Friday, February 27, 2009

Middle East Gold Investment To Jump

Abu Dhabi, location of new gold and silver dual refineryWhile gold jewelry sales in Dubai and other parts of the Middle East sputtered in 2008 due to rising gold prices, in 2009 the Middle East, and in particular the Gulf region, is on its way to becoming a hotspot of gold investments. Gold investment in the region grew by 38% in 2008. Saudi Arabia saw the biggest increase, with a 300 percent increase in investment demand. The Middle East has been a large consumer of gold, but today's falling real estate prices and stock markets are heating up this "natural" tendency of the Middle East to revert to the real physical money that is still fresh in their collective memory.

Dubai The City of Gold. The center of the Middle East gold industry.Dubai "The City of Gold", has long been known as the center of the gold trade in the Middle East. It is home to the DGCX, the Dubai Gold and Commodities Exchage, that deals in gold futures contracts in 1 kilogram units. According to the Dubai Multi Commodities Centre (DMCC), the value of the gold trade in Dubai reached US$29 billion in 2008, a 53% increase over the previous year. This upward trend is expected to continue.

In anticipation of this upswing in gold investment, investment in the precious metals industry has been building. An Italian corporation Elettronica SPA and Khalid Ahmed Al Mansoor recently announced plans to build a refinery for both gold and silver, to produce bullion bars and grains of precious metals. It will be the largest dual refinery in the Middle East.

United Arab Emirates gold coin Visions of DubaiIn addition to the new gold and silver refinery, the World Gold Council is planning to launch a new ETF (exchange traded fund) based in Dubai, aimed at Middle Eastern investors. The gold ETF would follow Islamic laws, which prohibit certain financial activities such as receiving interest on investments, making it vastly marketable across the entire region. This ETF has been planned for some time, but the recent financial storm has mage the WGC speed up its preparations so that the ETF will be online soon enough to meet the coming demand in the Middle Eastern precious metal gold market.

While Dubai itself produces no gold, it is in the process of becoming the main manufacturing and refining center of the region.

Reference: Commodity Online

Thursday, February 26, 2009

Gold Vienna Philharmonic Coins

Vienna Gold Philharmonic CoinsThe Vienna Philharmonic gold coin is one of the most popular gold bullion coins in the world, on record as the best-selling gold coin in 1992, 1995, and 1996. It is made of 99.99% fine gold, also known as 24 karat gold. A new minting takes place every year, with four different denominations normally available. Those denominations are 1 troy oz, 1/2 troy oz, 1/4 troy oz, and 1/10 troy oz. These are the standard denominations that most bullion series coins are avaiable in.

Until 2001, Vienna Philharmonics' face value was listed in Austrian Schillings, but since 2002 has been listed in Euros. To the best of my knowledge this is the only bullion coin series to have ever been minted in two different currencies! The 1 oz coins have a face value of 100 Euros, the 1/2 oz coins have a face value of 50 Euros, the 1/4 oz coins have a face value of 25 Euros, and the 1/10 oz coins have a face value of 10 Euros. Though as is usually the case, the face value has no bearing on the true value of the bullions coins, whose value is determined by the spot price of gold.

Austrian Gold Philharmonic 1000 oz coin!In 2004 15 special Philharmonic gold coins were struck. These special coins contain 1000 ounces of pure gold bullion! They weigh in at a hefty 31.103 kg (69 pounds), and have a diameter of 370 mm (14.57 inches). That's bigger than a large pizza! The face value of these insanely massive collectors coins is 100,000 Euros, though the spot price of their gold content is currently 735,220 Euros (US$936,850).

The Wiener Philharmoniker gold coin (as it is referred to in German) is dedicated to Austria's national philharmonic orchestra, one of the finest orchestras in the world and a source of national pride for Austrians. The coin's image was designed by Thomas Pesendorfer, with the obverse face showing the great organ in the concert hall of the philharmonic: the Musikverein. The reverse shows a near-symmetrical arrangement of orchestral instruments. Their lovely design makes them treasured by not only investors but also numismatic collectors.

Philharmonic coins do have legal tender status in Austria, but unlike regular Austrian Euro coins philharmonics are not legal tender throughout the entire European Union. Their legal tender status is limited to Austria, and their bullion value independent of the Euro makes them an impractical means of exchange. The reason that some bullion such as Philharmonics are given legal tender status is to simplify the trade of these coins across borders. For example, in some countries it is illegal to own gold bullion, but it is legal to own a legal tender foreign currency. Giving legal tender status to bullion coins therefore provides a loophole for the sale of small amounts of gold. Also, having a face value drastically simplifies the process of applying taxes and tariffs to coins. Applying taxes and tariffs to shifting gold spot prices would be logistical nightmare.
Gold Vienna Philarmonic coin on side of Airbus 340
The gold Vienna Philharmonic coin is the first gold coin to have ever had its image shown on the side of an airplane. The Philharmonic appeared on the Austrian Airlines Airbus A340.

Vienna Philharmonic coins are also available in silver.

1 oz silver Gold Vienna Philharmonic coin bullion

Wednesday, February 25, 2009

Maple Leaf 1/4 Ounce Gold Coins

Quarter ounce Gold Maple LeavesYesterday I bought a 1/4 oz Maple Leaf gold coin. Its design and image are the same as other denominations of the Maple Leaf, with only its size and weight being different. To give you an idea of how big 1/4 oz gold coins are, think of an American or Canadian copper penny. When I bought the coin at Ginza Tanaka, a precious metals dealer in Japan, they weighed the coin for me in grams and the coin came out to 7.78 grams of gold. In Japan precious metals prices are usually quoted in grams rather than ounces, except for silver which is usually quoted in kilograms.

Actually, my intention when visiting the shop was to look for silver bullion coins, but they informed me that they don't carry them. I received a similar response at Ishifuku Metals. My guess is that silver coins have such a narrow profit margin per coin that they're not worth anybody's time here, certainly not worth the effort of importing. The only silver coins I have seen in Japan have been proofs sold at the Japan Mint's gift shop. And these are sold with a rediculous premium markup of around 500%. Since I buy mostly as an investor and not as a hobbyist, I decided to avoid marked up silver proof coins and buy a fractional gold coin instead. "Fractional" gold coins are coins that weigh a fraction of one ounce, normally 1/2 ounce, 1/4 ounce, and 1/10 ounce.

Here's a youtube video of me with my new 1/4 ounce Maple Leaf.

For more information on Maple Leaf coins please see The Canadian Maple Leaf Gold Coin

Monday, February 23, 2009

Low-Grading Reduces Australia's Gold Output

Gold production in Australia dropped to 219 tonnes in 2008, the lowest figure in two decades.

What does gold ore look like?The main reason for the reduced output was low-grading, the process of reducing the grade of the ore mined during times of high gold prices. This is done to extend the life of the mine, as low grade ore (which has a lower gold mineralization) is not profitable to mine when gold prices are low. By mining the low grade ore during times of high gold prices, it is profitable and the easier-to-mine highgrade ore is saved for times of low gold prices when more physical gold output is needed to be profitable. It is a way of profiting from a mine with the longterm view of the future in mind.

