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Precious Metals Investment Guide

Here at Oxbridge Coins, we believe that knowledge and education are vital for success in the precious metals investment world. That is why we regularly take the educate first approach when dealing with all of our clients, especially those who are fairly new to this particular investment vehicle. We have compiled several bits of information into the articles featured below to help many precious metals investors, new and experienced alike, arm themselves with the knowledge that is necessary to making informed and profitable decisions.

Precious Metals Investment Options

Due to the enormous National Debt and deteriorating fiscal condition of the United States, the rock bottom interest rates and easy money policy enacted by the Federal Reserve, and the stellar performance Gold and Silver have achieved over the last decade, many financial experts have recommended that 5 -20% of an individual’s assets should be allocated to Precious Metals. There are many paths to choose as investors are continuously bombarded with advertisements, so it can be quite a tricky process deciding the “best” way of investing in precious metals. The following information summarizes these different options to help you make the right decision FOR YOU. There is no right or wrong way to invest in precious metals, there are only preferences.

  1. Exchange-Traded Funds (ETFs): Precious Metals ETFs are designed to move in sync with the price of gold. They are traded on the major stock exchanges, including London, Paris, and New York. Many investors choose this option because they feel that they have the advantage of investing in precious metals, without having to worry about the burden of storing it. However, many experts are skeptical of the amount of gold these funds actually contain, and whether or not gold can be delivered to investors in the case of a run on the metal, or another global panic.



  1. Stocks and Mutual Funds: Many analysts recommend investing in gold mining companies stocks or mutual funds made up of these stocks. They claim the advantages of these are that they follow precious metals prices closely enough, while the current long term capital gains tax on these investments is lower than that of physical precious metals. However, the risks far outweigh the potential rewards. The fact that you are investing in companies, that only release limited financial information, you don’t know exactly what you are investing in, if the companies are managed poorly, and profits drop, your stocks will go down in value, while gold prices may very well go up. Also, this investment option rarely moves in sync with precious metals prices, and if the overall stock market is down, there is a good chance your stocks will be down too, even if gold is up.



  1. Futures Contracts: A futures contract is simply a deal to trade gold at terms (i.e. prices and amounts) decided now, with a planned future delivery date, usually 3 months. Many active traders prefer this method because it is easy and convenient to trade large amounts of precious metals at the push of a button, or a phone call, than handling the physical commodity. However, this is a tool for short-term speculators, and people who track the markets full-time, to make money with heavy margin borrowing. There is only a small amount of people who have the time, and resources to devote to futures trading, and even a large percentage of them end up under-performing the general gold market, due to the speculative nature. Also, the heavy margin activity involved in this type of trading can make the losses pile up very quickly.



  1. Physical Holdings: This is the tangible ownership of precious metals. This is owning a physical asset, that you can maintain possession of, at all times, and see, feel, and touch. The main advantages of choosing this investment option are;


- Physical ownership of your investment that can be safely stored at a vault, safety deposit box, home or office safe, or sent to a depository institution: This option makes it significantly easier to hold an investment for a very long time. It makes it much easier for those who wish to pass on their wealth to children, and avoid the complications of transferring paper investments such as stocks or bonds.

- Privacy and lack of reporting requirements which are standard with most other forms of investment: There are essentially no reporting requirements to purchasing physical precious metals.

- Advantage of premiums on physical precious metals that appreciate over time that cannot be realized otherwise: As demand increases for gold and silver, the premiums which are paid for specific coins can appreciate as well. For example; South African Krugerrands sometimes become scarce in the market place, and dealers are willing to pay a higher premium for these specific one ounce coins based on the laws of supply and demand.

- Ultimate protection from bank failures, hyperinflation, and other worst-case scenarios: When people purchase insurance for their homes, they don’t anticipate their homes being destroyed. But most people understand that they need this type of insurance to protect them in case something bad happens. Precious metals are the same; they protect citizens in case something should happen to the government fiat currency system the world is currently running on. There have been countless examples throughout history of governments printing too much money, and devaluing the legal tender currency. Although we all hope that this never happens here in the United States, people need to own an asset that will help protect at least a portion of their wealth from forces outside of their control.


Here at Oxbridge House we believe that precious metals should be a long-term investment. Most people don’t have the time, or patience to actively manage their investments on an everyday basis. Physical ownership is the best option for those individuals who would like to have a portion of their portfolio in precious metals for the long term, preferably at least 10 years. Although it is extremely difficult to predict the short-term price movements of the precious metals markets, there is a very good chance that gold and silver will continue to appreciate in value over the long-term, based on the history of the last 5000 years. The Account Executives at Oxbridge House will work with clients to help them achieve their investment goals, while offering the most competitive prices in the industry.

