The drop in gold and silver prices the last few days has been heralded by Fox, CNN, Blaze, WSJ, and USA Today as both a major correction as well as a buying opportunities for people who are bullish on precious metals. . . which leads me to ask you,
Why are the world’s central banks and billionaires like Donald Trump, John Paulson, and Kyle Bass not only buying gold but telling others to as well?
Well, in an interview with Newsmax, Trump said, “I think gold will go up as long as people don’t have confidence in our president and our country. And they don’t have confidence in our president.”
John Reade from Paulson’s office said Monday that, “Federal governments have been printing money at an unprecedented rate creating demand for gold as an alternative currency for individual and institutional savers and central banks alike. While gold can be volatile in the short term and is going through one of its periodic adjustments, we believe the long-term trend of increasing demand for gold in lieu of paper is intact.”
And, Kyle Bass, said, “We (Hayman Capital) have always had a position in gold. When you think about the largest central banks in the world, they have all moved to unlimited printing ideology. Monetary policy happens to be the only game in town. I am perplexed as to why gold is as low as it is. I don’t have a great answer for you other then you should maintain a position.”
With that in mind, how do you safely and privately buy gold or silver? How do you avoid overpaying? How will “bail outs” and “bail ins” impact gold prices? What about platinum & palladium? How do you get gold into your retirement account? Which coins get you the most gold at the lowest cost per ounce? We’ll answer these questions and more today…
There are a lot of good precious metals dealers around the country, but I want to recommend and even endorse one that I first started checking into 2 years ago and that I’ve been recommending to close friends and consulting clients for the last year—Tom Cloud from Cloud Hard Assets.
Why Tom? Two big reasons, and then I’m going to share an interview that I recently did with Tom that’s going to cover :
- Many precious metals dealers charge 40-70% MORE than Tom charges for the exact same metal. They have to do this to pay for commissions and marketing. Tom runs a VERY lean ship, and passes the savings on to his customers. (and he doesn’t charge extra for necessities, like shipping and insurance)
- Privacy. Tom handles a large volume of precious metals—mostly to referred clients who appreciate discretion. He’s been in business for 35 years, so he is to the point where he gets enough business from past customers and referrals. When you buy locally, one or more people KNOW that you have precious metals. When you buy from a big name company, there’s no telling what marketing lists you’ll end up on. When you buy from Tom, things stay quiet and quiet is good.
David: Tom, there’s a LOT of noise in the marketplace concerning precious metals and I’d like to cut through some of the confusion for my readers today. Let’s start by talking about the definition of premium as used by gold and silver dealers.
(I did my part in black and Tom’s in green in an attempt to clarify who is talking. If it makes it harder to read, please comment at the end and if a few people have a problem with it, I’ll change it to all-black.)
Tom Cloud: Well what happens, David, is that if someone like the Royal Canadian Mint buys gold or silver at spot price, they turn it into a product and they’ve got the cost of fabrication and purification and they turn it into either a maple leaf or a 1-ounce gold bar or a 10-ounce bar. So, the premium is what a dealer pays a refinery for the coin or bar over the spot price of gold.
David: Okay. So it’s basically the cost of taking a gold and dirt mixture and turning it into a sellable product.
Tom Cloud: Right. It is exactly those costs that they factor in. In addition to purification and processing, they’ve got to pay for packaging, delivery it to me and account for their profit.
David: Okay. From that point how are bullion coins priced to the end consumer?
Tom Cloud: That coin a dealer, a dealer gets the coins and he puts his markup on it and what you find ordinarily in the market place is people that are marking up substantial markups of, say, 5 percent or more above what they pay for it.
They like to call it just the word premium and act like that’s what they’re having to pay for it. And in reality, the investor should know the premium and the commission that they’re paying.
An informed investor needs to know the cost of getting in and the cost of getting out and he also needs to know if there are any shipping costs or if shipping costs included. And this is very important that they know this information before they’re too far down the road of doing business with a coin dealer.
David: Okay. For people familiar with stocks and options, this is familiar to the bid/ask spread—correct?
