I have been asked this question a few times recently. Just now we are seeing gold that is topping $1200 an ounce, and of course the optimists are hoping for $1250, or even $1500! But we know that we cannot eat this shiny metal, it does not appear to cure cancer, and we certainly cannot burn it for heat. Is the value of gold a leftover from some more primitive times when it was valuable because it was shiny and scarce?

Well, keep in mind that paper money is only valuable because we all agree it is. I guess we could burn it for warmth, but it would take a lot of dollar bills to keep us warm this winter. Hey, it takes a lot of dollar bills to pay the utility company anyway.

Gold Demand

Gold does have some industrial applications, but most of the demand seems to come from jewelry. We Americans like gold jewelry, but most of us could live without it. But in the far east, gold jewelry is more ingrained in the culture, and that demand is huge. Even though we don’t really think we need gold, people from other cultures do not regard it the same way.

Gold is Rare

I read an article that said all of the gold ever found could fit into a 150 foot square. I cannot authenticate that particular statistic, but is does provide an interesting visual image. Imagine a square about the size of 3 average sized home lots on each side. Now imagine that square is coverd in gold. It seems like a lot, but not when you try to divvy it up between all of the people on earth!

Gold is Money

For 5,000 years, civilizations have considered gold as money. Our US currency is not backed by gold, but the federal government. And yet we still do have stocks of gold.

You have to learn to think about the price of gold like this. It isn’t that the price of gold really varies so much. What fluctuates is the value of the currency (i.e. the dollar).  Many people believe that gold holds its value.

This is a very general example, but consider a $20 gold coin. In 1880, when a $20 gold coin had that value, a worker might earn that much in 2 weeks. Now that same 1 ounce coin is still about 2 weeks wages at the value of $1,200. This example is not exact, and is easier to do with silver.

So What Makes Gold Valuable?

Just like paper money, gold has value because the market says it does. Beyond that, it is used in industry some, and it a traditional precious metal used for jewelry.

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Well, again, I do not have my crystal ball.

 But I did see some interesting speculation on Seeking Alpha. They bring up the old point that silver is gold’s poor relation, and because it is considered to draw more value as an industrial metal (rather than money), that silver was not expected to do as well during a recession like the one we have as I write this. Silver also tends to be very volatile, and everybody from saints to tin foil hat wearers believe that the silver price is much more manipulated than the gold price.

But…..

• Silver is cheap, and barriers to entry are lower for Joe Six Pack
• If the silver market is ever allowed to do its own thing, there is plenty of evidence that the value could shoot up.
• During the last few weeks, the percentage increase in silver value has increased 4 times more than gold.

So…?

Keep watching the market. Plenty of us believe that silver prices have plenty of upside. But always DYDD, and only purchase what you can afford to lose.

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We have seen a lot of talk about finding inexpensive gold jewelry to sell as “scrap gold”. And of course, we have also heard from people who are intereseted in selling their scrap gold for cash, and want to use the spot gold price as some indication of the value of their jewelry. The K or Karat system may seem confusing, but it is actually fairly simple, so let us give you a quick explanation of the value of gold jewelry as expressed in the spot price of gold.

Now note that you may be unlikely to get an offer of spot price for your spot price since many buyers - refiners, pawn shops, coin shops, or jewelers, need some sort of spread in order to make a profit. But if you are interested in selling, I want you to understand that spot price so you can make a decision about how close an offer is to the true value. If you are buying jewelry for the bullion content, and are not familiar with gold value calculations, this should give you an indication on where you should start making offers too.

Multipliers for gold purity:
24K = .999 = pure
22K = .917
18K = .750
14K = .585
12K = .5
10K = .417

So a 24K gold bullion coins is considered very close to pure gold. An 18K gold necklace is considered 75% gold, or take 18/24 = .75. See how that works? It is easy to understand that 12K gold would be 50 percent gold when you understand that you are starting with 24K gold as a marker for pure gold.

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I have seen this question all over the internet: Just why are the prices for precious metal bullion so much higher than the spot price? When the silver metal, palladium, cannot move over $200 an ounce, palladium bullion coins on EBay reflect twice that price. And you would be lucky to find platinum bullion for less than a 30% markup, and it is not uncommon to see a 100% markup. But even the more common staple PMs like gold and silver do not seem to reflect the spot prices in their sales or Buy it Now prices on the most popular online auction: EBay.