Gold as Money

In the early days of human history, trade and economic activity was essentially based on barter. People would trade pigs for wheat, or eggs for wood. This became an inefficient way to transact as economies became more advanced. First of all, barter meant that there must always be a ‘coincidence of wants’ for a transaction to occur; a pig farmer who needs wheat, must find a wheat farmer who needs pigs. After several failed attempts at making perishable, unsustainable items into a medium of exchange, gold and silver became the preferred money of many developed societies. There are 3 vital traits that make gold an excellent medium of exchange;

Divisibility – Gold is easy to divide into smaller denominations. Pure gold is very soft and malleable, which gave it a great advantage over other metals


Scarcity – There is only a certain amount of gold in existence. It isn’t easy to find gold or mine for gold, and governments in the past couldn’t easily manipulate the supply of gold, unless using fraudulent methods such as debasing the metal used in currency.


Durability – Most of the gold that ever been mined is still in existence today. Gold doesn’t go bad or spoil, it doesn’t tarnish, and it can last for a very long time.

Understanding the importance of these three traits will help one understand the role of gold in a sustainably growing economy. Our modern society has adopted a medium of exchange which isn’t backed by any tangible asset, where supply can be manipulated by governments to achieve certain goals, such as unsustainable war and entitlement spending.

Inflation, Declining Dollar, & National Debt

Throughout all of history there has never been a fiat currency which hasn’t ended in failure. Governments have financed their lavish expenditures by accumulating debt and simply debasing the currency to make good on those debts. The United States government is no different; they’ve grown our national debt to the point where it’s almost impossible to service. The U.S. Government and Federal Reserve have embarked on a campaign to increase inflation of the U.S. Dollar in the name of ‘economic growth’. Whether or not you believe the largest National Debt in the history of the world will lead to a Weimar Germany style hyperinflation, or even an annual inflation rate of 5%, gold is an excellent hedge and store of value.

Remember, 100 years ago an ounce of gold could buy you a nice suit; today an ounce of gold can buy you a nice suit and then some.

Natural Disasters or Economic Collapse:

Many folks just dismiss doomsday type predictions as conspiracy theories, which they may well be. But in the event that a hurricane or an earthquake hits your hometown, you would wish you heeded these warnings and stayed prepared. Some people build underground bunkers, others grow their own food and are 100% self sufficient, but many of us don’t have the time or the means to devote to these activities. Buying gold and silver will help you to trade for goods and services that your family may desperately need if ATM’s are down, or if paper money has lost all its intrinsic value altogether. We don’t buy insurance because we expect an unfortunate event to take place, but we are prepared in case it does happen. That’s exactly what precious metals are, insurance.

—Troy Ounce

A unit weight equal to about 1.1 ordinary ounces. The word ounce when applied to gold, always refers to troy ounces.

Premium

The price of a coin over the value of its actual gold content.

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Bullion Coin

A legal tender coin whose market price depends on its gold content, rather than its rarity or face value.

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Face Value

The value of a legal tender coin as stamped on the unit. A 1-oz. Gold American Eagle has a face value of $50.

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Spread

The difference between the Bid and Ask prices.

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Spot Price

Refers to market price of precious metal 

Gold Counterfeiting – Protecting Your Investments

Throughout history, gold counterfeiting has been a lucrative business. Most recently, there have been reports of dealers and refiners buying 10 Oz. gold bars filled with a metal called Tungsten which weighs the same as gold, but is only a small fraction of the price per ounce. Although, counterfeited bars are actually quite rare, all people who are involved in buying bullion should be aware of the risks of counterfeiting, and must be prepared to identify fakes, and take precautions to avoid being duped.

Some Easy Ways to Authenticate Bullion Coins and Bars

Measure the Size: All bullion coins and bars are made to exact specifications. If your coin is off by even a millimeter then it is most likely a fake.

Weigh Your Bullion: one of the easiest ways to assure yourself that your bullion is 100% authentic is by placing it on a scale.  99% of the fake coins and bars that we have come across do not match up with the weight that they are supposed to be. This means that a 1 Oz. Canadian Maple Leaf coin should weigh roughly 31.1 grams because it contains exactly 1 troy ounce of pure gold with virtually no additional base metals (this is why Maple Leafs are usually very soft and easy to scratch or damage). A 1 Oz. Gold American Eagle coin should weigh about 34 grams, as it is only 22 karat gold composition (91.67% Gold, 3% Silver, 5.33% Copper), which is why these coins are more scratch resistant and durable than pure gold coins.

Feel the Coin: Fakes will often feel too smooth or slippery, with really sharp edges. Close your eyes and feel a real coin, then try to feel a suspect coin and see if there’s any difference.