Tom Cloud: Right. I’ll give you an example. This morning, I had a lady call and they just found out about us and she told me what another company was charging her.
So I told her just what I just told you, I said call back and ask ’em what the premium, ask them what their commission is, ask if they pay shipping and insurance and then ask them how much they charge on the back end if she wants to sell them back in the future.
Well we just got through with all that, they wanted to charge her 11 percent total on that and I was talking to her about 4¼ percent for a Canadian maple leaf that INCLUDED my commission, the premium, the shipping, and the insurance. (Tom called me this morning, and premiums have gone up between 10 cents and $1 per coin this week.)
David: That’s why I recommend you, Tom. I’ve run into dealers charging as much as 50 to 70 percent premiums & commissions.
Tom Cloud: Yeah—telemarketers. We see that a lot with that telemarketer firms where you get up over 40 percent.
David: Could you explain why a maple leaf is a different price than, an eagle which is different than a panda which is different than a Krugerand, and –
Tom Cloud: Sure! As an example, eagles are 5.8 percent over spot, the maple leaf 4¼ percent over and that in, once again includes commission, premium, shipping, insurance and when they well the coin we don’t charge them to sell the coins back to us. So their only fee is all up front.
David: Okay. This is great information. So the reason that those coins cost different amounts, even though they’re the same amount of gold is because the different mints are charging different premiums?
Tom Cloud: Every mint charges a different premium–every single one of them.
David: Is there one that’s consistently least expensive and one that’s consistently most expensive, or do they fluctuate around, all over the place.
Tom Cloud: The US always charges the highest premiums. The US and China are always the highest two and the lowest usually is Canada. The Royal Canadian Mint is the best run refinery in the world in my opinion.
David: That’s good to know for people who want to get the most gold or silver for their dollar. I hear a lot about platinum and palladium. What do you think about the two of them as investments.
Tom Cloud: Well what you have to look at is whether or not all this quantitative easing will turn into inflation. If your answer to that is “yes” platinum and palladium were the number one and number two metals in performance last year. Could easily do it again because of the expanding automobile business to the middle class in India and China.
Put another way, the number of cars that can be sold worldwide the next decade will drive palladium and platinum prices. If you think the world’s going to deflate regardless of how much money the central banks print, then platinum and palladium aren’t for you. The reason is because we classify platinum and palladium as industrial metals with a little bit of investment interest.
Silver is high but it’s an investment, it is an industrial metal and gold is mostly an investment metal because it is money and it will be official money again someday. So that’s how we’re classifying them.
David: Okay. Do you have many people who do the gold and platinum swap where they switch back and forth from one to the other when their prices cross?
Tom Cloud: Many investors did until Obama came into office and when the passed the law that said that a like exchange now has to be some kind of silver for another kind of silver or is considered a purchase and a sale so I slowed down a lot ’cause a lot of people don’t wanna pay taxes on every trade. So that has really slowed things down.
David: We sort of covered this when we talked about high premiums from telemarketers, but, can you explain why rare coins have performed so, so poorly compared to, bullion coins in the last few years?
Tom Cloud: Well mainly it’s because the telemarketers try to tell the public their gold bullion is going to be confiscated. They don’t wanna make small markups, so they tell people things that aren’t true. We see people get real disgruntled when they meet someone like me or other reputable dealers that are dealing in bullion coins and find out they’re 30 percent in the hole even though gold’s gone up 10 percent since the time they bought it.
And Number 2, the collector base of rare coins has disappeared with all the economic problems since 2008. People just aren’t collecting rare coins anymore like they used to and the ones that still are, are paying a lot lower prices. When you look at the performance of gold bullion in the last 12 years been up nearly seven times and rare coins have not been even close.
You can tell an investor that unless he’s a collector needs to be buying bullion coins and not collector coins.
David: I noticed that back when things were, going really good in the, the mid 2000s. I bought some collectible coins and had to sell them when the economy went south. When I did, I completely lost my shirt on them because the premiums to buy them were high that the prices would have had to go up about 50 percent in value for me to break even.