Gold ore images.Most mines have a fixed amount of ore that they can process per day, and this doesn't change depending on the grade of the ore. So lower grade ore results in less gold being processed each day. Many shareholders in the mining companies don't like this longterm view, expecting huge returns in the short term when the price of gold rises. But the mine companies want to maximize the utility of their mines for as long as possible, because of the huge costs involved in constructing and staffing a mine.

It was down 29 tonnes from the 2007 figure of 258 tonnes, but Australia still remained the world's third largest gold producer behind China and South Africa.

Sunday, February 22, 2009

India's Gold Imports Slow to a Halt

Current gold price in India results in selloff of physical gold.India is known as the biggest consumer of gold in the world, much of it sold in the form of investment-grade jewelry (with high caratage and low design premiums). Privately possessed gold in Indian is estimated at 15,000 tonnes. But with gold prices high many Indians are rushing to sell their gold, seeing this as an opportunity to profit before gold prices drop again. Current gold prices in India are 15,790 rupees per 10 grams (US $317.70)

India normally imports 90% of the gold supply needed to meet demand. But now as Indians become net-sellers of gold, imports have fallen off. In January just 1.8 tonnes of gold were imported, compared with 14 tonnes in January of 2008. So far, no gold whatsoever has been imported this month (February 2009). This follows the general downward trend of 2008, during which only 660 tonnes were imported, compared to the usual 700-800 tonnes.

The beginning of the year is wedding season in India, a time of giving gifts of gold. People are still buying, but are not increasing their budgets. They are simply settling for less gold within their budget. And with all the selling going on, local supply can meet all of the demand for wedding gold without any imports.

Many Indians perceive the current prices as the gold market's peak and are selling their gold with the intention of buying it back soon when the prices drop. But even then Indians have become net-sellers, the rest of the world are now becoming buyers of gold, a trend which will probably continue for quite a long time throughout this current financial storm.

Reference: AFP

Saturday, February 21, 2009

When To Sell Gold: Gold Mania

The modern gold rush wealth transfer is coming.In the last blog entry I talked about how to use the Dow Jones to Gold Price ratio to predict how long the precious metals bull market will last and when to sell your gold. That ratio shows the cyclical fluctuation of value between the Dow and gold,
but it doesn't tell you exactly where gold's peak will be. To know where the peak is, you will have to look at the climate on the street. Alex Stanczyk, editor of "Your Financial Future", cites the "everyman" indicator as the best way to know when the value of gold has peaked. This simple concept means that everybody around you is singing the praises of gold and silver as the ultimate investment and giving you investment tips. Your next door neighbour who knows nothing about investing and personal finance starts to give you precious metals tips, your taxi driver gives you precious metals tips, your waiter at a cheap diner is telling you that you should buy gold, etc.

Other indicators of a gold mania that signal the top of gold's value are:

-The front page of every newspaper showing headlines about gold

-People are lined up and down the street at coin and bullion shops to buy gold

-A industry surrounding gold arises, with new gold vendors and coin shops popping up, and related enterprises. Think of all the mortgage brokers that popped up during the most recenet real estate bubble.

The time to sell is the time when the gold market is flooded with investors who jumped on the bandwagon late. At this point the average person still doesn't know that precious metals are by far the best investment opportunity right now. Most people I speak to know nothing about it, and just talk about waiting for their mutual funds to rise back up in price again. The average person follows the herd, and when it comes to investing the herd is always wrong. So when gold is heading towards the peak of its bull market and the masses panic at the diminishing value of their stocks and real estate, masses of people will simulataneously buy gold pushing its price up even further. When the masses start a gold buying craze, you - the informed one - will know that it is time to sell.

Friday, February 20, 2009

Gold To Dow Jones Ratio

With investor interest in gold beginning to pick up more steam, those already holding gold are probably wondering when the best time to sell their gold will be. In other words, how will when know when we are nearing the peak of the bull market in precious metals? There is no way to know that in exact terms. But a good indicator is the gold to Down Jones Ratio, if we look at its cyclical nature.

The gold to Dow Jones ratio can tell you when to buy and sell gold.

Looking at the graph showing Dow to gold ratio over an 80 year period, we can see that the value of the Dow Jones Index (which represents US Bluechip companies) measured in gold follows a clear rising and falling pattern between undervalued and overvalued. The rises and peaks on the graph show that the value of the Dow is rising, meaning that it costs more ounces of gold to buy a unit of the Dow. The dips on the graph show that the value of gold is increasing, meaning that it costs fewer ounces of gold to buy a unit of the Dow.

According to Michael Maloney in "Guide to Investing in Gold and Silver", the Dow is fairly valued at 6 or 7 ounces of gold per unit. It starts to be considered undervalued when it drops below 4 ounces of gold, and it starts to be considered overvalued when it rises above 10 ounces of gold. But the Dow usually strays far into overvalued or undervalued territory before changing course and moving in the opposite direction. When it has overshot the "normal" range of value in one direction, it has the tendency to overshoot the normal range in the opposite direction as well.

In 1929, it cost 18 ounces of gold to buy the Dow (very overvalued), and when the cycle changed course the Dow's value swung all the down to 2 ounces of gold per unit. That means anybody who sold their shares of the Dow and bought gold in 1929 did very well, and a few years later could buy 9 times as much of the Dow as they originally owned. So we can see that the Dow overshot the normal range on the way up, and then overshot it on the way down.

The same thing happened in the next cycle when the Dow peaked in 1966, even more overvalued at 28 ounces of gold per share. Because the value of the Dow become overvalued by a larger degree this time, on the way down it also became undervalued by a larger degree, reaching as low as 1 ounce of gold per share in 1980.

Today we are following the same cyclical pattern, with the Dow having peaked in 1999 at a whopping 44 ounces (!) of gold per share, and we are currently in the middle of the move in the other direction as the Dow becomes less valuable in relation to gold. The ideal time to sell is right before the Dow hits the bottom and changes course in the opposite direction. If you had bought gold in 1999 you would be in an amazingly good position to profit from this cycle. We have missed the peak, but there are years left in this cycle and you can still multiply the value of the gold you buy. Today I checked the value of the Dow, which was listed as 7346.31 US dollars per share. When I checked the gold price, it was US$993.74 per ounce. Divide the price of the Dow by the price of gold, and the result is 7.3926. That means that it currently takes 7.3926 ounces of gold to buy one share of the Dow.

How far will the Dow/Gold ratio drop? We don't know exactly, but conservative estimates suggest that 2 ounces of gold per share is very likely. But judging by how far the Dow overshot the normal range of value in 1999, it could very likely overshoot the normal range by a huge degree on the way down as well. Some say that it could likely drop to 0.5 ounces of gold per share of the Down. That means that if you buy now, you will increase your invested wealth by 1400%. In a very conservative estimate, you could increase your invested wealth by 370%.

Exactly when to sell will probably depend on the climate amongst the general public, with a gold-buying mania that will lead to an obvious bubble. During that mania in the gold market it will be the time to get out.

