January 10, 2013 -- Issue No. 2

From the Owners

IT MUST BE TAX SEASON!  Now is the time of year where the parking lot of Rocklin Coin Shop fills up on a frequent basis.  Alas, not for a flood of customers to the shop, but to our neighbor, H&R Block. 

This issue of the newsletter is getting out a little late, and with it our apologies.  Although we never really stated how frequent the newsletter would be issued (the prize drawing can be held without a published newsletter for the month), our intention is to get at least one newsletter out per month.  But, to quote an ancient proverb, “better late than never.”

So far in February we’ve seen prices dip a bit, which makes it a good time to buy.  We’ve also seen a decrease on shipping times for generic 1 ounce silver rounds, but an increase in wait times and difficulty in finding Junk Silver.  However, it seems that even our suppliers believe that this “junk silver crisis” is temporary, as none of them have raised their prices.

As we move on into next month, the end of the first quarter of 2013, look for some exiting new features and services from Rocklin Coin Shop.  Our website is getting a much needed facelift, including a smoother look, and an increase in information, especially as it pertains the numismatic and scrap side of our business.  While the design process is nearly done, we’re just weeding through some technical issues of transferring the data from one directory to another.

As always, we thank you for your continued patronage, and look forward to seeing both new and existing customers in the coming months.

We want to hear from you!!!

Input is always greatly appreciated.  Want us to write about something specific?  Have questions that you need answered right now?  Shoot us an e-mail at newsletter@rocklincoinshop.net.

Best Regards,

Matthew and Ariana Vickers
Owners – Rocklin Coin Shop

Where Eagles Dare

by
Chad Vickers

One of the questions we get most often around the shop is why would a customer spend the extra money to purchase a Gold Eagle or Silver Eagle versus a generic or cheaper piece of bullion.  Eagles have the highest premium of any piece of bullion we sell.  The reason for this is that an Eagle (silver or gold) is the most expensive piece of bullion to purchase from our suppliers.  Likewise, our suppliers have to pay more for eagles because they often get them directly from the US Mint, versus other products that come from more efficiently run private mints.  Our store policy is that we will buy back any bullion that was purchased from us at whatever spot bid price is at the time when the material is sole back.  So, if a Gold or Silver Eagle costs more then a generic silver round, but will be bought back at the same price, what is the point of buying eagles?  While I don't believe there is one true answer to this question, I will say my personal opinion is different between the two metals.

In the case of Gold Eagles, I'd say they are more worth the premiums.  They will always be easy to resale.  This may or may not matter, as we will always buy back products that were purchased through us.  However, if someone was to bring in ten ounces of gold, five of which were Eagles, and five of which were any other one ounce form of gold, and I only have cash for five ounces at the time (we could always wholesale the others, but in this situation, as much cash as possible is what the customer is looking for), I would prefer to buy the eagles.  The reason is simple; Gold Eagles are more popular among both seasoned bullion investors, and those who are new to it.  While gold bars are the cheapest form of one ounce gold, they take longer to sell than a Gold Eagle.  For those looking to split the difference between popularity and price, I usually recommend a South African Krugerrand or a Canadian Maple.  The difference in premium is not huge.  Silver Eagles are a different story.

Speaking strictly of premiums (the amount that a customer pays above the spot price), the Silver Eagle is the most expensive investment grade product that we sell.  Where it differs from its golden brother is that it is not as highly sought after as other forms of silver.  At Rocklin Coin Shop, the Generic Silver Round is king.  We sell more silver rounds then any other item in the shop, because most customers prefer rounds to Eagles.  Perhaps this is because the premiums on Silver Eagles is over 5% higher than the premium on generic silver rounds.  Conversely the spread on gold is only 2% between the lowest premium gold (the bar) and the highest premium gold (the Eagle). To that end, most customers prefer other forms of silver over the Eagle. 

This is not to say that there is a right or wrong answer to any of these options.  For some investors, the saving per ounce on a gold bar far out weighs the popularity of the gold eagle, and for others the beauty, and potential future numismatic value of a silver eagle, makes it a better bet over it’s generic cousin.  One thing for sure is that with the current interest rates in savings accounts, and paper money being printed faster than the paper can be created to print it on, that any investment in precious metals is a good bet.

