Is Now the Time to Buy Gold and Silver?

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Wondering if now's the time to buy gold and silver? Wonder no more. Let me explain.

As a collector of both precious metals, like many, I planned on loading up in the wake of recent price declines. But guess what? My usual dealers were out of gold and silver.

Thanks to the selloff, a buying frenzy for bullion has crashed websites, jammed phone lines and depleted inventory.

"Our website was overloaded for the first time ever Friday and Monday. Every phone line was lit up. We did seven times our normal volume," Jake Haugen, VP of sales for Texas-based  Provident Metals, told Money Morning.

You see, with gold on track to log its fourth weekly decline and silver headed for the worst week in about 19 months, bargain hunting abounded.

Declines in gold and silver prices began last Thursday and accelerated Monday when gold plunged $140.40, or 9.4%, to $1,360.90 an ounce, marking its biggest one-day decline in 30 years. Since its 2011 high of nearly $1,900 an ounce, gold has tumbled 28%.

Silver slumped $2.97, or 11.3%, Monday to $23.36 an ounce, well off its 1980 record high of $49.45.

As recently as last year, investors like me were paying more than $1,700 per ounce for gold and $35 per ounce for silver.

Bargain Hunting: Gold and Silver Coins

Amid the biggest gold and silver price declines since 1980, physical bullion sales are surging.

In April, the U.S. Mint has sold 153,000 ounces of American Eagle gold coins, more than double March's tally and up sevenfold from a year ago.

Over the first six business days in April, the Mint sold 1.645 million ounces of silver, taking the 2013 total to a whopping 15.868 million ounces. With demand for Silver Eagles so robust, the Mint rationed sales to primary dealers. Haugen called the situation "a perfect storm" for frenzied buying.  

Sales also spiked in China, India and Australia. In Switzerland, "physical demand is extraordinary," Bernard Sin, head of currency and metal trading at bullion refiner MKS SA in Geneva, told Bloomberg.

If you want to get in on the bargain hunting for the precious metals, Money Morning Capital Wave Strategist Shah Gilani says your timing could hardly be better.

"I don't think this is a bottom, but the way I trade, I love it at these levels," said Gilani. "Another 20% fall is a signal for me to jump in with both feet! I'd add to it down to $1,100. Any further than that, and I'd be concerned, but this is basically a half-off sale."

Rich Checkan, senior VP of Asset Strategies International, a Rockville, MD, firm where customers buy, sell, store and take delivery of precious metals, told Money Morning the selloff and declines in gold and silver prices came as a result of technical moves such as stops and margin calls.

"But the physical market is different and demand here remains strong," Checkan said. "Product has become non-existent. There are four- to five-week delays and premiums are going up. There's simply not enough supply to fill demand."

Vigorous physical demand isn't reflected in spot prices, Checkan explained.

How to Buy Silver Now

Premiums for junk silver - old silver coins in circulation before 1965 whose value is derived purely from their silver content - have shot up to 18% to 20% from about 4% to 6%, Checkan said.

As an alternative, Checkan likes silver rounds. Unlike coins struck by the Mint, rounds (also called medallions or bullion) are struck by private mints and aren't legal tender. Yet they are .999 fine silver, weighing 1 troy ounce.

Rounds include American Eagles, Canadian Maple Leafs and Australian Kangaroos.

Another option is the Perth Mint Certificate Program. Sold through a network of independent global dealers, the program issues certificates detailing investors' metal holdings by their names.

Participants aren't burdened by storage or delivery fees. "It's the only 100% government-guaranteed certificate program in the world. It's one of the safest ways to own gold and silver," Checkan said.

How to Buy Gold Now

Premiums haven't spiked as much for gold. Checkan likes Perth Mint Certificates and 1-ounce gold coins including:

  • U.S. Eagles
  • U.S. Buffalos
  • Canadian Maple Leafs
  • Australian Kangaroos
  • Austrian Philharmonics

As for the long-term prospects for gold and silver prices, Money Morning Resource Specialist Peter Krauth is bullish.

"I believe gold will end the year much higher than where we stand today," Krauth says. "And I believe the precious metals bull market will see gold and silver prices much, much, much higher before it's all over."

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