Thinking about investing in gold, but not sure what is the safest way to do it? I’ve sat down with some of the top experts in the industry and collected top 10 gold investment advice for coin and bullion buyers.
Dateline: Bogota, Colombia
The other day, I shared how I delayed receiving my second passport by making three basic mistakes.
One of those mistakes was simply not letting the experts be the experts. These days, I make great efforts to not only go to the experts and pay them for the true value of their knowledge and services but, when possible, I also curate the information I gain from my network to share it with you.
Not too long ago, my friend Claudio Grass – an expert in the gold business – shared the short version of his top ten tips for buying gold. Knowing the wealth of knowledge he possesses, I asked him to sit down for an interview so we could create the long version of that same list. His insights into the world of gold did not disappoint.
Claudio built up a precious metal company called Global Gold several years ago that focused on trading and storing physical gold under Swiss law. After six years in the business, he resigned from the company in order to promote Switzerland as the best place to store physical money.
From his years of experience, he has created powerful connections with the best gold companies in Switzerland and Liechtenstein – many of which were previously his greatest competitors. As a gold consultant, he is now able to refer clients to the right companies, helping them create tailor-made solutions for buying physical gold and storing it in the right jurisdictions to protect their gold investments outside the banking system.
Here are Claudio’s top ten tips for buying gold:
1. ONLY PHYSICAL GOLD AND SILVER
Anyone investigating gold and silver needs to understand that its basic function is as money. Gold was used as money for 5000 years. It was only in 1971 when Nixon went off the gold standard that the whole world began to transition into the fiat system using paper money that is not backed by gold. Before that, all paper money was backed up by gold.
Now that the world’s currencies are not backed by government-held gold, the paper market for gold has grown immensely as people seek to buy money that is backed by a physical commodity. This is especially easy to see if you look at the commodity exchange market – COMEX – where they sometimes have over 500 paper claims for every ounce of physical gold regularly available at the COMEX.
The leverage in the system is huge because so many people believe that they own gold on paper. However, if they want to claim that money, they will quickly find out that there is not enough physical gold available. That’s why, when you’re buying gold as an insurance against the crash of the monetary system, make sure that you have it physically.
Don’t buy it on paper.
Buy it physically because there are even certain paper products that do not guarantee that you actually own gold. If you purchase the biggest products from Wall Street, such as an exchange-traded fund or a GLD or even an SLD, you can actually go through the details in their terms and conditions and see that they don’t even tell you if they actually have the physical gold.
On top of that, you are not allowed to ask for physical delivery and, quite often, they have cash settlement clauses, which means that the bank can pay you out in cash instead of physical metals in a harsh monetary crisis or war.
This is exactly what you don’t want.
Therefore, if you believe in gold and you want to put it on the side as your insurance or to save money for a long period of time, make sure it’s physical and that you own it. Also, make sure that you receive the exact details of the items that you own, including bars numbers, hallmarks, etc.
2. IT MUST BE UNDER YOUR DIRECT AND UNENCUMBERED OWNERSHIP
There is an old saying that, “If you cannot hold your gold, you don’t own it.”
This is important to understand, especially when it comes to the average person on the street who doesn’t have that much money to invest in gold.
If that is your situation, you should buy small gold coins directly and store them nearby where you live so that you have quick access to your gold storage in a harsh crisis scenario. If you have more money and you really want to allocate parts of your wealth into physical gold, then it makes sense to go into jurisdictions that have strong private property rights. The best jurisdictions you can find these days are still Switzerland and Liechtenstein, especially when it comes to physical precious metals stored outside the traditional banking system.
Just make sure that whenever you elect a gold storage company, you know that you are the owner of the gold, that the gold belongs to you directly, and that the company you are dealing with cannot pledge it, hedge it, or lease it out. That is vital.
3. ONLY THE MOST LIQUID COINS AND BARS
You want to get as much gold for cash as possible. The main rule is to build up your liquid gold and silver stock. This means you should invest in legal tender coins such as the Maple Leaf, the Austrian Philharmonic, or the Australian Nugget. The main reason is that you don’t want to run around with a kilo bar in a harsh crisis. Just make sure they are a legal tender and that they have a low fabrication fee.