Thursday, February 19, 2009

Declining Gold Production in China

China gold mine outputIn 2007, South Africa fell from its longheld position as top gold producing country in the world, being replaced by China. This may lead some to believe that gold mining output in China is increasing, but this is not the case. China's output actually peaked in 2005 and has been falling since then. The reason that China overtook South Africa's number one position is that South Africa's output is declining faster than China's.

China's decline in mining output follows a worldwide trend of declining production. The global decline is a delayed result of the extremely low price of gold in the late 1990s and early 2000s. This low price of gold meant that gold exploration and development of new mines was no longer affordable and operations were scaled back to only managing current mines. But because it takes more than 10 years to locate, extract, and put gold onto the market, we are now in the middle of a production decline resulting from the gold price of that period.

Gold prodution in China declinesIf the gold price remains high, there will likely be new exploration and gold discovery in China, but this is not yet in progress, and whenever the process begins, there will be a 10+ year delay in increased output. And according to mining industry reports, China's current gold deposits will be depleted within the next 6-14 years. Ren Guangzhi, manager of investment for Zijin Mining Group, China's mines will run out of gold by 2014 unless new discoveries are made. If this is the case, and if new exploration is starting around the present time, then that means that by the time new mines are operational in 2019 or later, China will have been without any gold output for 5 years. This could mean a serious decline in the gold supply. If we look at the more optimistic view of the Metals Economics Group in New York, then China's current deposits can continue to be mined for around 14 more years. That means that if new exploration is begun soon, then new mines may be operational around the time that the current mines are exhausted. But that's IF exploration begins soon, and even in this optimistic scenario there would still probably be a slowdown in gold output as gold ore dwindles.

With the world's top gold producer's output in decline, the gold supply will likely become even tighter in the coming years. The current global economic recession and subsequent investor demand for gold as a safe-haven has hit just as gold mines have gone into their cyclical decline. The combination of these two factors will likely drive the gold market price much higher than it already is.

Source: Bullion Vault: Gold News

2008 Gold Demand Surpassed US$100 Billion

Demand for gold bullion bars and coins skyrocketing. Gold supply falling.The demand for gold reached US $102 billion in 2008, up 29% from the previous year, supported by increasing investor demand in light of the current economic climate. Increasing investor demand resulted in the demand for gold bullion bars and coins rising by 87%. This huge increase was partially offset by a drop in demand for gold jewelry as gold prices increased. Jewelry purchases remained low in Western countries where jewerly has a high design markup and low caratage. But in countries where investment-grade jewelry with high caratage and low design markup is the norm, large buying increases occurred during dips in the gold price.

The supply of gold continued its decreasing trend in 2008, due to mine closures and lack of exploration in previous years when the gold price was lower. This is a cyclical process, with exploration and new mines being developed when the gold price is high enough to fund these activities. But the results of these activities are delayed by a few years, as it takes time to progress such projects. In addition to that cyclical decline, credit problems may lead to troubles for mining and exploration companies, resulting in a slowing of operations.

Central banks are also holding onto their gold reserves and not selling at high levels.

The results of this continued limited supply coupled with increasing investor demand means that the price of gold is likely to remain high as long as the current economic conditions prevail.


Tuesday, February 17, 2009

Gold Confiscation: Be Prepared

In 1933, US President Franklin D. Roosevelt signed an executive order outlawing all private ownership of gold. Citizens were legally required to turn over their gold bullion to the government in exchange for their equivalent value in US dollars, which was $20.67. Once the citizens had this cash in hand, Roosevelt immediately devalued the dollar by 40%, and in an instant these people were robbed of 40 percent of their wealth.

A lot of people point out that this confiscation of gold took place during the Great Depression, and that there is no basis for worry in the present day. But there are plenty of people who predict that our current economic woes will be even worse than the Great depression. The government makes the rules, and in times of serious trouble they do so blatantly. I don't know if there will be another gold confiscation in the US, but it could happen, and the laws used to originally outlaw private gold ownership are still on the books. And gold has been nationalized in other countries as well. The possibility is there.

How can gold investors protect themselves from such a confiscation of gold? The basic idea is to keep it as far out of reach as possible from the potential confiscators, and to diversify your gold portfolio so that you possess gold in a number of different forms, locations, and countries.

First, it's important to note that in 1933 most people who privately held physical gold bullion in their homes or another discreet storage place did not turn their gold in. The government did not send the police from door to door looking for private stashes of bullion. They made possession illegal, and asked everybody to turn over their gold, but it was basically done on an honor system, and it's estimated that 78% of privately held gold was not turned in. So, right off the bat we can see that personal possession, rather than holding allocated gold with a bank, provides you with security from confiscation. The banks, however, gave government agents access to safe deposit boxes and that gold was seized unless you could prove it was exempt from confiscation (more on exemptions later). If you held gold in an allocated storage account with an American financial institution, your gold would have also been seized.

In addition to keeping some precious metals in your home, some serious gold bugs even suggest that you should keep a collection of ounce gold coins on your person at all times, in case the government does decide to raid homes. But I personally don't
understand this level of paranoia in the current situation, and won't resort to this unless we are in the midst of serious strife like a hyperinflation.

The problem with keeping possession of your bullion after a confiscation is that you would not be able to legally liquidate it, unless you sold it to the government. I imagine there would be a black market for gold, and I also imagine there would be people attempting to smuggle it out of the country, but in my opinion the main purpose for keeping bullion with you or in your home is to provide some immediate liquidity in times of emergency. To maintain a large amount of wealth in gold, it makes more sense to own gold overseas that is geographically protected from confiscation.

One way to possess gold overseas is to open a digital gold account. If you own digital gold in an account based in Switzerland or Dubai, for example, if there's ever a confiscation in the US (or wherever you happen to live), then guess what -- your gold is safe. Digital gold accounts generally allow you to use your digital gold to purchase another currency within your account, so you could buy another currency then send a bank wire transfer to your account in your home country (or an account elsewhere). Maybe the government would make these overseas possessions illegal too, but there must be ways to keep your possessions discreet, and there will always be legal loopholes for those who bother to find them (which is usually only rich people with a lot to lose). During the original gold confiscation of 1933, the wealthy did not lose their gold. They held gold in offshore havens. In today's modern digital age, the average joe can find cheap and convenient ways to legally keep money offshore to protect his assets. I encourage you to look into the precise legality of keeping digital gold and currencies overseas and what kind of reporting is legally required, and find out how well it can protect your wealth.

You could also consider segregated vault storage in an overseas country, which provides the highest level of security. It does, however, cost a fair amount in storage fees, and it does not offer you the same flexibility to transfer your gold as a digital account does. If I had a very large stash of gold I would put some in segregated storage, but at the moment I have a modest portfolio and will hold back on this for now.

If you have a head on your shoulders and can keep on top of developments as they unfold, perhaps the best way to deal with gold confiscation is to let it be confiscated, take the currency that the goverment offers you in return, and buy something like real estate before the currency is revalued or inflates until it is worthless. According to owner Michael Maloney in his book "Guide to Investing in Gold and Silver":

"The government will only nationalize gold and silver if people are asking for them in payment. If people are asking for them in payment, it means that we are in the midst of a hyperinflation. If we are in hyperinflation, the vast bulk of the wealth transfer will have already occurred, and it will have been mind-boggling huge. So just sell the government your precious metals and buy something tangible right away (like lots and lots of real estate) before the currency becomes worthless."

