From: keithl@klic.rain.com (Keith Lofstrom)
Subject: Re: Buying Au
Organization: Keith Lofstrom Integrated Circuits
Date: Fri, 1 Jan 1993 02:38:35 GMT

In article <1992Dec31.194155.16921@samba.oit.unc.edu> Harry.Johnson@launchpad.unc.edu (Harry Johnson) writes:
>
>I thought (possibly mistakenly) that there is some significant charge
>associated with having the gold in coined form; for example, assume 1 unit
>of gold is worth $100.  If I bought 1 unit bullion, I would expect to pay
>$100, while a coin containing the same amount of gold would cost
>$100+<something>.  Is <something> in this case too small to worry about?

Bullion gold coins, such as the Krugerrand, Maple Leaf, Panda, etc.  have
a "premium" over melt value.  When you buy a coin, you pay the premium,
when you sell it, you get a premium back.  The Austrian 100 Corona has a
premium around 3%, as does the Kruggerand and the US 1 Oz Medallion.  The
Canadian Maple Leaf currently has a premium around 5%, and the China Panda
around 7%.  British Sovereigns have a premium around 8%, but have
some historical/collectable value mixed in.

Those are prices for 20 coins, BTW - the premium goes up a little if you buy
smaller quantities.  Note that the premium on an Englehard 1 Oz. Ingot is
6% in the same quantities - you can pay a higher price for non-coin gold,
and it will never have numismatic value.

A coin's weight and density are easily verified; not so for ingots.
Milled edges make it hard to shave any off unnoticably.  The raised pattern
is difficult to fake and shows shaving as well.  A one ounce coin can be
verified with very primitive technology, and will be much more easily
passed (if things go to hell) than an ingot.  Think of the coining
process as a very clever form of self-verification;  there may be an
equivalent procedure in software verification that will make someone
rich someday.

If you buy Coronas, you will probably get the same premium for them in 20
years.  The same is probably true for Sovereigns.  These coins aren't usually
as new and pretty and shiny as the ones currently being minted, and they 
aren't heavily touted and marketed, so their premiums are lower.  But 
someday the Chinese and Canadians and so forth won't be touting their coins
either, so they will probably drop to 3% above melt value, too.  Sovereigns
are still in circulation in some remote parts of the world.

All the coin prices ride the current price of gold like things floating on
a wave.  It is rare for a coin's premium to vary more than a percent or so
in the short term, even if gold is varying by more.  The coin prices are
often listed in the financial pages of the daily paper.

Krugerrands, I believe, have some extra privacy intrusions added to them by
the politically correct crowd.  Coronas are scarce, and dealers don't make
as much money on them, but you might call around to coin stores until you
find some.  The 1 Oz. Medallions (NOT the EAGLE, at 5%) are relatively new,
yet have a low premium of 3% - if you aren't too anti-government, perhaps
you can tolerate these.  Consider them an example of what happens when the
government oversells something.

Many of these coins have a "face value" - the Maple Leaf says "$50" on it,
when the current market price is more like $350.  But hey, they are the
government, they don't HAVE to tell the truth.  I can see them calling them
all back in at face value, someday.  I can also see many people saying
sheepishly "Coins?  What coins?  I used to have some, but I lost them ..."
If you think having the gold in some other form will protect you from
expropriation, I have a dandy bridge in NYC for sale, too.

And lastly, please don't ask others where - or whether - they buy gold;
like you, they are interested in privacy.  If a coin store asks for ID
on small purchases, find a different coin store.  I believe there is a
reporting requirement for large purchases; as Jiminy Cricket says,
"Let your conscience be your guide".


-- 
Keith Lofstrom         keithl@klic.rain.com       Voice (503)-520-1993
KLIC --- Keith Lofstrom Integrated Circuits --- "Your Ideas in Silicon"
Design Contracting in Bipolar and CMOS - Analog, Digital, and Power ICs
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