For example, let’s assume that you buy a maple leaf — the coin from the Canadian mint. When you buy, the price of the physical ounce of gold should be as close as possible to the paper spot price of gold. That is always the underlying way you calculate the value of an ounce of gold. Then, on top of that, you have to pay the fabrication fee (which the dealer has to pay to the mint to get it physically produced) and then you pay a brokerage fee for all the work the dealer has to do before you can get it delivered to you in person.
Whether you buy a gold coin like the Maple Leaf or the Austrian Philharmonic or the Australian Nugget (the coins with the lowest payments in the market), if you can buy them directly in a shop or an online store, make sure that you don’t pay more than 5-6%. It really depends on the setup, but that is the general price range. As soon as you are happy with your stock of smaller denominations coins, you can move up to bigger formats.
One warning: Don’t buy on eBay. If you can buy below the spot price of gold, it’s probably too good to be true. Be cautious when looking to buy from phony sources. Try to find out what certificates a precious metal dealer who has a store may have.
It is also important to know this rule of thumb: the smaller the unit, the higher premiums clients are willing to pay. This means that buying a one-kilo gold bar will always cost less in terms of premium over spot than buying a one ounce coin.
What about numismatic coins? Anyone wanting to buy rare coins needs to fully understand the numismatic business before making any big decisions. You need to know the coins. Numismatics can have a huge up price. The market could pay two, three, or even four times the price of a regular ounce of gold for an old coin. If you don’t understand what you’re buying, then don’t do it. You need to have the knowledge, and if you don’t have the knowledge, stay away from this stuff.
4. BUILD UP LIQUID STOCKS
Gold is monetary insurance as well as a means of building up savings over a longer period of time. For example, a person who invested $100,000 in physical gold in 1970 would be able to buy roughly 1800 ounces of gold. Today, that would be worth $2 million. Even if you purchased an ounce of gold in 2004 at a price of $340, it would now be worth $1300.
As with anything related to gold, you need to know what you’re doing. In this case, that means you need to have an investment horizon. Don’t look at it as your trading vehicle. Instead, ensure that you are buying and then putting the gold to the side. It’s your insurance. It acts as a store of value.
You cannot print wealth out of nothing. It is impossible.
You can do it for a certain period of time, but one day the debt has to be repaid. The world financial system had 140 trillion of credit in 2008; today, we are standing on almost 210 trillion of credit. That’s massive. Everything has an end and this debt orgy that we have been witnessing for the last 50 years is going to end as well.
We don’t know exactly when, time is always slow, but it will end. That is why you should be putting liquid gold on the side. You want to have access to your gold in a crisis and you don’t want to be running around with a kilo of gold. You will want it to be liquid.
A lesson from the past: During the Weimar Republic in Germany when inflation ran rampant, an ounce of gold could purchase a house and a silver ounce could pay the farmer to have chicken for the next four or five weeks. If a similar situation were to arise today, you will be able to use gold for bigger opportunities and silver to finance smaller things.
5. DON’T USE CREDIT, BUY WITH SAVINGS
Anyone who wants to buy gold must save first before they invest. That is the backbone of a healthy economy. The current system relies on debt, credit, and consumption – the exact opposite of a healthy economy. Don’t use the bad habits that have created this system to purchase the antidote to the system.
If you buy gold, use your savings, put it on the side, and make sure that it is fully yours. Don’t take out credit or speculate to buy gold. You never know what the market is doing and you may have to pay back your credit before the price of gold rises. Use your savings. You have to give up certain wishes today so that you are able to profit from your investments in the future.
That’s how an honest system works.
6. STORE SOME COINS NEAR YOU
As I mentioned earlier, you should always have access to some gold. You can put it in a safe at home or bury it outside – whatever you want – just make sure you can find it. The key is to have direct access to your gold if something happens.
However, you shouldn’t store all of your gold nearby; just what you want to have available in a crisis situation. You should have your insurance outside the country. The United States, for example, confiscated gold back in 1933 under Franklin Roosevelt. The same happened in under Mussolini Italy, under Hitler in Germany, and under Stalin in the Soviet Union.
Switzerland, on the other hand, was the last currency to go off the gold standard. They have always had a currency — even during wartime — that could be exchanged for physical gold. And the politicians don’t have the power to confiscate gold there.
So, as a general rule, if you have over $50,000 to invest in gold, store it in a safe jurisdiction. For anything less than that, keep it nearby.
