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How to Invest in, Buy, Sell, Store and Insure Precious Metals in Canada (1/4)
Category :- Investments

Author :- Art Smith 
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Posted on April 3, 2014, 4:39 am
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1 Introduction

Should you invest in precious metals? We will leave this to your discretion. If you believe that you should we will give you some ideas as to how you can invest in precious metals.

We are not precious metals dealers, sellers or professionals; however, we consider ourselves knowledgeable enough to provide advice and recommendations on this subject. Information provided here is based on personal experience and extensive research of the topic. Please do your own due diligence and let us know if you find any inaccuracies in this report.

There are two common ways to invest in precious metals: you can purchase physical items or buy shares of mining/exploration/royalty companies. We will discuss both options below. In addition, there are other ways available to sophisticated investors such as future contracts (which are not discussed here).

2 Physical Precious Metals

There are 2 types of physical precious metals you can own: metals that you own and store yourself (at home, a safe deposit box, etc.) and metals that are registered on your name, which – depending on the investment option you have chosen – may or may not be physically delivered to you.

2.1 Physical Precious Metals That You Can Store Yourself

When you buy physical items for investment purposes buy items that are easy to sell. If you buy an item with a substantial discount to its precious metal content value but the item does not have a hallmark on it – it would be harder to sell it in the future.

The purity of precious metal is called fineness, it is expressed in parts per thousand. For example, if you have a 0.925 silver coin it means that the coin is 92.5% silver. You will never buy a product that is 100% gold/silver/platinum/palladium: these precious metals will always be alloyed (i.e. mixed) with some other metal(s) to make them harder. The purity of gold is sometimes defined in terms of karats (or carats). 24 karats represent 99.9% purity of gold. Therefore, 18 karat gold is 22 parts gold and 2 parts another metal (forming an alloy with 91.67% gold). Do not confuse karats of gold with carats (or karats) of precious stones; the latter represent weight (1 carat being equal to 200 mg).

Regardless of whether you store your precious metals in a safe deposit box or at home, it should be insured. Banks do not trust you by default and always verify your ID, income, credit history, etc. Similarly, you should not trust any bank by default when you store your valuables with it. Since the contents of your safe deposit box are not insured by your bank/credit union, you should do it yourself. For example, Hugh Wood Canada Ltd is one of the few insurance companies that insure valuables such as precious metals and stones, collectibles, art, stamps and even wine.

Religious items such as pendants are considered less valuable and have a much smaller premium (i.e. market value of a coin or a bullion minus the intrinsic value of its precious metal content).

Note that in Canada, physical metals cannot be hold in Registered programs such as RRSP, RESP, TFSA, etc.

There exist several types of physical precious metals, which we will discuss in due course below:

- Bullions (section 2.1.2)

- Numismatic coins and collectible items (section 2.1.3)

- Junk coins (section 2.1.4)

- Silverware and flatware (section 2.1.5)

- Jewelry (section 2.1.6)

2.1.2 Bullions

Bullions are precious metals in the form of bars, coins, ingots or rounds. NWT mints silver bullions in the form of bullets. Bullions are cheaper to buy in the form of bars, ingots or rounds. Many people prefer rounds because they resemble coins and because cases and holders for them are cheaper and easier to find on the market.

The value of bullions is determined by the spot price of the metal they contain and its fluctuation corresponds to the fluctuation of the precious metal prices.

The smaller the denomination of the bullion the higher the markup per ounce (oz) that you will pay. For example one 10 ounce (1*10oz=10oz) bullion will have a lower markup (per oz) than ten 1 ounce (10*1oz=10oz) bullions. If you buy legal tender coins (for example, Canadian Maple Leaf or US Eagles coins) they will have a much higher markup per oz than bullions minted by private mints.