Last Month's Coin Joke of the Month!

Last Month's Coin Joke of the Month was a special "Guess the Punchline" edition.  The first reader to e-mail us with the correct punchline to the joke won a $1 Silver Certificate.

A quick recap, the joke revolved around a coin grader trying to decide which side of a very special coin he should grade first.  How does he decide?

...He flips for it.

Congratulations to JK for guessing the correct punch line.

A Labor of Love

by
Matthew Vickers

From time to time, we have clients—usually new clients—who pick our brains about the possible benefits of investing in collectible or “numismatic coins.”  Often, they ask these questions because they have been advised (typically by one of the “big guy” competitors) to buy “numismatic” coins because they will have more value in the future, and thus make a better investment.  I feel that it is important to discuss some factors of numismatic coins versus investment grade bullion (though the two are not mutually exclusive), the reasons we hear for people who want numismatic coins versus investment grade bullion, and our thoughts on the validity of those arguments.  I think that the best way to illustrate this is to give real world examples from actual customers who I have worked with, and actual markets that I’ve observed.  Obviously, I will not use any actual names for the privacy of my customers.

A few years ago, I got a call from Tim, who has been a good client for years.  Tim is a financial advisor and investment representative who buys physical gold and silver regularly, and advises his clients to do the same.  One day he called me because he had an elderly client who was looking for Gold Eagles at $25 over spot per ounce.  I chuckled a bit, and told him that (at the time) I’d lose about $20 an ounce if I sold them for that price—I couldn’t even buy gold eagles for $25 over spot at wholesale prices. 

However, always on the lookout for a new opportunity, I asked Tim if he could find out from his client where she was getting these eagles so cheap, because I would love to buy them.  Tim went right to it.  He called me back after a few minutes, saying that his customer had misspoken. 

“Not $25 over spot,” he said, “25% over spot.” 

Tim explained that these coins were being pitched to his client as “guaranteed numismatic,” and that meant that the government could not confiscate them.  Nice pitch.  But the government can only confiscate gold and silver eagles anyway.  If confiscation is really something that you’re concerned about, buy a Canadian Gold Maple, a South African Krugerrand, an Austrian Philharmonic, or a private minted gold bar.  There is no need to pay such outrageous premiums to avoid confiscation.

Only months ago, a man, James, had come in with a set of numismatic (though non-key date) gold coins.  He wasn’t looking to sell the coins, but wanted to know what he could expect to be paid for them.  The coins were slabbed and graded, but were nothing special as far as rarity or “numismatic value” is concerned.  Essentially, they were only worth their price in gold. 

James nearly choked.  He had paid over $2,500 per ounce for these coins when gold was at only $700 per ounce.  He was promised that the collectible value would go up as gold went up, and so these numismatic would certainly increase by a higher percentage that the mere gold prices.  The company that pitched this…another one of the “big guys.”

I have about eighty more examples, with premiums ranging from 18% to 150%, but I think that you get the drift.  So, here’s my take on numismatics and collectibles.

Collecting is a labor of love, not a labor of investing.  Anyone who has seen History Channel’s hit television show, Pawn Stars, should realize this.  There are two people who make money in collectibles—someone who finds the collectible, or the dealer (me) who sells the collectible.  Knowing this information, you are not truly “investing” when you buy collectibles.  You are collecting, and the price that you put into the collectible is almost never going to be the price that you get out of it.  The reason for this is that the value of a collectible falls into what I refer to as a “fiat market.”  A fiat market is a market that determines value based on non-existent, impossible to find, or difficult-to-replicate factors.  Let’s use a non-coin example to demonstrate.

When I was a teenager, I was a huge comic book nerd.  At that time, X-Men was my book of choice, and more than anything, I wanted to own a copy of X-Men #1.  Naturally, at a (fiat) market price of $4,000, I wasn’t about to get that comic book any time soon.  Two years ago, my lovely and thoughtful wife bought me a slabbed and graded copy of X-Men #1 for my birthday. 

She paid approximately $1,200 for the book.  In its grade, the book has a book value of about $1,700 (that’s our fiat market).  I have called every comic book store from Reno, NV to Phoenix, AZ, for giggles, and the best offer I could get for that book was $350.