Tom Cloud: That’s right, that’s the way they are. The telemarketers all do that and some of ’em are in the 20 and 30, and 40 and 50 percent markups.
David: One thing that a lot of my readers are interested in doing is converting their IRAs into gold. Can you explain how you can put precious metals into an IRA.
Tom Cloud: You’ve got to have a self-directed precious metals IRA. There are several custodians out there the three that we do business with–Sterling Trust, Goldstar Trust and InTrust. For instance, if you have an account with Sterling, the investor could then purchase gold and silver. It has to be stored in Delaware and, and the client does have to pay a custodian fee each year and a storage fee and insurance fee for the metals. Now up to $100,000.00 is about $225.00 a year for the services. So if someone’s moving $20,000.00 it’s still a great deal it’s still just that 1 percent a year for fees, um, on products that have averaged over 17 percent a year for 12 years. To be transparent if you only have $5,000.00 then the fees are 4 percent each year.
David: That’s great to know, and people can contact you directly for more information on those IRA custodians. Now I know that past performance isn’t an indication of future results, but you said the, the average return on gold’s been 17 percent for the last 12 years.
Tom Cloud: 17.8 percent per year for 12 years, and silver’s been right there with it. Yeah gold’s had 12 out of 12 years it went up, silver’s gone up 10 out of 12 years and, and it also averaged in the 17s year over year year.
David: Okay. So, one of the theories is that since silver occurs at a 17 percent higher density in the earth’s crust that there should be a 17 to 1 ratio between gold and silver. With industrial uses of silver is that still a base mark or has that ratio gone out the window?
Tom Cloud: Having done this for the last 35 years, I look at the history and that comes from, two things. It comes from 1932 when the silver dollar was a dollar and FDR confiscated gold for $32.00 so he had a 32 to 1 ratio. Then the other one you hear is 16 to 1 and that’s when the Hunt Brothers tried to corner the market in 1980, silver got 50 and gold 800 and you had a 16 to 1 ratio. But if you look especially during this 12 year bull market, the ratio has been between 35 and 60 to 1 with the average being 50 to 1. Gold has been 50 times more valuable than silver, most of the last 12 years. So I for one don’t think it’s going back to 16 to 1 but I do think as the world inflates it will go back to 35 to 1. So I do think as long as we don’t have a world recession silver is going to outperform gold in the next three years.
David: Especially since it’s so much more affordable per ounce than gold. I know you don’t have a crystal ball but what do you expect for the rest of the year for gold and silver?
Tom Cloud: Well that’s hard to say. Besides fundamentals, you never know if North Korea is going to do something crazy. Are Iran and Israel going to get in a fight? Is another bank or central bank going to crash? Are we going to have another round of terrorist attacks? We’re in a time now where it’s not that predictable, but I believe that the last four months this year are going to be incredible. I think it’s going to be incredible. I think that if none of those black swan events happen before then, we’ll see very large returns in the last four months of the year. About 60 some percent of all the gains for gold and silver over the last 12 years have come the last four months of the year and I don’t think this year will be any different.
David: It gets complicated when you take historical norms and you add all of the chaos and tribulation that we’ve got going on right now. It makes for a very interesting time. And, speaking of interesting times, what’s the take on Cypress and the other banking problems worldwide?
Tom Cloud: Well I think this is beginning of the tip of the iceberg and there’s nothing getting better. The “establishment,” the “powers that be,” the “power brokers,” the “banksters,”–anything you wanna call them are scared to death about interest rates going up and bonds being liquidated. That would cause chaos worldwide. They’re doing everything they can to keep that from happening.
But you look and see the amount of money that Cypress is confiscating then you see the country of Canada last week passed a law that said they would “bail in” if necessary. And now we’ve got this term in the world–bail in, not bail out. Instead of the government bailing the banks out like they did here in 1980, when the FDIC went under, they want to bail in and take part of the depositor’s money and blame all the problem on the depositors.
David: That’s just a little frightening for a country that has had a relatively stable banking system for the last several decades.