7. STORE SOME OF YOUR GOLD IN A SAFE JURISDICTION
Because of the issues discussed above, you should store some of your gold in a safe jurisdiction where the power of politics is limited.
Switzerland is one of the safest jurisdictions because they have seven presidents and a decentralized political system. This means that the states and the municipalities generally have a lot more power to make the rules on their own levels.
Switzerland was founded on the principles of subsidiarity, meaning that if a municipality cannot solve an issue on its own level and needs the support of the state, then it can call on the state. But it never works the other way around. It has to be from the bottom up.
A centralized system with one president for 320 million Americans, on the other hand, can make the rules from the top and ignore the people because they have the power. In Switzerland, no one knows the name of the president. The Swiss people have the last say and they would never allow for confiscation, they’re not that stupid. This is a unique system that you don’t find in other countries.
Liechtenstein is similar, but they have a monarch figure – Prince Hans-Adam II – who has veto power. However, he is a strong supporter of gold. He was involved with the Center for Austrian Economics and wrote the book, The State in the Third Millennium, where he promotes secession rights down to the municipality level, as well as sound money principles such as gold and silver.
In other words, he is a pretty good guy, he’s a classic liberal and he is very much in favor of gold and silver. For that reason, Liechtenstein also makes sense as a jurisdiction for storing gold.
Side Note: I also reached out to my friend Joshua Rotbart, to get more insights into safe jurisdictions. He is the founder and managing partner of J. Rotbart & Co, a Hong Kong-based company, and a global expert on precious metals for investment. Here’s what he had to say:
“In the last few years, we have seen a trend of clients that prefer to move their assets to Asia, especially to Singapore and Hong Kong. The reasons behind their move include the concern about the stability of the financial system in Europe that may affect Switzerland, as well as the unwanted attention Switzerland drew in the last few years in terms of the integrity of their banking system.
On the other hand, our clients see the growth in storage infrastructure in Asia and the flourishing economy and feel that it is safe to store their bullion there. In this regard, it is notable to mention the developments in Singapore: from building the Singapore Freeport in 2009, to the waiving of the GST on investment-grade bullion in 2012, to establishing the Singapore Bullion Market Association, the government in Singapore has been determined to turn itself into the “Asian Switzerland” and attract the international “gold bugs.”
8. ALWAYS STORE OUTSIDE THE BANKING SYSTEM
Physical gold is the antidote to the current system. The current banking system is based on credit, paper, and computer digits. The crisis that we are expecting — the reason so many people are buying gold to protect themselves — will be a huge banking crisis. Therefore, if you decide to purchase physical gold, it’s only logical to store it outside of that banking system.
Property rights in the banking system are of a temporary nature. Banks in the past have confiscated physical gold and cash, and there is always the possibility of a bail-in where all assets will undoubtedly be confiscated.
Some might argue that you could have a safe deposit box, but most of the time those are not insured. Besides, during harsh crises in the past, the bank was either closed or didn’t have the amount of gold they claimed to have.
This problem started back in the 1980s when banks brought mathematicians into the system who argued that they didn’t need all the gold on hand. They surmised that banks probably only needed 25% on hand. So, banks began to lien out or even sell 75% of their gold. Some invested it into government bonds where they received a guaranteed return on the investment. Little by little, much of the gold in the banking system disappeared.
The bottom line: don’t put your gold in the banks. You don’t want to take that risk.
9. BE COMPLIANT WITH ALL LAWS WHEN YOU BUY
Whenever the possibility arises, the average gold investor should buy a few coins. Most gold investors won’t be able to buy a lot of coins at a time, but that can work to your advantage. If you buy a few coins per year, you can buy them privately.
This is a definite positive.
When you buy small denominations, you can buy anonymously – you don’t have to identify yourself or disclose any personal information. And it is fully legal. Buying small amounts at a time gives you even more security and privacy. So, the average buyer is at an advantage when buying small.
There are laws, however, for those who want to invest in bigger amounts of physical gold. If you are in a position to make larger purchases, make sure that you follow the law and that it is declared.
You need to have the right motivation to go into physical gold. If you want to buy gold to hide something because you believe that gold might be the last possibility and that the government will never find out, that’s the wrong motivation.
If you believe in gold, you have to play by the rules of the game. You have to be compliant. But once you are compliant, it is possible to continue to play by the rules of the game and keep your money from being confiscated. This is possible if you store your gold in a jurisdiction like Switzerland or Liechtenstein. Especially if it’s stored under Swiss and Liechtenstein law, it’s safe.
