Simon Black On "Hands Down, The Cheapest Place In The World To Buy Gold Coins" And Some Arbitrage Opportunities

Tyler Durden's picture

Hands down, the cheapest place in the world to buy gold coins,

by Simon Black of Sovereign Man

Date: January 17, 2011
Reporting From: Santiago, Chile

For anyone looking to hold gold as a store of value or even medium of exchange, major gold coin issuances like the Eagle, Maple Leaf, and Krugerrand are advantageous because they're recognizable worldwide.

You can do business in a coin shop anywhere in the world from Vancouver to Vanuatu with one of these coins; bulk bullion, on the other hand, needs to be specially weighed and assayed by experts before being traded.

For this reason, the premiums for which gold coins sell tend to rise substantially in crisis periods when demand for physical metal is high. In the initial days of the 2008 financial crisis, premiums shot up from 4% to well over 10%, even though the price of gold was simultaneously falling sharply.

Today, with gold routinely taking out its all-time highs, gold coin premiums around the world have remained fairly high-- this is one of the things that we typically look at here at Sovereign Man as we constantly travel the globe... and why what I'm about to tell you might have you falling out of your chair:

Tim Staermose, one of our Asia partners, was in Hong Kong last week, and he conducted his normal rounds of the various banks in the Central business district that sell gold bullion coins over the counter to walk-in customers such as Hang Seng Bank, Bank of China, and Wing Lung Bank.

At Hang Seng Bank, Canadian 1 Oz Maple Leaf coins -- in pure, 24 karat gold -- were available for cash purchase in Hong Kong dollars at just 0.5% above the prevailing spot price of gold. 

This is dirt-cheap... or as they say here in Chile, 'precio de huevos', and it certainly presents an interesting arbitrage opportunity. Depending on your objectives, however, there may be even better gold coin buys in Hong Kong at the moment.

Over at the Bank of China, for example, the Chinese Panda coins were quoted at 4.9% above spot gold. 

Personally, I think the Panda is one of the most beautiful gold coins of all, and in North America they typically sell for much greater mark-ups above the spot price of gold than most other coins, often over 20%. In the UK it's even more. 

Many collectors value the Pandas simply for their aesthetic beauty; and it probably doesn't hurt that the dealers authorized by the People's Bank of China to sell Pandas in the US have a virtual monopoly on the market.

Still, this situation can be exploited to your advantage-- the difference between the buy price in Hong Kong and the sell price in North America is roughly $275 per 1-ounce coin.

If I had nothing to do and were looking for some adventure, I'd raise some grubstake to fly to Hong Kong, buy coins, and sell them back home at a profit to pay for the trip... or better yet, offer a fee-based service to gold coin investors to buy cheap coins in Hong Kong on their behalf.

For other folks who haven't yet built up a stash of gold bullion, I would urge you to consider taking a trip to Hong Kong to get started; I'm certain that the money you'll save will more than pay for the flights, and a nice holiday for you and your loved ones as well.   

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Ploutos's picture

Sell it to whom ?  On Ebay they are bringing around $1,500 from a seller with 10,000 plus feedback.  A local coin dealer will offer you spot.  You will have $1,428 each in these assuming your travel is free.

Idiot Savant's picture

Over at the Bank of China, for example, the Chinese Panda coins were quoted at 4.9% above spot gold. 

Personally, I think the Panda is one of the most beautiful gold coins of all, and in North America they typically sell for much greater mark-ups above the spot price of gold than most other coins, often over 20%. In the UK it's even more. 

Lol, well, you can keep buying those lovely Pandas then. Just be sure to test them before you buy them.

Since you'd have to be pretty wealthy to make the trip worthwhile, I assume we're talking about large bars here. This brings up the issue of who is going to let you cut their bar(s) in half, prior to purchasing said bar?

No fn way I'd purchase large quantities of PMs in the orient. The chinese counterfeit everything!

trav7777's picture

i'm inclined to agree...even from a chinese bank, I would be leery

naughtius maximus's picture

"The chinese counterfeit everything!"

Indeed. I spent some time paroosing alibaba.com and this epitaph makes the most sense "alibaba and the fourty thousand thieves".

Itsalie's picture

bernank's toilet paper vs 20% fake gold, give me the fake chinese 20% gold anytime.

Big Mac's picture

Thanks for the info. Unfortunately the markets seem efficient for those who want to play by the rules. Round trip from San Francisco to Hong Kong with two day hotel came up at $1,996 for one person. At $1360/oz that means you could buy/bring in 7.35 ozs which translates to at $275/oz a total gain of $2,021 which is break even! Not a lot of cheese here unless you want to become a bullion dealer.

DosZap's picture

Are they not Listed at Giovernment face value?

A 1oz Eagle is $50.00,how can they use spot to determine your $10k, a legal tender coin should be listed at $50.00,not spot.

Appears yopu should be able to bring in a hell of a lot more than at spot.

