San Antonio Express-News (Sunday)
Even inflation, wartime can’t put a shine on metals
The financial infotainment industrial complex is gearing up to reach into your wallet. It wants you to purchase precious metals as if they are investments: gold, silver, platinum or even more exotics. Resist.
The pitchmen’s methods are clever in the sense that they play off current events and our instinctual fears. They seek to sell us something with the appearance of certainty. Solidity. Safety. Our brains betray us at times like this by being open to the financial infotainment sales pitch.
War. The destruction of a country. Refugees leaving behind home and property. Banks shuttering. Sanctions. Trade disruptions. All of that is really happening in Europe. We think, could it happen here?
Persistent inflation. The bewildering irrationality of U.S. markets. Rising interest rates and the promise of more rate increases from the Federal Reserve. Volatility in the stock market. All of that is really happening in the United States. We think, how can I protect myself ?
Then there are the particulars of global commodity markets now making headlines. Oil is up 50 percent from last year’s average prices. War-torn Ukraine provides 9 percent of global wheat exports. The market for industrial nickel bizarrely froze earlier this month after Chinese producers got caught in a liquidity crunch, sending prices skyward and prompting a market shutdown by regulators. Ten percent of platinum comes from
Russia, which surely will be impacted by trade sanctions.
Does all this news add up to a case for owning commodities like precious metals in your investment portfolio?
For the love of St. Javelin, you do not need to buy precious metals as an investment during war, amid persistent inflation, or really any time at all.
Just ask Tom
Just ask Tom Bower in Seguin. He recently described to me his (mis)adventures in trying to offload certain collectible coins he had inherited.
After his parents passed away, Bower needed to sell two sets of Australian coins. Each set consisted of two 1-kilo silver coins, one 2-ounce gold coin and one 1-ounce platinum coin. He also needed to sell five Austrian 1ounce gold coins. His father had purchased the Australian sets in 1994 and the five Austrian gold coins in 1997. Metals prices are relatively high right now. Gold is at a 25-year high. Silver is at a nine-year high.
So he found a coin dealer willing to take them off his hands. He managed to clear $23,640 in proceeds from the sale. That’s the good news.
The bad news is everything else about this “investment.”
One main problem is the vast difference between the asking price for coins (what you will pay to acquire them) and the bidding price for coins (what a dealer will pay you when it is time to sell.) Bower calculates his father paid a 28 percent premium to bullion prices to purchase the Australian coins. Yet Bower sold his coins in 2022 essentially at current metal prices. This vast difference between buying and selling is typical of the industry.
So how do you overcome this problem? You exchange your time in order to try to save money. You can try to do your own research, which is what Bower set out to do. Between research, online searches and contacting multiple dealers, Bower estimates he spent 40 hours — a full workweek! — attempting to offload his coins.
He contacted five different dealers.
There was a dealer who traveled from Florida to what Bower described as a “dingy hotel lobby”
in San Antonio and quoted him prices Bower felt were suspect and low. He contacted Monex in California, the firm that sold his father the coins. They told him they were out of dealing in the Australian sets, even though 600,000 had been created.
A Houston firm didn’t want to deal with the platinum coins. Same with the rare coin dealer he contacted in Bastrop. He praised U.S. Coins and Jewelry in Houston for finally taking the coins off his hands.
Let’s assume he saved $300 in the bid-ask spread. He’s making minimum wage on those 40 hours! This is not a good use of an heir’s time. Precious metal coin dealers, understanding this math, are not incentivized to sharpen their prices.
Bower told me he doesn’t want to complain about the trouble he went to liquidating this inheritance, but for other people who own coins, he told me: “I sympathize with the poor bastards that don’t know what the heck to do with them.”
But wait, there’s more
But really, that’s not the worst of it.
Keep in mind, gold is at an absolute peak right now and silver’s at a nine-year high.
In other words, Bower hit an ideal time to sell. His father paid $1,983 per Australian set in 1994. And his father paid an estimated $350 per gold coin in 1997. Bower sold each set for $6,820 and each gold coin for $2,000. That sounds like an amazing return right? It’s not.
Even taking advantage of ideal selling conditions, Bower still realized only an annual 4.5 percent return on investment on the Australian coins since 1994. And he realized a 7.25 percent annual return on the gold coins since 1997.
Compare that to the 10.2 percent his father could have earned between 1994 and 2022 by investing in a simple S&P 500 index fund. And this is during supposed “bad times” for the stock market right now and supposed “great times” for the metals market.
In dollar terms, Bower would have cleared $80,020 instead of $23,640. And he could have done it by pressing a button and paying somewhere between nothing and $25 in commissions rather than spending 40 hours trying not to get ripped off. His inheritance ended up at less than 30 percent what it could have been.
With war and inflation, this is an ideal time to sell your precious metals, not buy them. That is, after all, what the dealers advertising via the financial infotainment industrial complex are doing. They are attempting to sell their precious metals. To you. Again: resist.