If you buy legal tender coins from different Government Mints (e.g. in the US, Australia, Canada, South Africa, etc.) choose coins that have the lowest premium/markup to the precious metal content (i.e. pure metal value) at the moment of your purchase. The lowest mark up coins are not less valuable than the highest mark up ones, but they might be more available on the market or people might prefer to buy other types of the coins at the moment. Preferences and availability may change and you might be able to sell the same coins with a higher mark up than what you paid for them.

In Canada, the easiest way to buy legal tender gold/silver coins and bullions is from banks; however, it is not the cheapest way. Banks offer coins with a high markup (especially for silver coins), with costly delivery and high commission rates.

One can come up with a number of ideas as to how to buy valuable coins for less money. We will discuss two of them below.

Many Canadian silver coins have very low mintage numbers, and in many cases BU coins have lower mintage numbers than Proof coins. Look for Canadian silver coins with the smallest mintage available (based on Charlton Press Catalogs), as they represent a very good value. Note that US silver coins are usually more expensive than comparable Canadian coins, even though US coins mintage numbers are usually much higher.

The other idea has to do with discrepancies between catalogs, namely occasional discrepancies in mintage numbers. Some of these discrepancies between different catalogs might be due to differences between, for example, quantity sold vs. quantity minted. You can take advantage of such discrepancies and buy valuable coins cheaper if the seller assumes a high mintage number for a coin whose actual mintage number is low. Some examples of discrepancies are listed below.

Charlton Canadian Coins catalog and Krause's 2009 North American Coins & Prices catalog have different mintage numbers for the following coins:

1 dollar RCMP 1994

Charlton's catalog - 65,295 and 178,485 for BU and Proof coins, respectively (page 68);

Krause's catalog (the coin is referred to as KM 251) - 61,561 and 170,374 for BU and Proof coins, respectively (page 361).

1 dollar 125 Anniversary 1998

Charlton's catalog - 81,376 and 130,795 for BU and Proof coins, respectively (page 69);

Krause's catalog (KM 306) - 79,777 and 120,172 for BU and Proof coins, respectively (page 361).

(Note that Krause's catalog also has the coin's name wrong: 120th in lieu of 125th Anniversary Royal Canadian Mounted Police).

1 dollar Voyage 2000

Charlton's catalog - 62,975 and 121,575 for BU and Proof coins, respectively (page 71);

Krause's catalog (KM 401) - 60,100 and 114,130 for BU and Proof coins, respectively (page 363).

            1 dollar 50 Anniversary 2001

Charlton's catalog - 53,668 and 89,390 for BU and Proof coins, respectively (page 71);

Krause's catalog (KM 414) - 65,000 and 225,000 for BU and Proof coins, respectively (page 363).

Eric Jordan's Modern Commemorative Coins: Invest Today - Profit Tomorrow book and Krause's 2009 North American Coins & Prices catalog have different mintage numbers for the following coins:

5 dollars 1999-W Gold American Eagle

Krause's catalog - 48,426 for BU coins (page 302);

Jordan's book - 6,000 for BU coins (page 128).

10 dollars 1999-W Gold American Eagle

Krause's catalog - 34,416 for BU coins (page 302);

Jordan's book - less than 6,000 for BU coins (page 132).

Based on Jordan's book, $10 and $5 Gold Eagle coins are the rarest fractional gold coins since 1933, but they are not that rare according to Krause's catalog. In addition, Krause's catalog does not have any information about 2006-W, 2007-W, 2008-W $5 and $10 Gold Eagle coins. (W uncirculated Gold Eagle coins were struck on specially burnished blanks and carried the “W” mint mark, otherwise there is nothing unusual about them.)

This information could be updated in future editions of these catalogs, but if you notice discrepancies contact the author of the book and verify who is right. If you compare Canadian coins in Charlton's catalog vs. Krause's catalog, Charlton's catalog usually provides more accurate information.