You heard it from the comic book nerd first—X-Men #1 was a terrible investment.  Of course, my wife never considered it an investment.  She bought it for me because she knew that I had always wanted one (alas, we were high school sweethearts, so she knew me when I was at the height of my comic book nerdyness).  I keep that copy of X-Men #1 in the shop to use as an example for my clients.

The point is, that in a fiat market, there has to be an individual out there that is willing to pay “book value” for an item.  Just because there’s a publication that assigns values to products does not mean that there is a person willing to pay that price.

Converse to fiat markets are the “tangible” markets.  Stocks.  Bonds.  Commodities.  These are all examples of tangible markets.  True, you may not be able to get 100% of spot for a Gold Eagle at every shop.  But you’ll get close.  At least, a lot closer than I can get for my copy of X-Men #1.  But comic books aren’t coins.  Coins are different.

Many coins fall into both the fiat and tangible market categories.  I’ve watched both of these markets over the last several years, and have noticed something interesting.  A coins’ commodity (tangible) value—that is, it’s value in silver or gold—has very little impact on a coin’s numismatic (fiat) value.  When my wife and I bought Rocklin Coin Shop, the gold price was approximately $800 per troy ounce.  During that time, a decent condition, but not key-day $20 gold coin (considered “numismatic”) was trading for approximately $1,200.  That’s a pretty big premium.  But, I noticed something strange.  When gold hit about $1,000 per troy ounce, the trading value of those numismatic coins remained constant at $1,200.  When gold hit $1,300, the value of those coins went to approximately $1,300, and kept going up with gold price.  I watched as the tangible market consumed the fiat. 

Sure, there are still plenty of coins out there that have a fiat value well in excess of their tangible value.  But you should never buy those coins as an investment, because the bulk of the coin’s value is determined by a fiat market.  Collectibles are for people who love them.  Be it comic book, Nike tennis shoes, Beanie Babies, or coins.

Crossword Time!!!

Time for another contest.  First customer to e-mail newsletter@rocklincoinshop.net with all correct answers wins a Commemorative George Washington Half Dollar.

The Lingo

by
Ariana Vickers

It's happened to all of us at some point.  In a crowd of people who don't work in our industry, we use an industry-specific term that no one understands.  In the coin and precious metals business, we're no different.  And, in fact, so many of our clientele are so well-educated in these areas, that we can use industry specific terminology freely.  However, we deal with plenty of new clients--many who have never bought precious metals or coins--and find ourselves staring back at inquisitive eyebrows, and answering questions like, "what is spot" or "what the heck does 'numismatic' mean?"  As such, here is a looooong list of industry terms for any newbies who read our newsletter.

A Short Glossary of Precious Metals Terms

Acid test- a way to test a metal for its composition and purity.  Acid test kits are commercially widely available for purchase over the Internet or by mail.  Most include several solutions at varying concentrations to test for gold, silver, platinum and/or palladium.  Most also allow for testing for the purity of both the gold and the silver.  The acids are usually combinations of nitric, muriatic and potassium dichromatic acids.  Some subjective interpretation of the results is required and careless procedures can lead to incorrect or varying results.

American Eagles- the US Mint form of bullion.  These are true coins because they have a face value.  Gold 1 ozt eagles are $50 face value and silver 1 ozt eagles are $1 face value.  Gold eagles ½ ozt are $25, ¼ ozt are $10 and 1/10 ozt are $5.  Platinum eagles are the same face value as gold eagles.  All eagles are 90% pure but contain the appropriate weight of fine gold or silver because their total weight is greater than the weight of the fine gold or silver.  For example, a 1 ozt gold eagle has 1 ozt of fine gold and then 1/10 ozt of copper is added to make it harder.  So the resulting product is 90% fine gold and 10% copper with a total weight of 1.10 ozt.  Because they are true coins there is some possibility of them acquiring numismatic, also known as, collector value over time.  However, the chance of that happening in the buyer’s lifetime does not seem to justify the additional premium to buy them over a generic round minted by a private mint.  Another common argument for buying eagles instead of generic bullion is that they are more easily recognized and would be easier to sell.  Any precious metals dealer would just as readily recognize any investment-grade bullion as an eagle.  In the event we are forced to barter with our bullion amongst the populace at large, everyone will educate themselves to protect themselves.  Again, any minimally reduced recognizability does not seem to justify the increased cost to buy.  They are a good choice for those who really love their beauty or are coin collectors, as long as, they know why they have chosen to pay extra for them.

