What is it

1
What is it?

• Most common precious metal investments
• Gold
• Silver
• Platinum
• They are valued primarily because of their
  scarcity.
• To a lesser extent, because of their utility for
  scientific and industrial purposes

2
When is the use of this tool indicated?

• When the investor anticipates instability in
  traditional capital markets
• Historically, when stock and bond markets have
  fallen, the price of gold and other precious
  metals has tended to increase.
• When the worldwide economic or political outlook
  is one of uncertainty and fear
• Precious metals tend to be viewed as a more
  stable and secure investment.
• When the investor anticipates that the purchasing
  power of the dollar will be eroded by high rates
  of inflation

3
When is the use of this tool indicated?

• When the value of the investors dollars is
  declining because of international currency
  fluctuations
• When the investor desires to diversify a
  portfolio that already contains significant
  amounts of stocks, bonds, and real estate.

4
Advantages

• Gold and the other precious metals offer a
  potentially high return.
• Precious metals provide a degree of psychological
  security matched by few other investments
• They are tangible, or physically possessable
  assets
• They can be purchased in relatively small
  quantities and in a variety of forms.

5
Advantages

• There is an underlying demand for them as a
  commodity in addition to their speculative or
  investment value.
• Due to their utility for scientific and
  industrial purposes
• Precious metals held over a very long period have
  proven to be a relatively safe and stable
  investment.

6
Disadvantages

• Precious metals are a highly speculative form of
  investment
• The price of gold is determined more by
  international, political, and psychological
  factors than by normal economic factors of supply
  and demand.
• Historically, the prices of precious metals have
  been highly volatile.
• The investor is subject to a high risk of
  significant loss of capital.
• Panic of buying gold could quickly reverse itself.

7
Disadvantages

• They have frequently been controlled by various
  governments
• Example The United States government hoarded
  gold in its vaults for many years and forbade
  U.S. citizens from owning and selling gold
  privately for investment or speculation until
  1975.
• Direct investments in precious metals typically
  yield no current income.
• Gold is relatively expensive when alternative
  investments are yielding high rates of return in
  the form of dividends or interest.

8
Disadvantages

• Precious metal investments involve storage costs.
• Directly or indirectly
• May amount to more than a dollar per ounce on an
  annual basis
• There may also be shipping and insurance charges
• Sales tax may be payable.
• There may be assay costs involved in the
  purchase.

9
Tax Implications

• Taxable gain is realized and must be recognized
  to the extent an investor receives more upon
  disposition than he paid.
• To the extent that the selling price exceeds the
  investors tax basis, he must realize a gain.
• No gain is reportable until the investment is
  disposed of in a taxable transaction.
• Advantageous to high tax bracket investors

10
Tax Implications

• A loss from a precious metals transaction is
  allowable to the extent an investor paid more for
  the asset than he received from the sale.
• To the extent that the investors basis exceeds
  his selling price, he has a deductible loss.
• Gain or loss on a transaction is a capital gain
  or capital loss assuming the metal is held as an
  investment.
• The length of time the metal was held prior to
  disposition will determine whether the capital
  gain or loss will be long-term or short-term.

11
Tax Implications

• No gain or loss must be reported if one precious
  metal is exchanged solely for another.
• The metal received must be of the same nature and
  the same character as the metal given up in the
  exchange.
• An exchange of any two different types of metals
  will trigger the recognition of gain or loss.
• Example Gain or loss would be triggered by the
  exchange of a silver bullion-type coin for a gold
  bullion-type coin.

12
Tax Implications

• The exchange of a precious metal for property
  other than a similar type of precious metal will
  result in a reportable gain or loss.
• Coins acquired in a taxable transaction must be
  valued for tax purposes at their fair market
  value rather than at their face value.
• Example A Fifty Peso Mexican coin with a gold
  content of 1.2057 ounces may be worth a lot more
  than fifty pesos.

