I get call after call, wondering why the old faithful, one ounce Krugerrand is so much cheaper than the beautiful American Gold Eagle. I have thought of an ideal illustration. The following will explain it all.
Let’s assume you go into an auto showroom, and want a new Ford. The sticker price, is the price set by the factory that made the car. The dealer may wrangle a bit, and deal with you, because he has some room to do so, but the basic price is set by the manufacturer. The minute you buy it and drive it out on the street, it becomes a used car. Used car prices have nothing whatsoever to do with the price set by the manufacturer. Used car prices are set by the “market.” That term “market” is a wonderful word. It means that prices of anything, are governed by supply and demand. If widgets are plentiful, and no one really wants them, regardless of what they cost to manufacture, the price may be lower than their cost to make.
Right now, I have a source for year 2000 colored silver eagles in fancy presentation boxes that were advertised on TV for $39.95. I can get them delivered to someone for $9 each, in lots of a hundred, including postage, and that’s a lot less than they cost in the year 2000! It’s the market at work. Stupid someone stocked up on these, and they never sold at the original wholesale price of more than twice that, so he’s taking a loss to get rid of them. They’re a steal, and I don’t make a dime on them. It’s just to help out a friend. I’m getting a hundred for myself. It’s the market at work, which went against him.
Getting back to Krugerrands. When I first began doing this, way back in 1977, Krugs were all we had to sell. They’ve been around for many decades, and the market has taken over. Krugs are currently about $5 over spot, compared to American Gold Eagles at $15 over. Both have one ounce of gold, and both have the same spread. The US mint produces these at its West Point New York plant and sets the price. Don’t like it? Tough, buy something else, because the price is not set by the market, but by the producer of the coins. They’re beautiful, and I am not knocking them, but this merely explains the higher price. The Chinese Panda is even higher priced than the Gold Eagle, thanks to the price being set by its manufacturer. Besides, why patronize China? Doesn’t China Mart and myriad other retail outlets send enough dollars to China, without even more going there buying their over-priced Pandas?
The same simile is true with silver. Silver rounds, every bit as pretty as American Silver Eagles, are 95 cents cheaper than Silver Eagles, and have the same amount of silver in them. The rounds are made by a non-union mint, run by a private entrepreneur, and at 50 cents over spot, vs $1.45 over spot, they are a much better buy.
Hundred ounce .999 pure silver bars, brand new, and made in Salt Lake City by Johnson-Mathey, at 47 cents over spot, are also an example of private enterprise having it all over government.
No government understands profit and loss, correct pricing, competition, or any kind of economy. Maybe the mint manager has said to himself, “Well, the government loses on everything, has huge deficits, can’t balance its checkbooks, and everything goes wrong in DC, I’ll show them a profit on my output. I’ll be a hero bureaucrat. I have the monopoly on US gold and silver coins, and I’ll make a profit, even if every other bureaucracy doesn’t.” I’m sure he does. The US Gold Eagles are unquestionably beautiful. More so than the lowly Krugerrand, but they both have one ounce of gold and silver in them. If an extra $10 doesn’t bother you, go for it. If an extra 20% doesn’t bother you for an ounce of silver, go for the American Silver Eagle.
One other item that may be of interest: The Canadian Maple Leaf, like the Gold Eagle and Krugerrand, also has one ounce of gold in it, and is made by the Canadian equivalent of the US Mint. The big difference is that the Maple Leaf has no hardener in it, and damages and scratches very easily. The Krug and Eagle have .09 of an ounce of hardener in them, which makes them difficult to damage. They weigh 1.09 ounces, and have one ounce of pure gold in them. If a Maple Leaf is sold, the buyer always specifies that the coin not be damaged, or $10 comes off the price. This is why I don’t like Maple Leafs particularly. They’re too easily damaged.
The “market” has had Krugs as low as $2 over spot, compared to their current $5, and for the longest time, they were $4 over spot. Demand is up, so the market goes into operation. For true economy, or a large gold investment, the “kilo” bar, (32.15 ounces, 1,000 grams) is the best price at $2 over spot. Keep away from COMEX delivered hundred ounce gold bars, as they are not the required .9999 pure required for trade, but .9275, and always have to be melted down at a cost of $50. Why are hundred ounce bars from futures trade not .9999? Probably, once again, because they are too soft. Thousand ounce silver bars from futures trade, are also a no-no. They are never a thousand ounces anyway, but are either “light” thousands, or “heavy” thousands, and no one wants them. They are difficult to ship, and always have to be assayed at a $50 cost. They are too heavy, and difficult to sell. Stay with hundred ounce, .999 pure bars, and skip the 1,000 ounce ones.
By all means though, if you decide to take delivery of the futures contract silver and gold bars, do it! Get the physical by all means, even though they are in an un-deliverable form. Get the physical, and have it assayed or melted and converted into .9999 so you can get one ounce bullion coins. These are the way to own gold and silver.
About “bags” of $1,000 face value US silver coins: These are the cheapest way to own silver, but also are the most difficult to handle. “Bags” are heavy! If we ever do get into a bartering position, how much silver is in a US silver dime or quarter? Contents is not listed on the coins. I can hear someone say, “How do I know it is silver? How much silver is in it?” Make your own decision, but it seems to me that a coin that has its contents inscribed on it would be a much easier barter than a US silver coin. Hopefully, we will never arrive at that point, because if we do, it will not be pleasant to be alive. Gold and silver investments are to protect one from the obvious and increasing inflating of currencies by governments. Barter will be a last resort, and make life virtually impossible. Barter is one step away from Armageddon, and I really cannot imagine such a thing.
Just protect yourself by getting out of dollars.