Commemoratives- also known as, commems.  Usually, refers to coins minted by the US Mint to commemorate someone, some place or some event important to the history of the US.  Other countries also minted commemoratives.  Modern commemoratives began in 1982.  Older commemoratives ran until 1950s.  They are virtually all 90% gold or silver.

CTR (Cash Transaction Report)- report that must be filed with IRS if $10,000 cash changes hands per person per day.  All financial services businesses must file a CTR if we pay $10,000 or more in cash per person per day or vice versa.  Because we are a financial services business that is registered with the Financial Crimes Enforcement Network, we must have an anti-laundering policy on file with them, too.  As part of our anti-laundering policy, we simply will not take more or pay out more than the $10,000 in cash per person per day.  That way we never have to worry about providing our customers’ information to the IRS, we don’t have to ask for their information, and we don’t have to worry about losing or having their information stolen from us.  The other benefit is that we don’t have to worry about facing penalties for making any errors on a CTR, even an innocent mistake, which could shut us down.  The $10,000 limit does not apply to cashier’s checks or bank wires.  Also, because the $10,000 limit is per person per day, a married couple can now pay or accept a total of $20,000 a day or one person could come in on two consecutive days.

Fine silver- metal that is composed of .999 silver.  The purity of silver required for a piece to be investment-grade silver.

Foreign gold (or silver)- generally, any gold or silver that was minted by any government other than the United States.  Usually, cheaper than American Eagles, but, more expensive than privately minted bullion.  Be careful that you know if your particular coinage is investment-grade or not.  South African Krugerrands, Canadian Maple Leaves, and Austrian Philharmonics are examples of investment-grade bullion.  However, Great British Sovereigns are “off-weight” and not investment-grade.  These foreign forms of precious metals can be a good opportunity to buy at a lower cost but make sure you know exactly what you are buying and that it fits your needs.

Generic round- a coin-shaped form of bullion minted by a private mint.  Because private companies cannot make their own “coins” due to the coinage powers of the federal government, these rounds cannot be called coins.  To be investment-grade bullion they must be stamped with .999 and/or “fine” silver, be stamped with their weight and be of a standard weight (1 ozt, 5 ozt, 10 ozt, etc.)  Generally, they are quite a bit cheaper than their US Mint counterpart, the American Silver Eagle.  They can be minted with all sorts of designs.  Many were actually designed for private parties, including large companies, when silver was much cheaper to be handed out as gifts, promotional items, incentives, etc.  Although some collectors of various designs have popped up, there is no real change in the value of the round based on its design.

Grading- the process of giving a coin’s condition a number that corresponds with a scale of 0-70.  These numbers also correspond with a worded grade, for example, Good-4 or G-4.  The American Numismatic Association publishes grading standards to reduce subjectivity.  There are numerous companies that offer grading services, and many people self-grade.  PCGS, NGC, and ANACS are considered three of the best grading companies.  Any coin graded by one of these three companies can usually be sold sight-unseen, and will receive a higher price just because it is graded by one of the three.

Investment-grade bullion- Precious metals in a round, coin or bar designed to be held in a physical form but can easily be sold or traded to another.  Requires that they be of an easy to retail size (gold- 10, 1, ½, ¼, 1/10th, 1/20th ozt; silver- 1000, 100, 10, 5, 1 ozt,) be stamped .999 or “fine” gold or silver, and have its weight stamped on it.

Junk silver- any metal that is 90% silver.  This industry standard term usually refers to US minted currency from 1964 and before, excluding pennies and nickels.  Any combination of $1 face value contains 0.72 troy ounces (ozt) of silver, except silver dollars which contain 0.76 ozt.  It is often sold as a bag or fraction of a bag.  A bag is $1000 face value.  Junk is also frequently bought and sold as a multiplier of face value.  For example, currently we are buying junk silver at 17 times face value.  However, as silver prices rise or fall our multiplier will rise or fall.  Due to the lack of clarity in the law about when a coin is considered obsolete and can be melted, we do not melt “junk” silver.