I think we need to look at three reasons for the inflated prices.

• A suspicion that Spot prices do not reflect the price of actual bullion, but are tied to the price of paper or digital bullion. In other words, the gold and silver funds are trading paper that do not reflect actual metal in a buyer’s hand. These prices are low and should be regarded with a jaded eye because who really knows how many times the same ounce of gold or silver (or platinum or palladium) are being traded? I have no idea if this is correct, but neither do a lot of people. Can we actually see the stores of precious metals that back up paper or digital bullion?
• EBay and Paypal Fees are so darn high that sellers have to sell for much more than spot price or they will go broke. Well, I know that there is a lot of truth to this one. I am tired of seeing potential bullion buyers accuse sellers of greed, when they really should be examining EBay’s methods. If a buyer thinks the price or shipping fees are too high, they should shop elsewhere. And no, I am not actively selling on EBay now. I have just examined the way the system works. And many complaining buyers also note that they cannot find lower prices on bullion, or any bullion at all, in their local coin shops.
• This one is more complex, but has to do with faith. Sellers have to source their bullion for somewhere, and may have purchased during a spike, just like a lot of us did. They refuse to sell at a loss, especially when they are confident the price will increase soon. Buyers must believe that the bullion is scarce, and that it will be an increasingly valuable commodity at some point in the future too. They are willing to pay a premium because they believe that holding gold, silver, palladium, or platinum is worth it.

Now you can find other ways to purchase precious metals. Your local coin shop, individuals in your community who want to sell, members of online forums, and online precious metal stores. It is up to you to find reliable sources at the best cost, and that is all part of the game. But if you are frustrated by high premiums, you need to consider the reasons for the markups and decide if you believe they are valid.

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But here’s the thing. A lot of silver watches argue that the white stuff has not made the same rebound as the yellow stuff, and that the price should be at least $17 an ounce now, and not just over $13. Of course, we cannot always pinpoint the price of silver by the price of gold, but they tend to move together in a loose way.

So, is this the time to load up on silver? My crystal ball got damaged in hurricane Ike. If you have an idea, feel free to comment here!

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The auction says that you are bidding on a certificate of ownership for each ounce of old you purchase. They will store the actual gold until the time you sell it back to them. Right now, the auction is selling this ‘ownership’ at $940, but Kitco says an ounce of gold should be a hair over $800. And the seller says they will buy the shares back for $40 less than spot. So right away, your $940 ‘gold ownership’ investment will be worth a bit more than $760.

Now this guy has 5 figures of positive feedback, and does sell physical too. But I cannot imagine that this is a good idea. Yah know? Just sayin’…..

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The thing about precious metals as a commodity is that they are easy to take delivery of. You cannot take delivery of  corn, wheat or oil, but you can take delivery of gold and silver! This means you are not speculating on something you cannot hold. This is one appeal of gold and silver investments.

Speculators who do not take delivery may be coming under increased scrutiny, but you don’t need ot worry about that. Do you?

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Well I know that my stocks are not doing very well, and that is across the board. My precious metals stash, consisting mostly of silver US coins, has been faring much better. In fact, the increase in my PM value over the last few years is just about the only thing that keeps me from total panic these days.

A company called USA silver wants to teach you how to profit from US Silver and Gold Coins too. You can enjoy a free initial consultation, and then decide if precious metals investment is for you.

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James Turk says that the logic does work about 75% to 85% percent of the time. It works most of the time, but that does not, as he admits, work all of the time. In general, the 1st and 4th quarter are stronger, while the 2nd and 3rd quarter are softer. Now we did reach a peak in March which would conform to the logic, but we are net getting a clear pattern of any sort of bullish market yet. In fact, so far this year, a sale in March and repurchase in April would have been a great strategy. But if you, like me, missed the March boat, keep your eye out for the next one.

A weaker dollar, more expensive oil, and a stream of financial problems are supporting the price of your shiny stuff. Do Your Own Due Dilligence, but if you can hold onto your silver and gold this summer, consider it strongly, despite conventional wisdom.  A gold or silver sale in May, may just be a sale you regret by July.

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