13
Alternatives

• From the standpoint of form of an investment
• Speculative real estate
• Collectibles
• Diamonds and other gemstones
• Art
• From a risk-return standpoint
• Speculative stocks
• Junk bonds
• Securities options
• Commodity futures
• Limited partnerships
• Other capital gain-oriented investments

14
Where and How do I get it?

• Gold or silver can be purchased as
• Coins
• Bars
• Certificates
• Certify that a specific warehouse is holding a
  given amount of that metal for the investor

15
Where and How do I get it?

• Investors who wish to buy small quantities of
  gold should consider coins.
• They are easy to purchase, store, and resell.
• The most popular bullion-type coins have a fine
  gold content of exactly one troy ounce.
• They generally have no numismatic value.
• The value of an investors holdings can be
  figured by multiplying the price of gold for
  immediate delivery by the number of ounces held.
• The spot or cash price
• Many investors prefer to purchase gold in the
  form of ingots
• Small wafers of gold
• Sold in standard weights that range from one gram
  to 400 troy ounces

16
Where and How do I get it?

• Gold should be purchased only from a recognized
  dealer.
• The ingot should be stamped with the name of a
  recognized refiner.
• It should be accompanied by an assay certificate
• Assures the purchaser of its purity and
  authenticity
• Saves the cost of another assay when sold
• Dealers that specialize in precious metals
• International Precious Metals (www.preciousmetals.
  com)
• A number of banks act as an agent for their
  customers who choose to purchase precious metals.

17
What fees or other costs are involved?

• Gold, silver, and platinum are purchased at the
  market value plus a premium.
• Generally ranges from 2 to 3
• Covers the dealers profit and the cost of
  fabricating the metal
• Premiums decline with the quantity of the metal
  purchased.
• May be less than 2 for a 100-ounce bar
• An investor who desires to take physical
  possession of a precious metal must pay insurance
  and shipping costs.
• Sales taxes may apply as well.
• A representative shipping and insurance charge
  for six ounces of gold is 18.

18
What fees or other costs are involved?

• Certificate Programs
• Offered by a number of large dealers, banks, and
  brokerage firms
• Appeals to investors who prefer not to accept the
  risk and expense involved in taking physical
  possession of a precious metal
• The investor receives a certificate stating that
  he owns a specified number of troy ounces in an
  independent bank depository.
• The investor can sell his holding at any time or
  take delivery of the bullion.
• The investor saves in delivery costs, as well as
  sales taxes and fabrication charges.
• Generally, the minimum investment required is
  1,000.
• A typical commission is 3 on orders up to
  1,000 2 to 10,000, and 2 to 50,000.
• Annual store charges are 0.5 of the value of the
  investors holdings
• A 1 commission is paid upon the sale of the
  metal.

19
What fees or other costs are involved?

• Certificate Programs
• Offered by a number of large dealers, banks, and
  brokerage firms
• Appeals to investors who prefer not to accept the
  risk and expense involved in taking physical
  possession of a precious metal
• The investor receives a certificate stating that
  he owns a specified number of troy ounces in an
  independent bank depository.
• The investor can sell his holding at any time or
  take delivery of the bullion.
• The investor saves in delivery costs, sales taxes
  and fabrication charges.
• Generally, the minimum investment required is
  1,000.
• A typical commission is 3 on orders up to
  1,000 2 to 10,000, and 2 to 50,000.
• Annual storage charges are 0.5 of the value of
  the investors holdings
• A 1 commission is paid upon the sale of the
  metal.

20
How do I select the best of its type?

• In making a selection among various types of
  precious metals, an investor should consider the
  following factors
• The price of one metal compared with another.
• The position of the price relative to recent
  highs and lows of the metal.
• The potential downside risk
• One metal may be used for many more scientific
  and industrial purposes than another.
• May have a higher floor than the other
• Other value determinants such as
• Sensitivity to political changes
• Supply and demand influences

21
How do I select the best of its type?

• Compare the premium charge imposed by a number of
  dealers.
• Deal only with reputable dealers.
• If delivery is requested, they should be willing
  to ship within 48 hours of payment.
• They should be willing to exchange gold for cash.

22
How do I select the best of its type?

• When storing gold, the dealer history should be
  examined.
• The firm should be in business for a minimum of
  five years
• They should be periodically audited by an
  independent certified public accountant.
• Gold should
• Be stored in a segregated account.
• Not be subjected to the claims of the dealers or
  the custodians creditors
• If an investors bullion is mingled with that of
  other registered holders, his holdings should be
  clearly identified and available for delivery
  after the payment of any appropriate charges.

23
Where can I find out more about it?

• Newspapers that carry the daily price fixings
  for gold and other precious metals as well as
  stories and reports on market activity
• Wall Street Journal
• New York Times
• Barrons
• American Metal Market
• Financial Times
• Offers an international perspective
• Mineral Commodities Summaries
• Contains statistics on precious metals production
  and use
• Major brokerage firms and commodity trading houses