Karat- the measurement of the purity of a metal.  Most often thought of in connection with gold.  To determine the amount of gold in the metal, divide the karat by 24.  For example, 14K gold is 14/24 or 58.5% pure gold.  Very rarely is anything 24K because pure gold is too soft.

Magnet test- the application of a magnet to a sample metal.  Gold, silver and other precious metals are nonmagnetic.  If the sample is magnetic, then it is certain that it is not composed solidly of a precious metal.  If the sample is not magnetic, then the sample may or may not be composed solidly of a precious metal.  The magnet test is an exclusive test, but not an inclusive test.

Melt (price)- the price that a refiner will pay for a precious metal piece.  Gold is usually much more straightforward.  The refiner takes a cut off the top, the coin shop takes a cut of what’s left, and the remainder is paid to the the customer.  Silver is more difficult to figure because the refiner takes a larger cut off the top the less pure the aggregate silver is after being melted together.  However, the coin shop must figure out what to pay the customer before they know how pure their lot will be when it goes to the refiner.  Platinum and palladium usually are paid at a lower rate than both gold and silver because they have to be held for a long time until enough is gathered to melt any of it, as refiners have minimums for melting.

Numismatics- collectible coins.  A numismatist is a coin collector.  Numismatic value is the value a coin has because collectors want to add it to their collection.  Many gold and silver coins minted by the US Mint have both numismatic value and precious metal values.  As the economy began to worsen in the late 2000s, people had less money to spend on hobbies such as coin collecting and numismatic values started to fall.  However, people also began to worry about the stability of the economy and looked to silver and gold to protect their wealth so precious metals’ prices began to rise.  So many older US minted coins’ precious metal value competed or outstripped their numismatic value.  The problem with numismatic value is that, unlike precious metals’ value, collectibles are only a moneymaker for the retailer and anyone lucky enough to find or inherit them.  If you are going to collect anything, then money, particularly made of a precious metal, is the wisest thing to collect, but understand that collecting is for the love of coins, and it will cost you money.  Don’t let anyone sell you on overpaying for your silver or gold because of its “numismatic” value.  When you realize just how much appreciation would have to occur in a relatively short period of time just to recover the extra cost of your “numismatic” silver and gold, it becomes obvious that its usually just a salesman’s device to prop up his commission.  We recommend that you get at least a second opinion from an uninterested party before you buy anything numismatic.  We sell numismatics and we love numismatics but we hate to see them get a bad name because they are used to rip people off.

Off-weight- refers to a bar, coin or round of precious metal that does not conform to a standard investment-grade weight.  Privately minted or minted by a government, both foreign and domestic, may be off-weight.  For gold, anything other than 10, 1, ½, ¼, 1/10th, 1/20th ozt.  For silver, anything other than 100, 10, 5, 1 ozt.  The biggest drawback to off-weight pieces is that they will probably be more difficult to sell and that you will get much less for them.  Often, you will be looking at getting about 60-80% of the spot price because it will probably have to be melted instead of retailed, versus investment-grade will probably bring 90-100% of the spot price. 

Paper market- the market created by traders who trade promises to buy and sell gold, silver or other commodities.  The paper market creates pressures on the market price of a commodity.  These pressures are often artificial because there is no physical trading of the good.  True market forces of supply and demand would require the buyers and sellers to have all of the metal to fulfill their contracts in their possession at the time the contracts are completed.  Currently, they are only required to have 3-5% of their paper total on hand in physical inventory.

Ring test- testing a sample metal by causing it to ring out a tone by striking it lightly on a hard surface.  Usually used for testing a sample suspected of being or not being silver.  Silver is known for having a very clear sweet ring, whereas most nonsilver metals have more of a thud when struck.

Rub stone or test- a black stone that is included with acid kits that allow the tester to rub the metal being tested on it and apply the acids to the stone rather than directly to the metal.  It allows for testing to be conducted without harming the sample.  However, it will only test the surface of the sample.  In the case of a plated sample, a tester may be fooled into believing the entire sample is made of the same metal as the plating.