In addition to holding onto your physical gold and having an overseas digital gold account, you can further diversify by owning shares in some gold mining stocks. After the outlawing of gold possession in 1933 and subsequent revaluation of the dollar, the US stockmarket's value continued to plummet while those who invested in gold mining stocks saw returns of hundreds of percent. This would remain a legal way to invest in gold indirectly. It's not as good as physical possession, but it provides diversification and reduces risk.

The last aspect of diversification that has some proponents is to keep a portion of your portfolio in numismatic gold coins. Numismatic coins are coins that have value over and above their metal content, because of rarity, aesthetics, or other reasons that make them "collectible". Under the laws enacted in 1933, numismatic coins were exempt from confiscation. This doesn't mean much to me, though, since most people kept their gold anyway. It may be reasonable to own a handful of numismatic coins, or gold jewelry for that matter, as a very last resort for liquidity in case of a total emergency. But I tend to think that in that case, bullion coins would be readily accepted anyway despite being illegal. If there is anarchy, the law become meaningless and the market prevails. So I personally don't see any purpose in wasting money on numismatics just so I can follow a law that nobody else will be following. But then again, if I had a family to take care of then maybe I see more value in being this conservative and covering my final base.

FDR gold coin -- oh the irony!Whether your government will ever attempt to confiscate your gold is still unknown. But by diversifying your gold portfolio both in form and location of your gold, you will allow yourself to rest easily knowing that you are prepared for whatever happens.

I found the irony of an FDR gold coin hilarious!

Monday, February 16, 2009

What is a Digital Gold Currency?

Digital gold backed currency bankA digital gold currency, or DGC, is described as an electronic form of money that is completely backed by gold. When you open a digital gold account, you freely buy gold and silver online at any time of the day, from anywhere in the world with internet access. It is also a very cheap way to own gold with low storage fees [and a narrow bid/ask spread]. This low cost convenience makes digital gold currency and gold pool accounts seem similar. The difference is that while gold pool accounts don't really
back your investment with real physical gold bullion, digital gold currency is 100% backed by physical gold, and that gold is allocated to you (meaning that specific pieces of physical bullion are reserved for you) and owned by you. There is no danger of your gold not being there when you try to cash out, because there is gold guaranteed to be set aside for you.

The concept behind a digital gold currency is to offer a global gold backed currency as an alternative to the world's fiat currencies. Your digital gold account is
envisioned to function as a bank account containing real money, money that can be transferred to others and used in transactions. You can pay digital gold to anybody who has an email address.

Within your digital gold currency account you can normally also hold digital fiat currencies, and again this money is 100% held in reserves and not lent out.

There are some drawbacks to be aware of when considering buying digital gold. One drawback is that even though the ability to pay or transfer your gold to another person seems like a big convenience, it's important to note that these payments or transfers can not be reversed. If you make a mistake and pay the wrong amount, or if you pay someone for goods or services that you don't end up receiving, there is no way to correct or dispute the payment. Because of this it's important to only send payments you've fully thought through, to vendors you feel you can trust. On some internet sites you may encounter something called an "Escrow service", which is basically a middleman service that holds the money in a transaction and only proceeds to make the payment once both parties have fulfilled their commitments.
This provides added security, as you will get your money back if the vendor doesn't fulfil his obligations.

Another thing to be aware of is that while the major digital gold currency providers are reputable and their gold allocation transparent, it is still important to do your homework to make sure that you learn about the company you intend to open an account with. Between 1999 and 2004 a number of digital gold companies arose and collapsed, mainly because they were not really selling gold backed currency and keeping it in reserve for you, they were taking your money and using it to fund their
high yield investments, much like gold pool accounts are suspected of doing. Also, in 1997 the U.S. government ordered one DGC called "egold" was indicted with money laundering charges and was ordered to liquidate a large amount of its gold reserves. But when this happened, many account holders cashed out their accounts and egold was able to pay everyone promptly and remain in business, which is good evidence that they do indeed keep your entire investment in reserve. Today egold is still in business and cooperating with the US government to prevent its platform from being used for financial crime.

As with any online transaction, there is a small digital security risk of hackers and malicious software, etc. The DGC providers normally do not insure you for loss due to the security violations, so make sure you read through the security measures that each company takes before deciding on the best one.

Owning digital currencies fully backed by gold is an easy way to own real money whose value won't be debased by inflation, and to make transactions with that money.
If the worlds' fiat currencies continue to lose their value, maybe digital gold will even become a de facto global currency that effectively returns the world to the gold standard. But it is important to become fully educated about this new medium of exchange and your currency provider before you start making purchases and transactions.

A few of the most popular and trusted DGC companies are:


Gold Exchange

Sunday, February 15, 2009

What are Gold Pool Accounts?

In today's increasingly borderless and digital world, different forms of "digital gold" have arisen as an alternate so that we can invest in gold conveniently online without the hassles and costs of storing physical bullion. One form of digital gold is the gold pool account. This is a type of unallocated storage account, meaning that you do not own any specific gold coins or bars, but rather own an "interest" in the pool, which owns a collection of gold. You can sell your stake in the pool at any time, or take possession of the physical bullion by paying a "fabrication charge".

What are the advantages gold pool accounts?

Gold pool accounts as a form of digital gold.Gold trading pool accounts are probably the simplest and cheapest way invest in or trade gold. The bid/ask spread (the difference between the buy price and sell price) is extremely narrow, you pay no storage or insurance fees, and if you never take physical possession of the gold then you pay no fabrication (melting or manufacturing) or shipping costs. And there are usually no commissions for purchases and sales, so you can buy and sell within your pool account as much as you want without cutting into your returns. Because of the low costs, pool accounts are a good way to trade gold as the gold market price dips and rises. If you buy physical bullion from a bullion dealer there is a wider price spread, and likely a premium or service charge over and above the cost of the bullion to pay for fabrication and shipping. Those extra costs mean that the price of gold has to increase by a much larger degree in order to turn a profit. This makes trading gold
on the peaks and valleys impractical. You also don't have to worry about how you are going to store the metals, because they remain in the pool's stock of assets.

But the big question is, if the gold pool is storing gold on the investors' behalf, then how on Earth can there be no storage fees? The answer is that the pool probably does not actually store any gold. Rather than take your money and buy gold and keep it on your behalf as most investors expect, these pools are widely believed to take your cash and invest it elsewhere in the hopes of getting higher returns than gold, and when you cash out they pay you what the gold is worth and keep the difference for themselves. Only if you want the physical gold delivered to your doorstep will they actually go and buy the gold for you, and that's why a fabrication charge is applied when you ask for delivery. Your stake in gold pool is not buying real gold at all, it is buying a paper representation gold that the vendor has not yet purchased. Sneaky, huh? But the financial world is full of this type of fraudulent insanity. The investor is put at risk to leverage the institution's other activities.