2.1.3 Numismatic Coins: Collectible, Numismatic and Ancient Coins

Coins (or collectible items from precious metals) that are rare or ancient will often have a considerably higher monetary value than their precious metal value. Numismatic coin’s value depends on its metal value, quality of the coin and its rarity. (However, note that the price of numismatic coins does not necessarily move in the same direction as the price of precious metals.) The most important feature of such coins is that collectors are ready to pay for them. In general, if a coin is valuable now it will be more valuable in the future but this is not a strict rule that you will necessarily make money from reselling it. If you want to study numismatics the first step will be to purchase a numismatic catalog, e.g Krause Catalogs for US/World coins or Charlton Press Catalogs for Canadian coins. It might be a good idea to visit a local library to review these catalogs before you buy them, since there are many versions/editions of these catalogs and they are not cheap. ( If you buy books on Amazon.ca or Chapters.com you can enroll in Ebates or Canadian Rebates to get cashback from your purchases.)

Coins are labeled as good, very good, fine, very fine, extra fine and uncirculated. The best explanation of coin grading can be found here.

If you want to use a software program that would help you with Canadian coin collecting then you may consider Coin Manage Canada, which is a useful tool. It is not expensive and it is updated regularly. It includes many options and provides accurate and up to date coin values. Another way to get an idea about prices of numismatic coins is Numismaster which you can subscribe to.

When investing in numismatic coins, it is very important to find a knowledgeable and reputable dealer who can help you buy good quality coins. However, it does not mean that you do not need to know and understand what you buy. Here are a few points you might want to consider:

- Do not buy newly minted coins from the Canadian (or US) Mint, since you can normally buy the same coins a few years later for a cheaper price even if the price of precious metals goes up.

- Try to buy older coins; the older the coin the more valuable it will probably become in the future.

- Never borrow money to invest in numismatic coins even if you think you know the market (unless you are an experienced professional).

- Never touch numismatic coins with your bare hands and do not allow anybody else to touch them unless (cotton) gloves are used. Numismatic coins are graded based on their quality; if you touch a numismatic coin with your bare hands you will most likely damage it (even if you do not immediately see it).

- Never clean your coins.

If you are not planning to invest some serious money in numismatic coins, you may consider investing in other forms of precious metals. Investing in numismatic coins also has a number of disadvantages. Some of them are listed below:

- If you buy a numismatic coin and then want to sell it, it may lose in value

or it might take a while until you find a buyer.

- A numismatic coin will lose in value if it is damaged (even if you merely drop it once or touch it with your bare hands).

- Premiums on numismatic coins are significantly higher than on bullions, bars and rounds.

- Since you are likely to buy insurance for numismatic coins, there will be more people who know that you own them.

- You need to spend more money on insurance and storage of your valuables.

- If you buy rare coins and you pass on, your heirs might sell your collection much cheaper that it is really worth. You should educate your spouse/children about your valuables.

- Although investing money periodically makes a lot of sense (see this infographic which explains why), you will not probably be able to use the dollar cost average strategy when investing in numismatic or collectible coins.

Where you can buy numismatic coins:

-Coin shops;

-Coin shows;

-Traditional auctions;

-Royal Canadian Mint;

-Online auctions, such as Ebay.ca and Delcampe.com

On of the best investments you can make is to buy coins from the Canadian Mint that are sold for face value but are in fact silver ones. These deals are called 20 for 20, 50 for 50 and 100 for 100. Explore the following link here. If the value of silver goes up, your coins will increase in value; if the silver price drops you can always sell the coins for the same price (face value) you purchased them. In other words, you cannot lose with this investment idea.

2.1.4 Junk Silver Coins (Canadian Pre-1968 Coins)

Canadian junk silver is silver coins minted for circulation. If coins have been in circulation they usually do not have any value except for their precious metal “melt” value. The value also depends on the rarity of the coin but do not assume that your circulated coins are rare. Dimes, quarters, half dollars and dollars minted between 1920-1967 are 80% silver. Dimes and quarters minted in 1967 and 1968 are 50% or 80% silver. It is difficult to differentiate between 50% and 80% 1967/68 silver coins, since they all look similar and have the same weight. Buy coins minted before 1966 to avoid 50% silver coins unless you already pay for them as 50% silver coins. For coins minted between 1920-1966, there is an easy way to figure out the pure silver weight: simply multiply 0.6 oz by dollar of coinage. For example, 5 dollars of 1960 quarters would correspond to 0.6 x 5 = 3 ounces of pure silver. Multiplying 6 ounces by today’s silver price (which you can get here) gives you the “melt value” (i.e. the precious metal content value) of the coins. You can also use NGC coin melt values calculator.

US silver coin denominations can be found here. Note that in addition to dimes, quarters, half dollars and dollars, USA minted silver 5 cent coins between 1942-1945.

Occasionally, junk silver coins can be bought on Ebay.com, Delcampe.com or other auction sites with a small discount to the spot price (i.e. market price of silver). When you sell your junk silver coins, you usually get less money than what the silver spot price currently is. If you sell your coins to a coin dealer then s/he will only accept the coins with a discount to the spot price. If you sell them through Ebay or another auction you will have to pay auction service fees. You will only get the spot price for the coins if you sell them privately which might be problematic with large quantities of coins, security-wise.

If you are not sure that a coin you have is silver (or gold), here are a couple of tips. First, if a coin is magnetic, then it contains at least some nickel, steel, cobalt or other magnetic element. Coins that contain silver or gold are rarely magnetic. Even 1968 50% silver coins are not magnetic. Another way to check what metal a coin is made of is to measure its density, which is the ratio between the coin's weight and the weight of the same volume of water. Read this Measure a Coin's Density article to understand the process. However, never check your numismatic coins this way. Since this verification procedure may damage coins, it is only good for junk silver/gold.

2.1.5 Silverware and Flatware

Many people do not consider silverware as investment but investing money in it has a number of advantages:

- You can use it at home and you do not need to store it in a vault.

- Silver has antimicrobial properties known for centuries and using silverware is beneficial to your health.

- Even used silver items will most likely appreciate in value over time.

- When you sell personal property you do not pay income tax on the gain (see a tax advisor to get more details).

- In many cases you can buy silverware with a discount to the spot price of silver.

Estate sales and Ebay.com are probably the best places where you can purchase silverware. Before buying silverware make sure that it is stamped “sterling” (i.e. 925/1000 of silver). Less often, the hallmark will be 0.925 (or 925), 950, 800, etc., which indicates the purity of silver. Most (true silver) silverware sold in North America is sterling silver and it should always be hallmarked with a stamp. In some cases you will not find the purity of the silver stamped as a number, but it will be stamped with a hallmark representing purity. For example, a hallmark with a walking lion indicates that the item is sterling silver or 925/1000. You can find a wide collection of silver hallmarks from all around the world here .

In many cases Ebay sellers describe their items as ‘silver items’ but in reality the items are silverplated rather than actual silver. If there is no mention of ‘sterling’ in an item’s description, ask the seller about it before buying; do not assume it is actual silver based on the item’s photo. Silver items from other countries might not bear the ‘sterling’ hallmark and it would be difficult to (re)sell them in USA/Canada. If an item has the “EP” stamp (EP standing for electro-plated) or just a hallmark of the manufacturer, it is not silver but silverplated.

There are many books explaining how to collect/invest in silverware or sterling flatware, such as Starting to collect Antique Silver and Sterling Flatware, An Identification and Value Guide.

If you know languages other than English you may consider buying silver items from international Ebay sites. Thus, if you know French you can buy French silverware from Ebay.fr. The most common hallmark for French silver is head of Minerve (tête de Minerve). French silverware is often sold on Ebay.fr with a discount to the spot price and it represents a very good value (Search for term “argent massif” which means 950/1000 or 800/1000 silver. “Argent massif 1er titre” and “Argent massif 2eme titre” are 950/1000 or 800/1000 silver, respectively.)

Do not buy items that are ‘weighted’ (loaded with cement) such as (some) candelabras or bowls because nobody knows how much silver is there. Weighted items are usually marked ‘weighted’ on the bottom.