10. ONLY INVEST MONEY YOU DON’T NEED FOR FIVE YEARS
We don’t know when the system is going to crash. If you believe the people who are saying that the system is going to collapse in the next six months, you’ll make bad financial decisions. Don’t believe them. Don’t speculate.
Only invest money that you really don’t need for at least the next five years. If you buy now, we are standing at the beginning of the next bull market, but anything can happen in five years. It is very likely that the price of gold will be higher in five years than it is today. It’s harder to know what will happen in the short term.
If you want a good return, you’ll need to wait at least five years. If the system crashes before then, you will be fine, but don’t use money that you will need in three, six, or even nine months’ time because we don’t know where the price is going in the short term.
An ounce of gold is always an ounce of gold, but the price of the fiat is what fluctuates. No matter what, there is a very high probability that, after five years, you will be really happy with your investment.
BONUS TIP: USE THE LBMA ECOSYSTEM
One final tip from J. Rotbart & Co. is to only procure bullion that were refined by members of the London Bullion Market Association (“LBMA”) or the London Platinum and Palladium Market (“LPPM”).
Look for providers that only ship and store goods with secure logistics companies that are members of the associations. This provides peace of mind as to the authenticity of the goods, as well as reassurance that the security standards are on par with the market.
When it is time to liquidate your assets, bullion procured via the LBMA will take less time to liquidate and the whole process will cost you less. Items that were removed from the LBMA/LPPM ecosystem will need to be tested or assayed before deposited back into the system.
THE GROWING TREND
Claudio has been traveling throughout the United States for four weeks now and has visited Texas, Montana, Georgia, Alabama, Washington, and New York. Here are some of his final thoughts and observations from his travels:
I am extremely positive about what I see happening. I have spoken to a lot of people and we can see that there are clear trends toward decentralization. You have the internet and it is clear that the government doesn’t control the media and the information that we are fed any longer.
That’s why we have Trump and Brexit and secession movements and fake news. These are all cracks in the system. At the same time, however, we have Bitcoin and blockchain technology, which will lead to a decentralized financial system, decentralized communication, decentralized law, and decentralized production.
This will allow the three to four billion people who currently do not have access to a bank account (but who all have smartphones) to gain access to the system. They will become market participants in the future and, with a decentralized financial system on the blockchain, the trend is clear: we are moving toward decentralization.
The system as we know it is breaking apart, which means that gold makes perfect sense – so do cryptocurrencies and blockchain technology. It makes sense to spend more time investigating these topics because they will continue to grow into the future. The new world order will be history soon. The centralized system is not going to prevail. And, with every USD or euro that you put into physical gold and silver, you withdraw liquidity from the current system that they can no longer use to finance wars or bribe politicians.
One additional insight from J. Rotbart & Co.: The trends as mentioned above by Claudio are popular across the board. Demand for physical precious metals is on the rise since the financial crisis of 2008 and more clients choose to invest in bullion as a strategy for wealth protection for the future.
Clients are moving their assets from bank vaults to privately held vaults. There are a few reasons for that:
- Better access to their assets (they are no longer dependent on business hours, the goodwill of the banker etc.);
- Increased distance from the reach of governments and regulators;
- Better service; and
- Better value for money.
We also see a new trend when it comes to jurisdictions: individual clients are moving many assets to the “new frontier” of Asia for the reasons we mentioned above.
Another trend that we are seeing is that clients are moving funds between precious metals and cryptocurrencies. As Claudio mentions, we are stepping towards decentralisation and, in this regard, there are similarities between cryptos and gold, as both assets are de facto global decentralized currencies.
This is why clients move funds between the two assets. They are either taking profits from Bitcoin (for example) and reinvesting them in physical metals, or they are liquidating their metals holdings in order to invest the proceeds in cryptos.
Another trend that we see is that clients are willing to take loans against their physical holdings in order to make other investments. The difference in this trend is that the loans do not come from banks (so the clients’ holdings will not be deposited under the lending bank assets), but from reputable private lenders .
ABOUT THE WRITER
Andrew has been internationalizing since 2008, and has learned what works and what doesn't work when it comes to reducing taxes, increasing personal freedom, and creating wealth.