The biggest problem with this paper gold system is that most investors would like buy low and sell high, right? What would happen if the price of gold hit a landmark high and everybody with a stake in the pool tried to cash out at once? The pool would have no gold to sell on your behalf. Would they default on what they owed you? Would they lock the pool to all transactions until prices lowered? Would they try to lure a bunch of new investors and use their cash to pay you, just like a pyramid scheme? I don't know, but I'm suspicious.

I don't want to conjure up images of unlikely doomsday scenarios. I'm quite a positive person and live a fairly stress-free life. But my intention is to be informed and help you be informed so that we can be prepared for whatever happens and make appropriate choices with the risks in mind. Gold pool accounts do have their advantages as a simple and cheap investment that tracks the price of gold. I think it is important, however, to remember that this is not an investment in real physical bullion and lacks the security and accountability of an allocated storage account. In times of strife when owning gold is most critical, will your gold be available? Will your account be accessible? I don't know, but I'm not going to take the chance. Similarly to gold ETFs, I view pool accounts as a convenient way to trade gold on short term fluctuations. But the core of my precious metals holdings for longterm investment will be in physical bullion that belongs to me and only me.

Saturday, February 14, 2009

Gold Precious Metals ETF

Best gold ETF?A common way to invest in gold and other precious metals without having to physically store it yourself is through an ETF. ETF stands for exchange-traded fund. It is like a mutual fund that is traded on a stock exchange like a stock, and can be bought and sold very simply through any trading platform, even a $6 Scottrade account. ETFs track a stock index like the S&P 500, or an industry, or in this case a commodity, specifically a precious metal like gold or silver. So you buy shares in the fund, and the fund managers invest that money in gold on your behalf. If the value of gold increases, the value of your fund shares increases. When you cash out the fund sells your portion of the gold and gives you your money. Theoretically speaking, that is.

The problem with gold ETFs is that unlike possessing physical gold bullion, you never really know what is happening with your gold. You don't even know if you really have any gold. If you read the fine print of the ETF prospectus you will find some fishy statements, such as the iShares Silver Trust which states that “The iShares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver.” What do they mean by "an investment similar to an investment in silver"? That statement clearly shows that not all of your shares are backed by physical silver. They may be backed by cash, they may be backed by a piece of paper that promises to give the fund some silver in the future, but not every share is backed by the physical bullion you intended to invest in. Let's say the fund managers are playing with your Physical gold bullion ETF? B.S.!money in creative ways through futures and whatnot, and make a big mistake and lose all of the fund's assets? The value of your shares could drop like a rock even if the value of gold is skyrocketing at that very moment. That possibility is evident in another quote from the iShares Silver Trust prospectus that says "the liquidity of the iShares may decline and the price of the iShares may fluctuate independently of the price of silver and may fall". There, they admit it. This investment is not an investment in silver, at least not completely. I don't know how likely those independent fluctuations are, but one of the major reasons for holding physical gold is to protect your wealth in times of chaos. But in times of chaos I wouln't be quite uncomfortable holding shares in a trust that is owned by a bank. If that bank decided to shut down the trust and default because they don't have the physical metals to back your shares, what could you do about it? It sounds unlikely, but in times of chaos who knows what will happen. That's the point of having a safe haven investment in physical precious metals.

To read more on some of the questionable conditions of your investment in a gold or silver ETF read James Turk's articles

Unanswered Questions About the Silver ETF

The Paper Game

If you are an active short term trader, ETFs are a reasonable trading vehicle. You can sell your shares easily any time you want, through any trading platform including a discount online brokerage, the buy/sell spread is much more narrow than when buying physical precious metals. The funds basically do follow the movements of the precious metals they are meant to track, so if you plan on making short term trades ETFs are fairly secure. The problem comes through exposing yourself to risk through longterm investment in an ETF. In that case I highly recommend that you be the sole owner of your own physical bullion and personally possess it, either in your home or in a storage facility.

Gold Jewelry Sales in the Middle East Slump

In Dubai, high gold jewelry price per gram means low salesDespite the continued move of investors into gold as concerns over economic grow, sales of gold jewelry are continuing to fall. Reports from United Arab Emirates indicate that gold jewelry sales at Dubai and Abu Dhabi's famous gold markets fell by over 60% in January. Sales have also slumped in Jeddah, Saudi Arabia, another large jewelry market. The Middle East is usually a hot spot for gold jewelry sales, because of cultural importance of gold jewelry in Arab weddings and other rituals. As the price of gold rises to historic levels, Arabs have increasingly been relying upon bridal costume jewelry gold, and the rental of gold jewlery to be worn during weddings. A similar phenomena has been reported in India, where wedding gold is also popular.

The drop in demand is undoubtedly related to the rising price of gold, which rested at around US$940 per troy ounce today. This could be an indication that Saudis and Emiratis see the high prices as an indication of a ceiling and that prices will soon drop once again. On the other hand, with Saudis reportedly buying up huge amounts of investment bullion in recent months, perhaps the drop in jewelry sales is an indication that those with investment purposes in mind are moving into gold bullion for its superior investment potential. Gold jewelry is sold at high premiums above the spot price of its gold content, to pay for design and craftsmanship, while bullion is sold at the value of its gold content (plus a very small premium). But with the drop in sales, gold jewelry vendors have been drastically reducing the premiums to attract buyers.

Deira gold souq, DubaiAnother reason that sales have dropped, particularly in UAE, could be that the economic troubles have reduced the numbers of tourists willing to spend money on vacations. Dubai and Abu Dhabi's gold bazaars are the most famous tourist attractions in UAE, so a drastic drop in tourism results in a huge loss of business. This would be the case even if gold prices remained low.

Friday, February 13, 2009

The Difference Between Bullion and Proof Coins

Image Hosted by ImageShack.usWhen reading about precious metal coins we often read about distinctions between standard bullion coins and proof coins. But what is the difference? Well, bullion coins' value depends strictly on the amount of gold (or other precious metal) contained inside it. Proof coins, on the other hand, are intentionally produced to be collector's items and have value over and above the value of their gold content.

Proof coins are normally produced in limited quantities, so that their scarcity adds immediate numismatic value for collectors.

They are minted at a higher standard of quality, being struck with brand new and polished dies. They seem newer and more precisely imprinted, with sharper rims and design, and smooth fields (the flat background areas not part of the design). They exhibit a brilliant luster compared with the duller luster of standard bullion coins.

Krugerrand proof coinSometimes the dies used for striking proof coins use chemicals to create a frosted look on the coins. The light and dark tones of the coin's design are also more sharply contrasted in a proof edition coin than in a bullion coin.

Proof coins are also normally pre-packaged in nice commemorative cases and come with a certificate of authenticity. Unlike bullion coins which must be purchased from a bullion dealer, or from another investor, proof coins can be purchased directly from the mint.

Which one should I buy?

Platinum American Eagle US coin proof setsWell, if you are a serious coin collector and you collect coins to enjoy their aesthetic qualities or appreciate their rarity, then by all means by the proof. Because if you are buying it not to make a profit but rather for the love of the hobby, then you will not mind paying the huge premium that is often charged in proof coins. I have personally seen gold and silver proof coins selling for more than 600% over the spot price of their metal content. If you plan to simply enjoy the coin and maybe someday resell it to another collector maybe that's fine. But if you ever need to liquidate that coin quickly and use it as real money, it will have to have increased in value 600% before you would break even. That's an extreme case and the premiums are usually not that rediculous, but if your purpose is
to hold precious metal as a safe haven and an emergency medium of exchange, then bullion is a much better option.