There is usually no problem to sell household items privately or through auctions. However, if your precious metal item is rare and in a good condition it would be a good idea not to keep hold of it.

2.1.6 Jewelry

Investing in jewelry might be a good idea, in particular, if you want to move from one country to another, as you can wear (at least some of) your jewelry while traveling. However, purchasing jewelry is not the best investing option. First, jewelry is art and when you buy a unique product you have to pay a premium (in particular, if you buy it from a reputable seller). Second, if you are not a jeweler yourself you will not be able to identify the purity of the metal, since you cannot always rely on the hallmark alone. Finally, when you need to sell your jewelry, you may fail to sell it as a piece of art and may need to sell it for its precious metal ‘melt’ value alone. On the positive side, if/when you sell jewelry you will not (most likely) need to pay income tax on the gain since jewelry is normally considered personal property (again, see a tax advisor for more details).

2.1.7 Suggestions and Options for Storage

It is very important to store your physical high value precious metals items in Intercept Shield coin boxes, covers or albums. The technology behind Intercept Shield has proven to be very effective against corrosion. You cannot order from the Intercept Shiled site directly but there are many dealers who sell their items, including dealers on Ebay.

Cases and holders for coins and bullions can be bought from different numismatic stores or Ebay. However, if you collect bullions or medals with unusual sizes or forms you may want to consider Light House or (outside Canada) Leuchtturm. Many Ebay dealers sell bullion holders, such as Air-Tite holders, and many of them ship to Canada.

It is important to store your items in a place that is not humid; you can use different dehumidifiers, such as Rechargeable Stack-On (which can be charged from a standard wall socket) or Silica Gel Desiccants (which can be reused if you warm them up and evaporate the moisture). To check humidity of the storage place consider using humidity indicators.

You can store your physical items at a bank safe deposit box. However, you will not be able to access the safe deposit box when your bank is closed, including cases of "bank holiday". Safes are not highly “safe”, contrary to what the name implies, because there have been cases when their content was either confiscated (see one example here) or “lost” (see two examples here and here). Such cases are rare but you might not sleep well knowing that your valuables may disappear.

You can use a private non-bank depository. In Canada there are several options: Nova Vaults (in Nova Scotia), Alpha Safe (in British Columbia), Speedy Security Vault (in Ontario) and Safe Box (in Ontario). If you want to use this service outside of Canada you may consider Manfra, Tordella & Brookes and Sarasota Vault Depository (in USA), DAS Safe (in Austria).

It is not a good idea to store your precious metal items at home due to security reasons. However if you still decide to do so, here are a few suggestions (the idea when you store your valuables at home is to be creative):

- You can store your valuables in your attic and/or in the insulation. It is unlikely that thieves will search in fiberglass insulation.

- Generally, it is a good idea is to store valuables in places that nobody would think of, such as inside your freezer, inside a printer (replacing the tuner), inside a drill box, inside a sock in the bottom of your sock drawer, buried in a container in the back yard, underneath a potted plant, inside of a DVD case, in a coffee box or a tool box. Such places may damage your high value collectibles or jewelry, but they might be good for junk silver/gold. Putting your precious metals items under the mattress will not make them safe but will only add to your back pain (you should have only one item under your mattress which is your bed).

- Some other options are hidden storage places, such as the Hidden Wall Safe, Pringles box, Wall Clock or an actual safe which you can mount under your table.

 

Precious metals are always measured in troy ounce which corresponds to 31.1034768 grams. If you want to weigh your bullions or coins you can buy a scale that weighs in 0.01 gram increments, such as the American Weigh Scales scale up to 100 grams or the Smart Weigh scale up to 200 grams. Moreover, you can buy a scale that weighs in 0.1 gram increments, such as the American Weigh Scales scale up to 1 kg.

It might be a good idea to buy scale calibration weights (such as this Smart Weigh 50 gr weight) which helps you to make sure that your scale is precise.

 

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