Fractional Gold - Fractional Silver
Repeat after me,
"One ounce Bullion bars and Coins."
That's what you say when you visit your local Coin Shop or invest in a Gold IRA. If you don't say that, you may end up with serious regrets like this person:
Notice in the BBB (Better Business Bureau) complaint above that the customer purchased quarter-ounce and 2-ounce Coins. At least 25 of those Coins were 'Gold Lucky Dragons' which we can reasonably assume are Australian Gold Lunar Dragons. All of these items are special edition Coins that carry a high premium over the spot price of either Gold or Silver.
The unfortunate investor made a less-than-optimum decision by following the company's recommendations.
Because the investor didn't specify that they wanted 1-ounce Bullion bars or Coins, the company representative allowed (encouraged?) them to make two mistakes:
- Purchase fractional ounce Coins. (The 2-ounce Coins aren't 'fractional ounce', but they fall into the same category because they carry a ridiculously high premium over spot prices.)
- Purchase special edition Coins instead of Bullion bars or Coins.
Spot price
This is the price of Silver or Gold when purchased in bulk for immediate delivery. To buy at the spot price you would have to go directly to a mining company and buy their output, or buy directly from the COMEX (Commodity Exchange, New York) or LBMA (London Bullion Market Association).Futures price
This is the price of Silver or Gold in ‘good delivery form’ when purchased using a futures contract from the COMEX or LBMA exchange. ‘Good delivery form’ is a 400-ounce bar of Gold or a 1000-ounce bar of Silver. Unless you are buying from a mining company or one of the exchanges, you will pay spot price plus a premium to obtain Silver or Gold bars and Coins. The key to understand is that most investors are always going to pay a premium over the spot price.
Precious metals prices
Let's take a look at some Gold and Silver Coins and compare the markup that each Coin carries:| Gold Coin | Weight | Coin type | Retail price | % over spot |
|---|---|---|---|---|
| 2024 Australia Gold Lunar Dragon | 1/10 oz | Special edition | $302.27 | 20.57 |
| 2024 Australia Gold Lunar Dragon | 1/4 oz | Special edition | $690.69 | 10.20 |
| 2024 Australia Gold Lunar Dragon | 1/2 oz | Special edition | $1,351.39 | 7.81 |
| 2024 Australia Gold Lunar Dragon | 1 oz | Special edition | $2,757.79 | 10.00 |
| 2024 Austria Gold Philharmonic | 1 oz | Bullion | $2,612.79 | 4.22 |
| 2024 American Gold Eagle | 1 oz | Proof | $2882.99 | 15.00 |
| 2024 American Gold Eagle | 1 oz | Bullion | $2,647.79 | 5.62 |
(Table based on spot price of Gold 08/17/2024: $2506.84)
Notice the difference between the premium on the 1-ounce Bullion Coins versus the fractional ounce and special edition Gold Coins. The 1/10th ounce special edition Coin has a premium that is almost five times higher than the Austrian Philharmonic Bullion Coin. A premium of 4.22% is fairly reasonable. Investors are going to pay at least this level of premium regardless of whether they purchase their Gold at a local Coin shop, an online broker, or a Gold IRA company. US investors may want to pay the slightly higher 5.62% premium in order to purchase American Gold Eagle Coins since they are considered the 'Coin of the realm' (i.e., the Coins minted by their country of residence).| Silver Coin | Weight | Coin type | Retail price | % over spot |
|---|---|---|---|---|
| 2024 Australia Silver Lunar Dragon | 1/10 oz | Special edition | $23.86 | 64.55 |
| 2024 Australia Silver Lunar Dragon | 1 oz | Special edition | $39.64 | 36.68 |
| 2024 Australia Silver Lunar Dragon | 2 oz | Special edition | $89.38 | 54.10 |
| 2024 American Silver Eagle | 1 oz | Proof | $94.99 | 227.55 |
| 2024 American Silver Eagle | 1 oz | Bullion | $37.73 | 30.10 |
| Silver Round - PAMP Buffalo | 1 oz | Bullion | $34.03 | 17.34 |
| Silver Bar | Weight | Bar type | Retail price | % over spot |
|---|---|---|---|---|
| Royal Canadian Mint | 10 oz | Bullion | $357.30 | 23.20 |
| Royal Canadian Mint | 100 oz | Bullion | $3,223.00 | 11.13 |
(Tables based on spot price of Silver 08/17/2024: $29.00)
Gold Coins below are from a private broker (add 1% to 3.5% commission depending on size of order). They are categorized as Numismatics but they are well-circulated Coins which have no collector value.| Gold Coin | Weight | Coin type | Retail price | % over spot |
|---|---|---|---|---|
| British Sovereign | 0.2354 oz | Numismatic | $587.00 | 0.0 |
| French 20 Francs | 0.1867 oz | Numismatic | $467.00 | 0.4 |
| Dutch 10 Guilder | 0.1947 oz | Numismatic | $485.00 | 0.0 |
(Tables based on spot price of Gold 08/17/2024: $2506.84)
Silver bars and Coins below are from a private broker (add 1% to 3.5% commission depending on size of order).| Silver product | Type | Weight | Category | Retail price | % over spot |
|---|---|---|---|---|---|
| US 90% | Coin ($1000 bag) | 715 oz | Junk | $21,067.00 | 1.6 |
| US 40% Half Dollar | Coin (2 x $500 bag) | 295 oz | Junk | $8555.00 | 0.0 |
| Generic | Round | 1 oz | Bullion | $29.35 | 1.2 |
| Generic | Bar | 10 oz | Bullion | $291.00 | 0.4 |
| Generic | Bar | 100 oz | Bullion | $2945.00 | 1.6 |
(Tables based on spot price of Silver 08/17/2024: $29.00)
Obviously, premiums on Silver are higher than premiums on Gold regardless of the type of Silver being purchased. This is because the Silver market is operating at a deficit (demand overwhelming supply) and has been since 2021. While the 11.13% premium on a 100-ounce bar seems high, investors are going to pay a premium around this level regardless of where they purchase Silver (unless dealing with a private broker). Look at the premiums on the 1/2 ounce (64.55%) and 2 ounce (54.10%) special edition Silver Coins, however. This level of premium is simply obscene. Why any knowledgeable investor would pay these premiums is hard to fathom. Perhaps it makes sense to purchase one of these over-priced Coins as a collector item or gift, but investing in a quantity of them is absurd. The investor in the BBB complaint above 'invested' in 612 of these Coins!Proof Coins
Proof Coins are certainly beautiful, but they are not a good Investment. They are intended primarily for Coin Collectors who want to appreciate them as pieces of art. Proof Coin production begins with a highly-polished Coin blank and the blank is struck at least twice using a highly-polished die.
Because the Coin blank is struck multiple times, each strike uses less pressure. The result is a Coin that has deeper relief and much finer detail.
These fancy Coins are often sold in special boxes along with a certificate of authenticity. While Coin collectors may appreciate the box and the certificate, these additions do absolutely nothing to increase the Investment value of the Coin.
Unfortunately, these high-priced Coins are eligible for Gold IRA accounts so unknowledgeable investors sometimes get duped into buying them. Unscrupulous salespeople tell these uneducated investors that the proof Coins have higher demand from investors, which is untrue.
Premiums vary based on supply and demand
Like most products in a Free market economy, the premium levels on Gold and Silver fluctuate based on Supply and demand. When supply is constrained or investor demand overwhelms available supply, premium levels rise. This condition occurred in 2021 and 2022, and premiums on Silver products were absolutely crazy. Investors were paying almost 100% premium to purchase Silver American Eagle Coins which were hard-to-find at the time. They were also waiting six weeks or more to take possession of their purchases. Occasionally, premiums can be surprisingly low if supply overwhelms demand. This situation usually occurs in Gold and Silver Coins that investors aren’t very interested in.
For example, right now (August, 2024) there is an online Bullion dealer selling 40% Silver Coins and 20 Franc French Gold Coins for less than 1% over the spot price of the metals the Coins contain.
When you are purchasing Precious metals, always ask your dealer for the products with lowest premium over spot price. If you don’t ask, they probably won’t tell you about deals like the 40% Silver Coins or French Gold Francs.
Silver supply deficit
The table below shows Silver supply and demand numbers published by the Silver Institute. Rising industrial demand for Silver is causing a deficit condition in the marketplace. Silver is being supplied from above-ground stockpiles in order to satisfy demand. This deficit condition explains why premiums are higher on Silver bars and Coins in comparison to the premiums on Gold products.| 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|
| Supply (million troy oz) | 957.4 | 1,004.3 | 1,015.4 | 1,010.7 | 1,003.8 |
| Demand (million troy oz) | 926.8 | 1,099.6 | 1,278.9 | 1,195.0 | 1,219.1 |
| Deficit (million troy oz) | 30.6 | 95.3 | 263.5 | 184.3 | 215.3 |
Do fractional ounce bars and Coins ever make sense?