Thursday, February 12, 2009

British Gold Sovereign Coins

British Sovering CoinOne of the most famous gold coin series around the world is the British Gold Sovereign. With a long and rich history, old British sovereign coins are highly popular amongst numismatic collectors. Newer bullion sovereigns are popular among investors.

British Sovereign coins were first minted in 1489 by King Henry VII of England. They had a nominal value of one pound sterling (20 shillings). But their primary use was as official bullion and not general circulation, so there is no marked face value on the coins.

Old British gold coinsThe first gold sovereigns were 23 carat gold (96% percent pure) and contained 15.6 grams, or one half troy ounce, of gold. Under King Henry VIII, their purity was reduced to 22 carats (92% pure), which set the standard of what is now referred to as "crown gold", a common standard for gold coins in both the UK and the US. The gold content was lowered several times and fixed at 7.322 grams, or 0.2354 troy ounces, where it remains today.

The British Royal Mint has released various additional denominations of gold sovereigns, including half sovereigns with a nominal value of 10 shillings (a half pound sterling), double sovereigns with a nominal value of two pounds sterling, and quintuple sovereign coins with a nominal value of 5 pounds sterling. And in 2009 the Royal Mint for the first time has issued quarter sovereigns with a nominal value of 5 shillinds. Obviously the nominal value has nothing to do with their real value in modern times.

Buy 1923 British gold sovereignGold Sovereigns were widely produced until the First World War, when the British pound ceased to be bound to the gold standard. Until 1932, sovereigns were produced only at branch mints in British Commonwealth countries, specifically at mints in Melbourne, Sydney, Perth, Bombay, Ottawa, and Pretoria. Production ceased until

From 1957 gold sovereigns began to be minted once again, to prevent the debasing of the coins' value through counterfitting.

Until 1982, sovereigns were minted as circulated bullion, but from 1982 to 1999 were produced only as proof coins for collectors. Since 2000, Sovereigns have once again been minted as bullion coins, whose value depends mainly on their weight in gold.

As mentioned earlier, British Gold Sovereign coins have a nominal value. But their real value is determined both by the current market price of their gold content plus variable numismatic value, which varies massively depending on the specific coin and buyer demand. Newly minted bullion coins should theoretically cost approximately the market value of their weight plus a minimal premium, but older sovereigns can sell for much more. Historically, British Gold Sovereigns were frequently taken out of circulation by the Royal Mint and their gold content reminted into new coins. There were also buybacks of coins that had lost some of their weight in circulation, which were exchanged for full weight sovereigns. Because of this history of reminting, old British gold coins often have extraordinary numismatic value because of their rarity.

British sovereign proof coinageGold Sovereigns are prized because of their historical tradition. Collectors love sovereigns and they can have tremendous numismatic value because of their history and rarity. But these same strengths make old British sovereigns inappropriate for those looking simply to use gold as an investment vehicle. Such investors would be better off staying away from numismatic coins and buying only bullion coins, whose value depends on their gold content rather than rarity or aesthetics. Bullion sovereigns minted in recent years would be appropriate. But even if buying bullion sovereigns as an investor, one potential pitfall of sovereigns is the unusual gold content of 7.322 grams, or 0.2354 ounces, which is written nowhere on the coin. This makes British sovereigns less liquid than a standard weighted one ounce gold coin, at least outside of the UK. They can be sold to bullion dealers, because they will be familiar with them. But if there is ever an economic meltdown and you need immediate liquidity for daily transactions, sovereigns may not be widely recognized. They still make a solid investment, but as an emergency supply of hard money, other standard weight coins are possibly a better choice.

How to buy British Gold Sovereigns?

They can be bought at major bullion dealers and coin shops. Depending on where you live they may not be stocked in the store, but you can most certainly order them on the spot and pick them up later.

Japanese Bullion Dealers Run Out of Platinum

In the past couple of days precious metals prices have risen sharply with investors seeking a safe haven amidst the uncertainty of the new bank bailout plan. Gold rose 2.4% on February 10, while silver rose 2.4% and platinum rose 3.9%.

Platinum carries a special prestige in Japan where approximately half of all platinum jewellery is sold. Japanese bullion dealers have this week sold out their stocks of platinum coins and bars as investors rushed to seek a safe haven in metals. The Japanese public is losing faith in the Japanese government's ability to deal with the financial crisis. The Japanese stock market has continued its downward trend since the start of the New Year.

Japan is typically a conservative nation of savers who largely hold cash. But last year gold bullion sales were up 61% from the previous year.

I visited Ishifuku Metals in Osaka last week to make a purchase of silver and the room was buzzing with activity. People in Japan are starting to catch up with the rest of the world in realizing that the economic crisis is not going away anytime soon.

Facts About Platinum

Spot price of platinum per oz. is normally higher than goldOne of the most valuable precious metals is platinum, which usually sells at a higher price per oz. than gold, depending on market fluctuations. It is extremely rare, approximately 30 times rarer than gold. Platinum bullion has the ISO currency code XPT.

Where is platinum found?

Platinum is separated as a by-product of nickel and copper mining. 90% of all platinum is mined in South Africa and Russia. Around 8 tonnes of ore must be mined to produce just one ounce of platinum.

Who discovered platinum?

Platinum is widely thought to have been discovered by Antonio de Ulloa in South America in 1735. Platinum has been found in ancient artifacts from long before this time, but it is widely assumed that this platinum was naturally occurring with another metal and wasn't identified as a separate element.

What is Platinum used for?

Platinum is used in a wide variety of applications. In fact, more than one fifth of all consumer products contain platinum or are produced using platinum.

More than half of all platinum sold is used in catalyst emission converters in cars. These are devices that limit the amount of pollution from automobile emissions. Unleaded fuel was introduced because it is compatible with these platinum catalytic converters.

Platinum is also an important component of fuel cells, technology that produces electricity from oxygen and hydrogen. So even with cars' energy sources changing in the near future, the auto industry will continue to keep platinum demand high.

One twentieth is used in electronics, such as LCD displays, hard disk drives, thermocouples that measure temperature, and infrared detectors. The increasing production of personal computers in the developing world is sure to add to demand for platinum in the future.

What is platinum used for?And about one twentieth is used as a chemical catalyst. It is used in explosives and fertilizers, in the production of silicone for aerospace and automotive industries, and as an additive to petrol to enhance combustion.

Smaller volumes are also used in a number of other applications, such as turbine engines, oxygen sensors, electrodes, pacemakers, and anticancer drugs. It is also used to create alloys in a wide variety of metal items, including medical instruments, electrical contacts, and fine wires.