Tom Cloud: So we’ve got this big term being tossed around and implemented and personally, David, I can’t imagine leaving more in the bank that I need to run my household monthly. I certainly am not worried about it happening in the next 30 days, but by the time it starts to happen and they limit what you can get, it’s going to get ugly.
I believe that even clients out there that aren’t ready to buy gold and silver or ammunition or whatever they’re buying should need to take their cash out. They can always put it back in when they need to pay a bill but the shortage is so severe in the United States on currency that there’s a bunch of states already putting limits on how much cash a client can take out per week and your gonna see a lot of this continuing to pick up.
David: Have you heard anything about Illinois wanting to register precious metals owners?
Tom Cloud: Yeah, yeah certainly that’s been in the news and we don’t know if they can do that or not but it would give them a starting point for confiscation and there’s no telling who they’d share the information with. I don’t know what advantage that would be, but that wouldn’t scare most of the clients I deal with from buying. Most don’t care if they know they’ve got a little bit of gold, but, I don’t like because, I don’t think it’s right. In any case, if it passes, I’m sure we’ll see more of it in the future.
David: One other thing. My, grandma—when FDR confiscated gold—she got little coin holders and turned her gold into necklace pendents. And I was just curious if you have seen an increase of people buying coin holders so that their coins are jewelry and not, coins.
Tom Cloud: Yes a lot of people have been doing that again.
David: So I guess one of the big questions that people are gonna have is this: There are a lot of gold dealers out there—some who spend a lot of money on marketing and have almost become household names, some gold dealers who are local, and lots of other options. Why should someone do business with you? Personally, I got referred to you by a trusted friend, I checked you out, and it turns out that we’ve got several common acquaintances. But what about my readers?
Tom Cloud: Well I think Number 1 is the integrity of 35 years of never having had a bad check and never having had a complaint.
Number 2, I’m gonna do what I say I’m gonna do,
Number 3, We work on a 3 percent commission above the premium that we pay and that’s the only fee we ever get. We never make anything on the back end and the shipping and insurance is paid out of the 3 percent so, I think those are the main reasons why people do business with me.
I don’t telemarket, I don’t advertise or do big media campaigns on TV & radio shows or anything like that but my customers get what they want at the best price possible.
We’re very confidential because it’s just me and three girls that work for me and it’s not a big operation. I’ve had that. Been there and done that as they say and cut way back because we wanted to be a real help to people.
David: I have to agree with all of those points, and it’s why I have endorsed you. So what would be the next step for people who want to go ahead and buy gold from you?
Tom Cloud: Well, they can call me at 800-247-2812, mention that you referred them to me, and we can talk to them and tell them the different options.
David: Okay, that’s excellent. And, so if somebody is ready to buy today and they wire you money what’s the typical turnaround on something that is in stock and ready to ship?
Tom Cloud: When we get the wire money it goes out the next day. The furthest thing I have delayed right now is silver eagles. They’re delayed about four weeks. We sell them every day and we’re getting delivery on them every day but if someone orders today it’ll be four weeks until I could get it and it brings up another good point. When they pay me, their money goes into an escrow account. I don’t pay anybody until those coins are delivered. So their money is never at risk, it’s held in escrow until their coins are delivered, or sent out, then, then we, pay our supplier.
To ask Tom questions or to order precious metals, please call him at 800-247-2812 or visit his site at Cloud Hard Assets. I am a customer of Tom’s and we have many common friends. Promotional consideration has been made for this article, so please let them know that David Morris referred you so that we know whether it makes sense to do interviews/articles like this in the future. If you do buy from Tom, please let me know how your experience goes with him. Make sure that you talk with a certified professional adviser before doing anything with your money. Precious metals can go up or down in value.
(Noon update: I just got off the phone with Tom and he confirmed what I’ve been seeing locally and hearing–there is a SEVERE shortage of physical silver right now and institutions are cashing in their short positions. In many parts of the country, silver is going for 5-10% or more over spot. At this moment, Tom still CAN fulfill silver orders at his incredibly low prices, so you might want to call him to lock something in.)
What are your thoughts on Gold and silver? Where do you think prices are headed? Share your thoughts by commenting below: