Anybody investing in physical gold?

[DTEJD1997]

Hey all:

 

Anybody investing in physical gold?

 

I was at a jeweler I know today, and he was doing some work on some stuff that came in.

 

Evidently, people will mount gold coins in their jewelry.  He buys this stuff and melts the chains & ropes and takes the coins out.  Frequently these coins are somewhat worn and will have very small nicks in them from being mounted in jewelry.  Thus, they are not really desired by coin collectors as numismatic pieces. 

 

However, they are still legal tender, look neat, and most importantly are 90% gold.

 

I bought a $2.50 gold Indian (1911) and a $5 gold Indian (1914) for $1 and $3 over the melt value of the gold!

 

I though this was tremendous bargain and told my buddy I'll buy as much comes through his door like that.  Just give me 24 hours to get the cash.

 

Anybody else doing anything else like this?

[sethatk]

Congrats on the niche! I collect gold and silver, but the stuff that has numismatic value too. I have had a metal detecting hobby for some time now and try to get the gold and silver that way, but good finds are very rare.

[ukvalueinvestment]

I don't really understand what this means:

 

"I bought a $2.50 gold Indian (1911) and a $5 gold Indian (1914) for $1 and $3 over the melt value of the gold!"

 

But what I do know is that gold has no cash flows that can be valued, and that time used buying old bits of gold is time that I could be using to find wonderful undervalued compounding businesses (of the present or future).

[DTEJD1997]

I don't really understand what this means:

 

"I bought a $2.50 gold Indian (1911) and a $5 gold Indian (1914) for $1 and $3 over the melt value of the gold!"

 

But what I do know is that gold has no cash flows that can be valued, and that time used buying old bits of gold is time that I could be using to find wonderful undervalued compounding businesses (of the present or future).

 

Sorry, I should have my post more clear as I know a lot of members are outside the USA.

 

Gold Indians were coins minted in the USA at the beginning of the 20th century.  They were legal tender and have a composition of 90% gold and about 10% copper.  I think they are like gold sovereigns in Britain.

 

Please see:

 

http://en.wikipedia.org/wiki/Indian_Head_gold_pieces

 

The coins I purchased have face values of $2.50 and $5.

 

The 1911 $2.50 coin has approximately .12 oz of gold.

The 1914 $5 coin has approximately .24 oz of gold.

 

Based on the closing price of gold Friday PM the coins have:

 

$2.50  $157.63 of gold at $1303/oz.

$5.00  $315.25 of gold at $1303/oz.

 

I paid  $159 for the $2.50 coin and $318 for the $5 coin.  Thus, I managed to pay only a few dollars MORE than the gold (melt) value of the coins.

 

This is usually a very rare/unusual situation.  USA gold coins are typically highly valued and ALWAYS trade at a premium to the gold content.

 

For example, the lowest price $2.50 1911 gold piece on Ebay is $305.  I don't think the coin is worth that much, but I would be willing to bet a very substantial amount of money that I can sell it for MORE than $159.

 

It is a similar thing for the $5 piece, but not quite the same percentages.

 

I believe that a large amount of people wish to own gold, but don't have the money to buy full 1 oz bars/coins/ingots.  So they buy "fractional" gold that weighs less than 1 oz.  It costs money to mint/produce smaller pieces.  So the premium you have to pay for smaller pieces is higher in percentages than it is on 1 oz pieces.  For example, to buy 1 oz, you might pay $25 over the spot price for a 1 oz ingot.  To buy a 1/10 oz ingot, you will pay $10 over the spot price, which works out to a much higher percentage...

 

Thus, I think these were "value" buys.

 

I would also disagree with WEB & Charlie Munger re: gold & silver & precious metals.  I think it is very prudent to have a small percentage of your wealth (2%-5%) in coins/bullion that you have in your possession.

 

Not only is it a hedge vs. inflation...it is an insurance policy against something going haywire.

 

Of course, you have to buy it right.  I think that is the case here, but I am curious as to other member's experiences and opinions.

[DTEJD1997]

I think copper pennies are where it's at as far as investing in physical commodities go.

Yes, I used to think that too!

 

I even bought a "Ryedale" sorting machine and would get an extra $200/week in pennies from the bank when we make our deposits.

 

While a pre-1982 penny will have a bit more than $.02 in copper...there are a few problems.

 

A). Bank HATES dealing you hundreds of dollars worth of pennies every week.  You have to get it set up with the armored car deliveries.

 

B). You've got to feed them through the machine.  Easily an hour or two of your time.  Heaven help you if the machine gets jammed...pennies EVERYWHERE!  I spent many an evening picking them off the floor of one of conference rooms where I sorted them.

 

C). Now that you've "harvested" the coppers from the zincs, what do you do with all the rejects?  You've got to take them to a different bank OR feed them into sorting machine (get AMZN gift certificates for no charge...) but that is a pain in the rear.  The one thing a bank hates MORE than giving out $200 in pennies is TAKING THEM IN!

 

D). Got a forklift or pallet jack to move your coins?  If you are serious about copper, you better have one!  These things are not exactly easy to move.  Silver is OK, but can get cumbersome...GOLD is great!

 

E). There is still a ban on melting pennies, so how do you extract your value?

 

I calculated that I made about $15-$17 hour when all was said & done.  Better than a poke in the eye, but there are more productive ways to spend your time...

 

If you can deal with these issues, then you've got it made.

[sys]

i don't understand how you made money on the pennies.  i understand you sorting the high copper pennies from the low copper pennies and returning the low copper versions.  but how/where did you melt or sell the high copper pennies that you collected?

[yadayada]

isnt there a difference in purity? There might be impurity's and you would still be paying a premium? And is there collectors value in these coins?

[DTEJD1997]

isnt there a difference in purity? There might be impurity's and you would still be paying a premium? And is there collectors value in these coins?

 

The gold Indian coins are all 90% gold.  There were other metals put into them to strengthen it, as gold is a rather soft metal.  No gold coins meant for circulation were ever pure gold.  They would be up about 96% pure.  The USA coins were always 90% since colonial times.

 

As for the pennies....

 

Pennies before 1980 were almost primarily copper.  Thus, they have about $.02/penny worth of copper in them.  Unfortunately, it is almost impossible to realize value from them.  You are not legally allowed to melt them.  There has been some rumbling about changing that, but not yet...

 

You could sell them to another collector for a small premium...but you are essentially paying $.01 for $.02+ worth of copper.  So you have a free embedded option on copper.

 

Kyle "Nickels" Bass did the same thing with Nickels.  A nickel has $.06/nickel worth of nickel in them!

 

I think pennies are the better bet.  If copper were to go to $6/lbs.  These pennies would be worth about $.0425/cent.  If hyperinflation ever got going you could be looking at a penny containing a dimes worth of copper. 

 

There is also another way to "mine" value from the pennies...I have extracted a BOX of "wheat" and Indian pennies.  Wheat pennies were produced up till 1959 and are generally worth $.05 to $10 for the more common varieties.  I've found ones worth $5 to $10 to collectors.  Obviously there are not many of the high value pennies, but I probably got close to $100 worth of wheats.

 

Indian Head pennies are rarer still, and are generally worth $1+.  I only got a few of these.

 

The only thing I had invested was the money for the pennies and my time.  The pennies will NEVER be worth less than $.01/cent.

 

I suppose copper penny mining would be well worth your time IF:

 

A). You had a banker who would have no problem PROVIDING $1,000+ worth of pennies a week.

B). You had a banker who would have no problem RECEIVING $800 worth of pennies a week.

C). You had the time & temperment to sort them

D). You had the physical infrastructure to store & move them

E). You don't mind having capital tied up in copper pennies

 

If you can overcome these problems, it would be worth your time.

 

 

[frommi]

I don`t think gold or metals are a good idea at the current prices.

 

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