Platinum in Jewelry

Platinum is widely used in jewelry because of its beauty and durabilty.In addition to its industrial uses, about one fifth of platinum is used in jewelry. Platinum is a popular but expensive choice for jewelry, being reserved mostly for expensive luxurious items aimed at the wealthy. It is an extremely durable metal, making it a popular choice for wedding rings and other meaningful keepsakes. Platinum is a white metal, and is largely considered better than white gold, which loses its white color over time and starts to appear yellow if it is not replated every few years with rhodium. Silver resembles platinum somewhat, but silver tarnishes over time while platinum retains its beauty without any maintenance.
Another benefit of platinum jewelry is that it does not cause any skin irritation like white gold sometimes does.

Nearly half of all platinum jewelry is sold in Japan. Some say that this is a reflection of Japanese modesty, viewing gold as too overt an expression of wealth but still desiring beauty and quality.

One of the downsides of platinum jewelry is that it is heavier and more dense than gold, giving it some extra weight and possible discomfort.

Platinum coin American EagleUnlike gold, there are no significant stocks of platinum above ground. Most of the platinum mined is used to immediately fill industrial and commercial demand. That limited supply, combined with increasing industrial demand, makes platinum a promising investment opportunity for the future. Platinum prices are extremely low at the moment and this presents an excellent buying opportunity for investors.

Tuesday, February 10, 2009

Australian Kangaroo Coins

Australia gold kangaroo coins in plastic cases.Some of the most popular gold bullion coins are Australian kangaroo coins. Australian kangaroo gold coins are pure gold, in other words 99.99% fine gold bullion. They are officially legal tender in Australia, though not at their face value but rather at the current gold market value for their weight in gold. The main denominations available are 1/20 troy oz, 1/10 troy oz, 1/4 troy oz, 1/2 troy oz, and 1 troy oz, though larger investment denominations are also available. Unlike other non-proof gold bullion coin series, every kangaroo leaves the mint in a durable plastic hard case.

Australian nugget gold coinFirst minted in 1986 and launched in 1987, the coin series' name is actually the Australian nugget. From 1986 to 1988 the coins displayed images of gold nuggets, but outside of Australia these images were not easily identifiable as "nuggets". The round object in the picture could have been a simple stone or lump of coal, or a piece of excrement for all we knew. Realizing this, Australia's Gold Corporation changed the image to that of a kangaroo from 1989 onwards, giving the Australian gold nuggets their common nickname "gold kangaroo" coins.

The golden kangaroo coin features kangaroo pictures that change every year. In this regard they are similar to Chinese Panda gold coins which feature yearly rotating designs. On the reverse side is a protrait of Queen Elizabeth. The kangaroo is unique in its design because itutilizes a 2 tone frosted effect, with a lighter "white gold" as the base color, with darker gold color frosted over top.

Australian kangaroo coins goldenOne innovation of the Australian gold kangaroo series is its availability of larger sized denominations, specifically 2-ounce coins, 10-ounce coins, and 32.15-ounce coins. 32.15 ounces is 1 kilogram! These are produced in order to limit the premium charges for buyersof large amounts of gold. All gold bullion coins are sold at a premium over the cost of their weight in gold, to cover production costs, and the smaller the denomination the proportionally larger the premium.

The Australian kangaroo gold coin is not the only coin series produced by the Gold Corporation's Perth Mint, but because of the series' limited minting it is considered to have slightly more numismatic value above its gold content than other gold bullion coins do. Plus the kangaroo is such aubiquitous symbol of Australia that collectors around the globe feel that they truly own a piece of Australia when they buy a gold kangaroo.

Kangaroos are also produced in silver and platinum versions.

Monday, February 9, 2009

Gold Price Falls Below $900

Gold as a safe haven investmentOn February 9th, 2009 the gold price fell below $900 an ounce in anticipation of a US economic stimulus plan and banking sector bailout plan. With economic uncertainty and banks in distress, investors normally shift money into gold as a "safe haven" investment. But the passing of the stimulus plan and bank aid plan will reduce short term economic uncertainty, reducing the percieved need for safe haven investments such as gold.

There was not a large movement out of gold because the stimulus plan has not yet been passed and most investors are waiting to see the outcome of the stimulus package and bank debt package, which are expected to be voted on on Monday. February 9th's gold price dropped by around 2%, or $18.30 US.

Gold as a longterm investment will weather the economic stormA passing of the stimulus package and bank aid plan could result in a much larger movement out of gold and other precious metals. But in this blogger's opinion, such a movement should be no cause for alarm for long term gold investors. The stimulus plan and bank debt package provide only temporary relief for the US's economic woes. The Federal Reserve will simply print the money to pay for these packages, further debasing the US dollar and delaying and worsening the inevitable recession that is needed to clean up America's credit nightmare. Despite a probable temporary dip in gold prices, precious metals investors should rest assured that their investment is still a wise one. The United States' economic fundamentals are catastrophically bad, no matter how many bandaid solutions politcians come up with. When the inevitable economic storm arrives, those who remained in precious metals will be glad they showed such foresight.

Sunday, February 8, 2009

Gold As An Enduring Gift

According to a 2008 study by the World Gold Council, the upcoming Valentine's Day festivities should increase demand for gold. The common perception of gold amongst women is that it makes a wonderful gift "because it is everlasting", just as loved (supposedly) is.

gold jewellery price per gramWomen in different countries appreciated the gifts for slightly different reasons. Women in Saudi Arabia and Turkey emphasized the longterm investment value of gold, while women in the USA and China emphasized gold as a symbol of love that lasts for eternity.

According to the World Gold Council, the increasing gold prices in recent years have
added to gold's prestige as a gift and as a statement of emotional commitment. I suppose that makes perfect sense. If you are willing to spend truckloads of money on a gift for your girlfriend, she must be important to you.

Gold pendant heart jewellery for Valentines DayAccording to Lama Al Saheb, the Head of Marketing & PR for the Middle East Region of the World Gold Council, "With two-thirds of global gold demand coming from the jewellery sector, understanding our consumer is crucial to both the gold jewellery trade and the gold market as a whole. With retailers under severe financial pressure, unlocking the consumer purse through effective promotion of gold jewellery is critical. The continuous efforts of World Gold Council and our partners from the gold trade in the key jewellery markets have been notable in keeping this ancient adornment desirable and relevant in today’s competitive consumer market." But from the above statement we can clearly see that this continued prestige of gold in the romantic gift market is not because of gold's inherent value, but rather its perceived value as a result of continuous efforts by the WGC's promotinal efforts.

While continuing to be a popular Valentine's gift, other common celebrations when gifts of gold are often given are birthdays, wedding anniversaries, weddings, and religious holidays. Gold prices often increase somewhat in response to the increases demand in these seasons.

Reference: Business Intelligence Middle East

Tuesday, February 3, 2009

Buy Silver Bars For The Long Term

Buying Physical silverToday I made a purchase of 2 kilograms of silver bullion, and I was once again reminded of one of the necessary evils of precious metals investing: the buy/sell spread. The buy/sell spread refers to the different between the price you pay when you buy the metal, versus the price you will be paid if you are selling your metal back. You've probably experienced something similar if you've ever changed money into a foreign currency for a trip. The buy and sell prices are different. This is, of course, to the benefit of the dealer and essentially amounts to a service charge.