Sales tax- in California, there is sales tax on a total transaction of under $1500.  There is no sales tax on a total transaction of over $1500.  California considers transactions under $1500 to be made by collectors and transactions of over $1500 to be made by investors.

Scrap- unwanted precious metal items that are not able to be sold as investment-grade bullion.  Usually, refers to old or unwanted jewelry, flatware, foreign coins, etc that are purchased by the coin shop for melt prices and sold to a refiner.

Scratch test- the process of making a small scratch through the outer layers of a sample metal before applying acids from an acid test.  Although this method of testing does cause a small amount of damage to the sample, it prevents the tester from assuming that the sample is solidly composed of the same metal that composes its outer layers.

Silver:Gold Ratio- the number of troy ounces of silver it takes to buy one troy ounce of gold.  During the time the US was on the gold standard, it was 16:1.  During the time of the silver standard (ending in 1933,) it was 25:1.  Because we were on the silver standard longer than the gold standard, we believe that if both metals are accurately valued that it should be closer to 25:1.  Since Fall 2008 until now, the ratio has moved from 76:1 to 55:1.  This seems to support our belief that silver is still undervalued compared to gold.  The paper market and derivatives market of silver is much different than gold, and, we believe, that it is artificially suppressing the price of silver.  In simpler terms, silver has a lot more room to go up to find its natural price point, or silver is on sale!  This is also why we suggest a 60/40 to a 70/30 split of silver/gold make up a person’s total precious metals holding.

Spot (price)- the market price of gold, silver or other commodity.  Our price board updates every 15 minutes during business hours with the prices as listed by COMEX (the commodities exchange.)  It is commonly used when quoting and/or comparing the buying and selling price of a product.  For example, 5 back from spot would mean 5% less than the spot price, and, conversely, 5 over spot would mean 5% over the spot price.

Sterling silver- any metal that is made up of 92.5% silver.  Most commonly thought of in connection with jewelry or flatware.  May be abbreviated in numerous ways, including, .925, 925, SS, etc.

Troy ounce- the standard weight measurement for all precious metals.  A troy ounce contains 31.1 grams.  A standard ounce contains 28.35 grams.

This Month's Prize!!!

As you probably know, all subscribers to the Official Rocklin Coin Shop Newsletter earns you automatic entry into our monthly prize giveaway.  This month, the great prize is JUNK!  You heard me right.  Junk silver!!!  This "junk prize comes in the form of 22 United States Quarters dated 1964 or earlier.  For those who don't know, Quarters, dimes, and half dollars dated 1964 and earlier were composed of 90% silver.  Every $1 face value (that's 4 quarters, 10 dimes, 2 half dollars, or ANY combination that adds up to $1) has approximately 0.72 troy ounces of silver.  

Therefore, this months prize is:

22 x 0.25 X 0.72 = 3.96 ozt of silver.

We will do the drawing (via random number generator) at the end of the month, and contact the winner by e-mail.

Good Luck!!

Rocklin Coin Shop Staff

Meet the Crew!

In this issue of the Rocklin Coin Shop Newsletter, we introduce the Executive Assistant of Rocklin Coin Shop, Denise Doreen Taylor.  Denise grew up in sunny Southern California for most of her life.  After raising her two children (before being a stay-at-home mom was frowned upon), she spent her professional life working in medical records, managing a medical transcription office, and the bulk of her time with State Compensation Insurance Fund.  

In 2007, she and her husband, Phil, moved to Chiloquin Oregon, where they remained for 4 years, until a position opened up at Rocklin Coin Shop in early 2011, allowing Denise the opportunity to move closer to her grandchildren.

When asked what her favorite thing about working at Rocklin Coin Shop is, Denise said, "who wouldn't want to be surrounded by gold and silver? " 

WE WANT TO HEAR FROM YOU!

Have something to add to our conversation?  Want to get our opinions or insight on something specific.  Want to give us suggestions on products or supplies that you'd like to see stocked at the shop?  The success of any business comes from it's ability to listen to its customers.  We wouldn't be here if it weren't for you. E-mail us anytime at newsletter@rocklincoinshop.net.