IRA accounts
If you are investing your hard-earned money in a Gold IRA account stick with the suggestions above. Purchase one ounce Gold Bullion bars and Coins and 10 or 100-ounce Silver Bullion bars.
Do not purchase special edition Coins, proof Coins, fractional ounce Coins, or 2-ounce Coins. Refer to the tables above and compare premiums if this concept isn’t clear.
Also keep in mind that the Precious metals in your IRA account are going to be stored with a third-party, IRS-approved Custodian until you start taking distributions from the IRA.
Unless you take distributions in the form of metal instead of cash, you will never see or touch these bars and Coins. If you aren’t going to take possession of them, what difference does it make what size they are or what they look like?
Purchases made with after tax money
If you are purchasing Precious metals with after tax money you have more options and, in some cases, you may decide that fractional ounce Coins make sense.
For example, the 20 Franc Gold Coins mentioned above contain 0.1867 ounces of Gold. Clearly that is a fractional ounce Coin but you may be able to purchase it for a premium of only 1% instead of the premium of 4% or more for the other Gold Coins listed above.
Here’s another saying to keep in mind:
“Gold is Gold.”
“Now what the heck does that mean?”, you might ask. The saying relates to the fact that all Gold Coins and bars are made of the same material – Gold. It doesn’t matter whether the Gold is a shiny, brand new American Gold Eagle Coin or a beat-up African Gold Krugerrand from the scratch-and-dent bin - at the end of the day, they are all just Gold.
Unless you want to have pretty Coins to show your family and friends, or perhaps to give as gifts, the form of the Gold doesn’t really matter. (As an aside, telling people that you are investing in Precious metals is probably not a wise strategy.)
If your objective is to protect your hard-earned money by diversifying into Precious metals, always purchase the most amount of metal you can get for the least amount of money.
In other words, always try to minimize the level of premium you are paying for your Gold and Silver purchases.
Future expectations
Your expectations for the future may influence whether a purchase of fractional ounce Coins makes sense.
For example, do you think Gold is ultimately going to $74,000 per ounce like Jim Sinclair predicted over 10 years ago? If so, walk through this thought exercise with me.
With Gold at $74,000 and a Gold to Silver ratio of 16 to 1 (the historic ratio for several hundred years), we arrive at $4625 per ounce of Silver.
I know these prices seem ridiculous, but using them in this example will help me make my point.
Imagine that you want to sell a little bit of your Precious metals Investment in that price environment.
If you take a 1-ounce Gold Coin to your local Coin shop or pawn shop it is very unlikely that you will get $74,000 in cash. Instead, they are going to give you a check for that amount, and the check can only be processed through the banking system.
The same argument applies to 10-ounce and 100-ounce Silver bars. Selling a 10-ounce bar will get you a check for $46,250 and with a 100-ounce bar, you will be walking out of the Coin shop with a check for $462,500.
If you invested in Precious metals to escape the banking system and protect your Wealth, you just got forced back into the banking system.
What if we end up in a barter economy? Hopefully that never comes to pass, but let’s continue with our example of $74,000 Gold and $4625 Silver.
Gold isn’t really practical in a barter economy because its value is too high. Instead of being useful for day-to-day living, it becomes an asset that is only useful for large purchases like a house or farmstead.
In contrast, let’s say you have some 10th-ounce Gold Coins and some junk Silver dimes.
Each of those Gold Coins is worth $7,400 and the Silver dimes are worth $330 apiece.
Wrapup
It's easy enough to avoid overpaying for the Precious metals you purchase. Simply remember this phrase:"One ounce Bullion bars and Coins."
And if you are investing in Silver, focus on 10-ounce and 100-ounce bars, if possible. With just this little bit of knowledge you will be able to avoid these serious (and common) mistakes:- Purchasing fractional or 2-ounce Coins
- Purchasing special edition or proof Coins
If you have questions about investing in Precious metals, please ask them before parting with your hard-earned money.
You can reach us via the contact form, an email, or the phone. We would rather spend a little time with you than read your complaint on the BBB website.
About Satori Traders
Hi, my name is Bryan Post and I love the shiny stuff - Silver and Gold.
I've been investing in the Precious metals and mining stocks since 2002 when I realized that Gold is the only real money on the planet.
Here on SatoriTraders.com I share everything I've learned about the metals, Financials markets, trading, Technical analysis, and the numerous games that central banks play with fiat currencies.
https://satoritraders.com/precious-metals/gold/ira/fractional