Examine the Surface: Make sure all the markings and design of the coin is exactly as it should be. Compare it with an authentic coin to make sure it’s exactly the same. Fake coins will usually be dull or overly shiny and lack some key details that an authentic coin has.

How to Protect Yourself from Buying Fake Coins and Bullion

Buy from a Trusted Source: Make sure to buy from a certified bullion dealer, preferably someone who is an authorized dealer with NGC, PCGS, ANACS, and BBB. Sometimes people who are looking for good deals will find low priced bullion offers, but many times they may just be purchasing fake coins. Remember the old adage; if it sounds too good to be true, it probably is.

Know your Coins: Before you start buying bullion, familiarize yourself with the products you would like to buy. Don’t buy anything you don’t know or are unsure about. If buying from a certified bullion dealer, many times their recommendation will be good, but some unscrupulous dealers can sell you something with an unusually high premium.

Be a Little Paranoid: Make sure to do all the tests outlined above, and don’t just take someone’s word for it. However, if you are buying from a trustworthy dealer with whom you have done a lot of business with, it’s okay to let your guard down a bit.

Buy Only 1 Oz.  Denominations of Gold: 1 Oz. gold coins and bars are the most liquid and easily recognizable form of bullion. 10 Oz. bars are easier to fill with Tungsten and more profitable to counterfeit as well. Most dealers will be extra cautious when purchasing large bullion items, which can cause delays in payment and lower offers.

At Oxbridge House, we want our clients to stay safe and never to get ripped off. If ever unsure about products you may be purchasing, especially if they are not from a certified bullion dealer, please do not hesitate to give us a call and ask us any questions, as we are more than happy to help make sure that all counterfeit coins can be caught before anyone loses money.

*Please note that authenticating rare coins for numismatic value is much more complicated and takes a lot more research. Purchasing a coin that has a fake mint mark or a modified date can be a mistake costing several thousand dollars. Before purchasing expensive rare coins, one must have good knowledge in the field of numismatics. However, purchasing certified coins which have been graded by PCGS or NGC can decrease the risk quite a bit, there are still dangers involving modified or fake holders.

Premiums Explained

If you’re looking to purchase bullion, especially for the very first time, you may be wondering why some products which contain the same amount of gold or silver, are sold at different prices.

For example, at the time of this writing, the spot price of gold is $1,605. At Oxbridge House the 1 Oz. American Eagle Coin costs $1,675, while the 1 Oz. Canadian Maple Leaf Coin costs $1,645 and the 1 Oz. Pamp Suisse bar costs $1,635.

Why the price difference? If each one of these bullion products contains exactly 1 Troy Ounce of Gold, shouldn’t the cost of each be exactly the price of gold on the open market, $1,605?

The answer is No. The additional cost above the precious metal content of a bullion product is known as a Premium. Premiums are usually determined by 3 factors.

 

1. Mint or Refinery

There are several costs associated with minting precious metals bullion, such as;

- Manufacturing Costs
- Packaging Costs
- Storage Costs
- Insurance Costs
- Transportation and distribution costs Etc.

Most of the time, large mints like the U.S. Mint, or the Royal Canadian Mint, pay exactly melt value (spot price) for gold. The Mint then has to refine the gold, and mint a coin or bar that has the exact purity, weight, size, and design as every other coin. For example, each Canadian Maple Leaf gold coin released by Royal Canadian Mint must be .9999 Pure gold, weigh 1 Troy Ounce (31.103 grams), have a diameter of 30mm (1.29 in.), be 2.8mm (0.12 in.) thick, and have a headshot of Queen Elizabeth II on the obverse of the coin, and the official Canadian Maple Leaf Symbol on the reverse, although commemorative versions of the coin are made frequently to celebrate certain events, such as the Olympic games. After the coin has been minted and refined, it is then sold to wholesalers for a small profit.

 

2. Mark-Up by Wholesaler and Retail Dealer

Wholesalers are extremely large companies that only do business with other dealers. Wholesalers usually pay anywhere from 1% - 4% above spot price directly for most common bullion items. They usually settle for a smaller profit on each unit because of the enormous quantities of bullion they deal with on a regular basis.  Wholesalers are also known as “market makers” because they make a two way market by buying or selling virtually any precious metals item.  The bid-ask spread amongst these dealers differs based on their interpretations of market conditions. If the precious metals market is volatile, the difference between ‘bid’ and ‘ask’ will increase, giving the dealer more room to ‘cover’ rapid price movements.