All precious metal bullion bars and coins are sold with some kind of spread, because this is what keeps the dealers in business. The spread depends on the kind of metal, and also on the size increment that you buy. The smaller the unit, the larger the markup. A tiny 5 gram gold bar can have a spread of 25%, and 1 ounce bullion coins can have a spread of around 15%, while a 1 kilogram bar currently worth around $30,000 may have a markup of just 1 or 2 %.

But compared to the other precious metals, the buy sell spread on silver is very wide, exceeding 10%. Today I purchased my silver at Ishifuku Metals in Osaka, Japan.
The silver spot price in Japanese yen was approximately 35,000 yen (currently 392.962 US dollars) per kilogram of silver. The sell price was over 39,000 yen (currently 438.156 US dollars) per kg, while their buy price was either the spot price or very close to it. That's a spread of around 11.5%!

Buying bulk silver ingotsOn top of that there are service charges. At Ishifuku Metals there was a service charge of 5200 yen per 1 kg bar, so in total 10,400 yen. So to obtain 2 kilograms of silver whose spot price was around 70,000 yen, I wound up paying close to 90,000 yen, or around 28.5 % more than the spot price. So to turn a profit on my silver purchase, silver will have to increase in value by over 28.5 %. So why did I buy it? Because it's an investment that I intend to hold for the future, and I am confident that the price of silver will grow exponentially in future years. I have no intentions of trading silver and buying and selling it regularly. For that I would focus on silver stocks or silver ETFs (electronically traded funds). But for a secure investment in my future wealth, I want to own physical precious metals. By the way, you don't always have to pay these extra transaction costs, but in Japan they seem to be the norm unless you buy 30 kg bars or more.

Why does silver have a much larger buy/sell spread and higher transaction feeds than gold? It probably has to do with the low price of silver for its weight. At current prices, an ounce of gold costs about the same as 2 kilograms of silver. Even though an ounce of gold and 2 kg of silver sell for somewhere around the same price, it costs a lot more to store and transport the silver because of its size and weight. Hence the higher transaction fees. I suspect that the wide spread is also a reflection of the current silver shortage, and growing investor demand for silver which results in the dealer having to run around and order some for you rather having it on stock.

Gold buying selling bullion bars at Ishifuku KinzokuWhen buying gold the buy/sell spread and fees are much lower than for silver. But you should still be aware of them when you buy physical gold, and you should think twice if you intend to buy gold, silver or other precious metals in order to quickly sell them when the price swings upward. The spread and transaction fees make this impractical. If you want to trade precious metals, buying on the dips and selling on the peaks, a precious metals ETF or mining stock may be the way to go instead.

Monday, February 2, 2009

What Is Palladium?

Palladium is a precious metal that is about 30 times as rare as gold. It is a natural white metal that has a luster similar to platinum, another precious metal.

Bullion Palladium pricePalladium is strong, durable and will last a long time without wear. It is tarnish resistant and resistant to intense heat.

Palladium is a member of the platinum group metals (PGM), a group which also includes platinum, osmium, rhodium, ruthenium, and iridium.

What is palladium used for?

Over half of the available supply of Palladium is used in the construction of catalytic converters, which convert auto exhaust into less dangerous substances. Palladium is also widely found in electrical goods such as computers, televisions, mobile phones, electrical contacts, multi-layer ceramic capacitors, and component plating.

Palladium Maple Leaf coinPalladium is also used in jewelry, starting in 1939 when its sister metal platinum was reserved for military use. One benefit of palladium for jewellers was that palladium was lighter than platinum so larger jewelry pieces could still be comfortable. And with palladium being a very malleable metal, stone setting was an easy process. But palladium jewelry was largely discontinued after World War II when platinum was permitted back in the jewelry trade. Its downsides as a jewelry metal were that palladium's color can become dull over time, and that it doesn't polish as well as platinum.

In addition to the above uses of palladium in commercial goods, it is also used in dentistry and medicine, groundwater treatment, and hydrogen purification. Palladium is also used in fuel cells, which combine hydrogen and oxygen to make electricity, water, and heat. These relatively recently discovered industrial uses caused palladium's value to skyrocket in recent years. The price, however, has fallen dramatically since last spring, due to the slowdown in the automotive industry, reducing demand for palladium used in catalytic converters.

Where is palladium found?

Locations of palladium mines are few, with the largest, most productive mines being in the Bushveld Igneous Complex in the South African Transvaal; the Stillwater complex in Montana, USA; Sudbury, Ontario, Canada, and the Norilisk Complex in Russia. Palladium is also recycled from scrapped catalytic converters.

Palladium historical prices over 5 year period.Similar to the current situation of silver, palladium's extensive use in industry coupled with its limited supply make palladium an intriguing investment opportunity. However, the continued instability in the auto industry and the possibile prominence of alternative energies in tomorrow's automobiles, the future of palladium is uncertain. So even though I own a number of rare palladium coins as part of my numismatic collection, I don't plan to buy any palladium bars or palladium coin bullion for the time being.

For more information on palladium, please visit the Buy Palladium blog.

Sunday, February 1, 2009

The Current Price of Silver Is Extremely Low

Silver prices ounce dollarAs the current precious metals bullmarket continues and the dollar price of gold continues to skyrocket, silver metal prices will see even more dramatic gains that gold. Today, for the first time ever, the amount of silver available to investors is less than the amount of gold. One of the reasons for this is that most of the gold that is mined continues to exist, in the form of jewelry and money. Only around 11% is used for industrial and medical purposes. Silver, on the other hand, is used for industrial purposes in far higher ratios than gold is. That means that most of the silver that is mined is actually discarded as waste and usually not recovered.

Historically, the price ratio of gold to silver has always averaged 12:1, meaning that gold was 12 times as valuable as silver. The reason for this can be assumed to
be that, on average, the supply of silver was 12 times greater than the supply of gold. The free market always balances these things out naturally. But today, the amount of silver available to investors is far less than the amount of gold; the amount of silver being mined is far less than the amount of gold; and government reserves of silver are almost nonexistant compared to their reserves of gold.

So if gold is currently rarer than gold, why is the gold price higher? It's because everybody thinks it's supposed to be lower. People's perception of silver is that
it is the poor man's gold, a cheaper metal with less intrinsic value than gold. Because of that perception, people are quicker to put their money into gold as
an investment. Gold is glamorous. Gold signifies wealth. Silver seems mediocre. But these are mere perceptions, and once the market corrects the price of silver based
on the law of supply and demand, the price of silver will skyrocket even more than gold will.

Price of silver per onceThink of it this way. The historic average price ratio of gold to silver has always been 12:1, as I mentioned above. But the current ratio at the time of writing is about 73:1. That's despite silver being scarcer than it has ever been, scarcer than gold. Even if we are conservative and say that the price corrects itself to the 12:1 ratio, that is a huge gain in the silver price. And in all likelihood, silver will see far greater gains than that. Some even expect the price to match or surpass the price of gold.

I've been gradually increasing the amount of silver I buy because I think that only as the gold market price climbs very high will people start to realize the potential of silver to increase in value. Silver prices per ounce are currently very low, so the time to start buying is NOW.