Category Archives: Investment

Investment of a different kind – Buy Collectible Coins when you want to invest in Bullion

Every other day you would hear about investment advisors recommending to take an exposure in Gold or Silver using an ETF or buying phisycal metal. A lot of investors prefer buying gold or silver bars instead of putting money in an ETF as the ETF’s have management fee and usually trail the bullion price on any given day.

For those who prefer holding phisycal gold or silver buying the Collectible Bullion coins would be a good idea. Most leading mints issue .999 purity silver coins every year and varying variety of Gold coins from 22kt purity Krugerrands to 24Kt Chinese pandas.

These bullion coins are minted in limited quantities each year and cater to both the collectors and investors market. The coins are usually at a premium to the silver price for the minting charges, transportation and insurance costs.

One would ask that why should they pay a premium for a coin and not buy simple bullion bars?

Yes one could buy the bars but even the bars come at a premium to the spot silver price i.e. include the cost of mintage (shaping silver to a bar), the process of making a bar is simpler which results in a smaller charge.

The differential between the price of a Bar and a coin of similar weight is around 5% but coins come with a potential of collection value as they are minted in limited quantities for each year, with the year mark and are usually sold out even before the year ends – The 1 oz. Australian Lunar coins bearing the dragon for 2012 have already been sold out!!

Additionally the coins are equivalent to a piece of art and carry aesthetic value.

The mintage of the popular Silver bullion coins is listed below

Silver Kiwi Fern – avg 10,000 each year – 1oz. Fine Silver

 

 

 

Chinese Panda – 600,000

 

 

 

Australian Kookaburra – 300,000 2011, maximum 500,000

 

 

 

Mexican Libertad – 1,650,000

 

 

 

Canadian Maple – 3,526,052 in 2009

 

 

 

 

American Eagle – 34,662,500 in 2010

 

 

 

So think about buying these coins as investments in silver or gold – a bar minted in say year 2000 would have a small premium over silver price of the day but a coin that was minted in 2000 would always command a bigger premium than the bar.

Relative Value arbitrage – Gold, Silver and Platinum

Bullion space has been really volatile in the past few days. Gold has given better returns than silver and Platinum in the upmove during the past 5 years.
Gold lost around 10% from the highs of last year but silver and Platinum have both come down 30% and 50% approximately from their highs of 2008.

Historically Gold, Silver and Platinum have maintained a value ration amongst them and this seems to be out of sync at the moment.

Doing some number crunching on the historical data here is a trade strategy that exploits the relative mispricing and is geared to give near positive returns when tracing the past data.

The bullion trio is priced at:
Gold – US$ 948/oz,

Silver – US$13.45/oz and

Platinum – US$1182/oz at the time of writting.

I am recommending creating a strategy where one is 60% short on Gold and 20% long on both silver and platinum by value.

The strategy should yield an absolute return of around 25% when the bullion trio traces back to the historical ratio’s and the mispricing in relative value is resolved. Gold: Silver – 60 and Platinum: Gold – 1.75

We shall trace the strategies pay out on a weekly basis. So as of date we start with
Short Gold – worth 600US$
Long Silver and Platinum – worth 200US$ each

The ratio now as we create the trade is 70.48 for Gold Silver and 1.24 for Platinum Gold

Watch out in a week to see how the strategy is doing.

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Week 1 – 29th July 2009:

Gold – US$931: Silver – US$13.51: Platinum – US$1166

Gain – 10.75$ on Gold, Loss of 2.7$ on Platinum and 0.44$ on Silver

percentage gain – 0.76%

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Week 2 – 5th August 2009

 Gold – US$965: Silver – US$14.64: Platinum – US$ 1267

Gain – $16.25 on Silver and $14.38 on Platinum; Loss – 10.75 on Gold

Percentage gain – 1.98%

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Week 3 – 13th August 2009

Gold – $949.50; Silver – $14.56; Platinum – $1254

Gain – $15.06 on Silver; $12.18 on Platinum; Loss – 0.94 on Gold

Percentage Gain – 2.63%

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Week 5 – 25th Aug 2009

Gold : 944.50; Silver: 14.10; Platinum: 1237

Gain on Gold – $2.215; gain on Silver $8.27; gain on Platinum – $9.30

Percentage Gain – 1.98%

Changing strategy to 50% short gold and 25% long each Silver and Platinum. Both strategies will be tracked.

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Week 6 – 3rd September 2009

Gold – 977; Silver – 15.37; Platinum – 1229

Gain on Silver – 27.03; platinum – 7.65; Loss on Gold – 15.18

Gain on Strategy – 1.98%

(With ratio’s of Short Gold 50% and Long Silver and Platinum 25% each the strategy would yield 3.11%)

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Week 7 – 8th September 2009

Gold – 1000.70; Silver 16.54 and Platinum – 1285

Loss on Gold – 33.35; gain on Silver – 44.31 and Platinum – 17.42

Gain on strategy – 2.83%

(With ratio’s of Short Gold 50% and Long Silver and Platinum 25% each the strategy would yield 4.94%)

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Week 8 – 15th Sep 2009

Gold – $1007.40; Silver – $17.04; Platinum – $1328

Loss on Gold – $31.33; Gain on Silver – $64.62; Platinum – $30.87

gain on Strategy – 6.42%

(strategy of 60% short gold and 20% each long silver and platinum would yield 3.88%)

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After 9 months – 23 April 2010

Gold – $1140; Silver – $17.96; Platinum – $1731

Loss on Gold – $101.26; Gain on Silver – $81.61; Platinum – $116.11

gain on Strategy – 9.65%