Americans pile into silver, gold coins

Sales of silver and gold coins have surged this year. With silver and gold prices near two-year lows, is it time to buy? 

As the banking crisis struck in 2007-08, investor Will Mitchell sprang into action: After boning up on precious metals, he started buying fairly sizable amounts of silver bullion bars. Eventually, he switched to silver and gold bullion coins, which he considers easier to trade than bars.

The happy result: Even though precious metals prices have been falling lately, "my holdings of them are up [in value] about 100 percent since early 2008," says Mr. Mitchell, the owner of Startupbros.com in Tampa, Fla., a resource for entrepreneurs seeking to create an online business. "You can't ask for more than that."

Interest in these glittery investments – which soared five years ago – has been especially hot this year. In January, the US Mint sold 7.5 million American Eagle silver bullion coins to dealers – a monthly high, and not far from the 9.9 million silver American Eagles it sold in all of 2007. Demand was so strong that the Mint temporarily ran out of supplies and had to suspend sales for roughly 10 days. In addition, sales of American Eagle gold bullion coins hit highs not seen since June 2010.

Although sales of the one-ounce coins fell to more normal levels in February and March, the US Mint is still on track to sell a record number of silver American Eagles in 2013. Sales of gold American Eagles are also back to the high levels of 2011.

"We've been seeing a massive increase in interest in precious metals," says Terry Hanlon, president of Dillon Gage Metals, in Dallas, whose firm is one of the authorized purchasers of the federal government's bullion. (Except for a few special coins designed for collectors, the US Mint only sells to dealers, not individuals.)

Gold and silver, he says, are "an offset to other investments and are an insurance policy against falling currency values."

Investors worried about inflation can diversify into precious metals several ways. They can buy stocks of companies that mine gold, silver, or platinum. They can purchase precious metals mutual funds or exchange-traded funds. But to some investors, problems that surfaced during the recent recession, such as the collapse of the mortgage-backed securities market, prompted them to seek safety in tangible, versus "paper," assets. Experts say that's been one factor boosting interest in owning physical gold and silver bullion.

Gold and silver bullion come in two main forms: bars and minted coins. "It's better to have the coins," says Edmund Moy, former director of the Mint and now chief strategist at Morgan Gold, a precious metals dealer in Irvine, Calif., specializing in services for Individual Retirement Accounts. For one thing, "the US Mint guarantees the purity of the coins' content," he points out. Because gold and silver bars "are made by outside companies, the purity of their metal content possibly could be subject to fraud."

In 2011, Utah passed a law allowing gold and silver bullion coins issued by the US Mint to be used as legal tender. People place their gold and silver bullion coins in the Utah Gold & Silver Depository and receive a card that acts similar to a debit card which they can use to make purchases of up to 80 percent of the coins' current value. A dozen other states have been considering similar legislation.

"If people's bank accounts are attacked, or the dollar's value comes into question ... you can use gold and silver coins," Mr. Moy says.

The downside of owning coins is that dealers charge a premium on sales and purchases. For instance, expect to pay a 4 to 6 percent premium for a gold bullion coin. When you sell the coins, dealers in the current market will buy them for the spot (current market) price of the metal plus a small premium.

Investing in any precious metal involves risk, as gold owners have learned with recent price declines. (Mitchell, the investor, is among those who believe these declines are temporary.) And bullion owners either have to pay a small fee to have their gold stored in a depository or put it in a safe-deposit box or some other secure place.

One other caveat: "When buying bullion coins, make sure the price you pay is based on the price of bullion," warns Christopher Blasi, president of Neptune Global Holdings, a precious metals research and trading firm in Wilmington, Del. If the dealer's markup is well over the value of the metal content, he says, then you're paying for the perceived rareness of the coin, not the gold or silver content. "Some people may get misled and get sold rare coins when they actually wanted bullion."