar must be sold as a 1000 oz Bar. You cannot sell a portion of it and keep the Balance.
Q: If I take "Home Delivery", what additional costs are involved?
A: - "Fabrication" or "Bar Charges"
Shipping - Register Post or Bonded Courier Insurance, Applicable Local taxes of your home Country, State, or Province Customs Duties (if applicable).
Q: How do I store my product that I have in my possession?
A: - This is an individual preference
- Safety Deposit Box
- Bonded Insured Warehouse (If available in your area)
- Home Safe
- Etc.
Q: - What about Certificates issued by Banks?
A: - Certificates for Gold or Silver issued by Banks will vary in terms of quantity and price. They are subject to the Terms & Conditions printed on the Face and back of the Certificate. Generally they are transferable to third parties but must be sold to the Bank of issue or to other Banks willing to recognize them. There are very few Banks who deal in certificates; therefore this is a Shrinking market. Bank issued certificates for Precious Metals are not FDIC or CDIC insured. For these reasons PMI (the dealer) does not deal in Precious Metals Certificates.
Q: Why is there a difference between the "Ask" Price (price I pay when purchasing) and the "Bid" Price (price I get when I am selling)?
A: - The spread between Ask and Bid on Precious Metals products is comprised of two components.
- Wholesale Dealer Profit Margins
- Market Conditions relative to supply/demand
Note: When you purchase Precious Metals Bullion products, you will pay a premium over the "Spot" market. Generally speaking, as it is the "Bid" price you will receive, when you sell, it is the "Bid" price that must increase to the level of your "Original Ask" price, in order for you to be at Break Even. (This is exclusive of any commissions you pay your Retail Dealer).
Q: How does the Retail Dealer's Commission charge affect my Break Even?
A: - Generally speaking all charges you pay including commissions should be added to arrive at your final cost, which then can be divided by the quantity of product you have purchased. The resulting figure is equal to your Break Even at the time of your purchase (exclusive of ongoing finance and storage charges, if applicable).
Q: Are bullion purchases taxable?
A: You should consult your tax advisor for specific taxation advice in your jurisdiction.
Q: Are bullion coins legal tender?
A: - Yes, if they are government issued bullion coins with a face value. This nominal face value allows the coins to travel across national borders without the taxation or fees otherwise imposed by many countries on bullion itself.
Q: Do bullion coins come with a certificate of authenticity?
A: - Yes, a maker's mark and statement of weight and fineness is stamped directly onto the bullion, whether coins or ingots. The bullion itself, in effect, bears its own "certificate" from whichever mint or refiner produced it. Gold, specifically, is an element with a unique specific gravity, and other attributes which are easy to test for authenticity. The ancient Egyptians pioneered the "acid test" for gold, and any jeweler or pawnbroker can demonstrate the basics of gold.
Q: Was gold illegal to own at one time?
A: - Yes, in this country, from 1933 to 1974 U.S. citizens could not legally own gold bullion without a special license. In 1975 these restrictions were lifted and gold can now be freely held without any licensing or restrictions.
Q: Can I put bullion in my IRA?
A: - Yes. You do need a custodian, a qualified third party such as a bank, to actually hold the qualifying bullion in your name. Some qualified depositories will do IRA storage of physical metals for you. Annual storage fees are usually involved and an initial fee to set up the account.
Q: What are the limits on how much gold I can own?
A: - Private gold ownership in the United States has no size limitations. You are limited only by your budget and common sense.
Q: Are bullion transactions of $10,000 or more reported to the government?
A: - Only if they involve cash or cash instruments such as cashiers checks which total over $10,000. No reports on transactions involving single checks or bankwires are required.
Q: Do I have to report my gold coin purchases to the Government?
A: - No branch of federal, state, or local government has specific interest in how much gold you might own. The U.S. Mint, a division of the Treasury Department, strikes the gold Eagle bullion coins, and supports their sale with national advertising, sales brochures, gift boxes, and so on, but they do not keep track of who is buying it from their dealers.
Q: Do I have to pay taxes if I sell my bullion coins for a profit?
A: - Yes. If you hold precious metals bullion as an investment, and later sell it at a profit, you will have either a long-term or short-term taxable gain.
Should you have other questions, please e-mail us info@bullioninvest.com and we will be happy to assist you.
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