In addition to the premiums charged by the wholesaler, the retail bullion dealer will add mark-ups when selling to the public to cover costs and make a profit. This is where premiums among companies can differ significantly. Some retail dealers will add a slim mark-up and work with smaller margins to attract more customers, and make money off quantity. Other dealers will charge higher premiums to make a larger profit off of a smaller number of transactions.

 

3. Supply and Demand

The availability (supply) versus the popularity (demand) of any given bullion coin or bar plays a key role in determining the price over spot each item will sell for. Usually, 1 Oz. American Gold Eagles carry the highest premiums of most common gold bullion coins because they are very popular among buyers. They are considered to be more ‘credible’ and highly liquid, and thus, people are willing to pay more for them. Traditionally South African Krugerrands carried the lowest premium for 1 Oz. gold bullion coins, due to an international boycott by western nations because of Apartheid policies. However, as of February 2013 they are trading for about $50 over spot, more than 1 Oz. Canadian Maple Leafs which are trading for $40. Pamp Suisse and Credit Suisse Gold bars are selling for $30 over spot. Some dealers sell generic gold bars for very low premiums, sometimes less than $25 over spot, but bargain hunters beware; when time comes to liquidate, most dealers will pay a large discount below spot for generic gold bars.

1 Oz. American Silver Eagles carry the highest premiums of most common silver bullion items. These coins are currently selling for $2.75 over spot. As recently as last January, the U.S. Mint ran out of Silver Eagles, and they stopped selling them for a few weeks. Premiums rose all the way to $6 over spot at one point. This can happen from time to time, especially for American Silver Eagles. Demand can severely overwhelm supply, and premiums can skyrocket. 1 Oz. Silver Canadian maple Leafs and 1 Oz. Silver Austrian Philharmonics carry premiums slightly below that of Eagles. Silver Rounds and Bars minted by private companies or mints have lower premiums, and closer spreads. Engelhard, Johnson Matthey, Golden State Mint, Sunshine Minting are just a few of the recognized mints that people choose. As of today, Premiums for these items are just around $1.25 over spot per ounce.

Platinum Bullion usually has much higher premiums than gold. This is usually due to higher minting costs, and much larger spreads by wholesalers due to a lower level of investment activity. American Platinum eagles are currently selling for $145 over spot, while 1 Oz. Platinum Bars are selling for $85.

The road that a coin takes from first being minted to finally reaching investors hands involves several middlemen, who all need to make profits. This supply chain mechanism can be found in virtually every other industry out there. For more information about premiums, please call 877.505.2646 and an Account Executive will be happy to answer any questions you may have.

 

 

 

 

 

Reporting Requirements

Investing in Precious Metals can be a confusing experience when you are just beginning, but just like with anything else, a little knowledge can go a long way. Knowing what information you are, and are NOT required to give to your dealer will help keep your transactions Safe, Private, and Legal.

  1. When the client is purchasing precious metals in ANY quantity, Oxbridge House is not required to report the specific transaction to any governing agency, unless, client pays in cash, for a total of more than $10,000, in which case, dealer must fill out IRS form 8300. Checks and bank wire transfers do not require any reporting by the bullion dealer.

 

  1. When the client is selling precious metals to Oxbridge House, there are limited 1099 reporting requirements based on product, and quantity. The following summarizes these requirements:

 

1099 EXEMPT SILVER BULLION

The following coins are exempt from form 1099 reporting requirements in any quantity;

American Silver Eagle Coins

Canadian Maple Leaf Silver Coins

Austrian Philharmonic Silver Coins

Mexican Libertad Silver Coins

Chinese Panda Silver Coins

 

 

 1099 REQUIRED SILVER BULLION 

The following coins require form 1099 reporting in quantities of 1000 ounces or more;

- .999 fine silver bullion bars (any sizes)

- .999 fine silver bullion rounds (any sizes)

-  $1000 face value bag or more of 90% silver coins (50 cents, 25 cents, 10 cents)

  

 

1099 EXEMPT GOLD BULLION    

The following coins are exempt from form 1099 reporting requirements in any quantity.

- American Gold Eagle Coins 

- American Gold Buffalo Coins 

- Gold Austrian Philharmonic Coins

 

1099 REQUIRED GOLD BULLION 

The following coins require form 1099 reporting in quantities of 25 ounces or more;

- Canadian Gold Maples (1 oz)

- South African Krugerrands (1 oz)

- Chinese Panda Gold Coins (1 oz)

 

1099 REQUIRED GOLD BULLION BARS 

The following bars require form 1099 reporting in quantities of 32.15 ounces or more;

- .999 fine gold bullion bars (any sizes)

The above information applies only to the reporting requirements that your coin dealer should legally be following. Please consult with your CPA in regards to any reporting requirements, you are required to follow.