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We get lots of questions from the public about precious metals.
Some people are curious about the basics. Others are skeptical about the case for owning gold and silver. Still others are longtime customers who have highly specialized inquiries.
Here we will answer a few of the most common, most broadly relevant questions we get…
QUESTION: Will bank runs trigger a mad rush into precious metals?
ANSWER: The collapse of Silicon Valley Bank – the second largest in history – sparked a massive surge in bullion buying. Whether that represents a temporary reaction to a major news event or the start of a larger trend remains to be seen.
Many analysts believe a wider banking crisis is about to unfold. A collapse in confidence in the financial system could well trigger a buying mania in gold and silver.
We could ultimately see a run on the bank of sorts in the highly leveraged futures markets if the physical inventories that back contracts prove to be inadequate.
Institutional traders and speculators may prefer to settle in cash, but cash is no substitute for industrial users who require actual physical metal and safe-haven investors who insist on taking delivery of their asset.
Precious metals are the only financial assets without counterparty risk.
Fears of shortfalls of physical supplies could prompt even more buying interest, potentially causing spot prices as well as premiums to spike rapidly.
QUESTION: Is now a good time to sell gold and silver coins and move into high-yielding cash vehicles?
ANSWER: By moving into fiat cash, you’d risk risk missing out on the possible next leg of a precious metals bull market.
Yes, Treasury bills, money market accounts, and the like sport higher nominal yields today than they have in many years. But that doesn’t mean they are doing savers any better as far as keeping up with inflation is concerned.
A nominal yield of 5% in a high-inflation environment isn’t necessarily more attractive than a nominal yield of 0% in a low-inflation environment.
If inflation, properly calculated, were to average 10% this year, then a 5% nominal return would translate into a 5% real loss!
Although it is widely believed that rising rates are bad for precious metals, that’s largely untrue. In fact, gold and silver markets can produce spectacular returns during periods of relatively high, and rising, nominal interest rates. That’s exactly what happened during the late 1970s.
Of course, there will be times when sitting in cash saves investors from experiencing downside volatility in equity or hard asset markets. But over the long term, holding cash is a losing proposition.
QUESTION: What are the best values in bullion products at this time?
ANSWER: We continue to recommend low-premium, privately minted rounds and bars as the most cost-effective way to accumulate physical precious metals.
Premiums remain elevated on gold and silver American Eagles, so we recommend against buying those coins in particular.
As for the choice of which metal to favor, silver represents an outstanding value at this time.
In early March, the gold:silver ratio spiked above 90:1, making gold relatively expensive versus the white metal.
During a precious metals bull market, that ratio can be expected to narrow considerably in favor silver.
Its moves both on the upside and downside tend to be amplified. If you can stomach the volatility and have the patience to hold through the duration of a bull market, then you stand to potentially realize more gains in percentage terms from silver than from gold at these levels.
QUESTION: Will I have to pay state sales taxes on my precious metals purchases?
ANSWER: There are only eight states that still engage in the controversial practice of taxing all purchases of gold and silver.
Bills in Mississippi and Kentucky are moving forward quickly to repeal those taxes. And they may well be heading to each state’s respective governor for signature soon.
Other full sales tax repeal bills are pending in Maine, Wisconsin, and Vermont – while Minnesota and Alaska are considering an expansion of their existing sales tax exemptions.
Thanks to the ongoing efforts of Money Metals, the Sound Money Defense League, and Money Metals customers who have been lobbying their representatives, we could shrink this list to six or fewer very soon.