Woppopotamus's picture

Bottle deposit arbitrage. Awesome.

reachsb's picture

Well Hong Kong was recently hit by a major counterfeiting episode. Even the seasoned jewelers couldn't identify them. So let's pawn them off on gullible buyers. 

http://www.gata.org/node/9369

trav7777's picture

they can pawn off rhodium coins onto me anytime lol

gonna need some magnetometer testers for the future

billwilson's picture

Asian gold - Sure miss being able to walk into a jewelry store and buy a 24k ring for the spot price of gold, plus a very small mark-up for "the handiwork". The spreads in Canada especially are almost criminal (Scotia being awful).

traderjoe's picture

I don't know what this guy is talking about. Panda's are available on Apmex at only modest premiums - about what a Buffalo would sell for. I bought a few there, and I would doubt highly my ability to sell them for much more then that premium, if that. They don't strike me as "rare". 

The premium for Maples is low in HK, but Tulving has them on sale for $35 over spot. So, what are you saving $20-25 a coin? A little too much hyperbole in this article...

Race Car Driver's picture

After reading a few articles on ZH by Simon Black, I think he's more a glorified travel agent than anything else. Most of his 'advice' just isn't practical for the average American stiff.

Tyler Durden's picture

Since Black's advice involves extensive travel if not outright expatriation, you are absolutely correct that the average American stiff will not benefit from his articles.

JW n FL's picture

Tyler? who... wait... you would fly 39 hours to HK to turn and burn or buy suits and come back only to have to explain "X" amount of gold? and you know that you would be flagged going forward for any trip any where... now if you want to drop $50k to go private, rock on.. but public, with a suitcase filled with China's Bullion coming back thru customs would be a bitch, minimum... even you have to agree.. well you dont have too.. but..

Hephasteus's picture

Hmm. I got 12 kids here that I've been feeding monsanto genetically engineered food since I stole them from michael jacksons basement. They all have hollow body parts with scanner proof skin. The old fashion carry trade is on.

Challenge Accepted.

americanspirit's picture

Trust us - these are not counterfeits. And just for you my friend, a special price.

SilverRhino's picture

If ONE fake gold coin gets through your purchase in the Orient your arbitrage margin just got hosed.   Too much counterfeit in the asian markets.  

 

What_Me_Worry's picture

So many fake pandas on the market now.  I bought some from a reputable dealer and still was nervous until I measured/weighed them out.  That said, I love the lot I bought('87s and '88s) and consider them some of my favorites.

It is amazing, to me, that 90% gold eagles carry the largest premiums overall.  The pure gold coins are so much nicer.

Cannot believe Ebay does nothing about the obvious fakes that are sold from China every day on their site.

gwar5's picture

Be careful, Hong Kong had hundreds of ounces of fake gold floating around. It was very sophisticated fake gold.

It was an alloy 20% real gold with a plethora of ingredients including osmium, tungsten.  It was evil genius.

 

Eally Ucked's picture

Invest in hand held XRF analizer to solve 99% problems with fakes.

Eally Ucked's picture

The cheapest is around 1500$. 1 oz of gold, almost.

MachoMan's picture

Link?  I'm actually fancying the idea of opening up a pawn shop and plan on selling coins if I do...  and/or need a no-frills device that a monkey could operate so that employees don't buy the wrong shit while I'm busy posting on zerohedge.  The ones I've seen are in the many thousands of dollars.

Common_Cents22's picture

I was also thinking of a pawn shop.   Anyone know the basic margins you can make in buying gold jewelry and selling it to melters?  Is the good margin at the pawn shop buying gold jewelry and selling it to melters or do melters buy it cheap and get the most margin?

 

how about home jewelry buying parties?   what is the going rate for gold jewelry when people sell it for the gold?

 

 

Sokhmate's picture

DO you know/think if companies selling such device have some known or unknown reporting requirements?

JW n FL's picture

+++++++++++++++++++++++++++++++++++++

jesus_quintana's picture

What's the hive mind's opinion on buying some nice silver rounds (from a reputable dealer) rather than coins?

I'm in the UK and subject to 20% VAT on silver purchases, so every little bit helps...

Oh, and no premium on pandas here that I can see.

lsbumblebee's picture

At this point I'd recommend buying whatever you can afford. I wouldn't worry about rounds vs. coins as long as, like you said, the purchase is through a reputable dealer.

Money Squid's picture

Have someone out side the UK buy them for you, or fly to Asia (as per Simon Black) to save on the VAT. Is there a VAT in Jersey/Guernsey ?

Zeroexperience2010's picture

Are you subject to 20% VAT on silver coins? In Germany you have a 7% VAT on silver coins and 19% on silver bars, which explains why you have things called coins which are pretty heavy (1kg coins)!

There is no customs control between Germany and UK.

Edit:

just looked into something closer to the UK: Belgium has a reduced VAT of 6% on silver coins.

Botox4U2's picture

Most countries don't charge VAT (GST) on .995 + This includes the USA and Canada. If you are being charged VAT in some countries you need to confirm that this is indeed proper.

EVERYONE SHOULD WRITE THESE NUMBERS DOWN IF THEY LIVE IN THE USA OR CANADA

GOLD COINS:

The tariff number for Canada and USA is MFN - 7118.90.10 FREE

GOLD BULLION: Over 99.95% is 7108.12.11 ..... Under 99.95% is 7108.12.21 BOTH FREE

SILVER over 92.5% is 7106.91.11  under 92.5% is 7106.91.29 FREE

 

This is all from Section 14 of Customs Tariff Schedule

Please use a broker to confirm these numbers are current. Anyway is all free and there is no GST apparently

BGO's picture

If you have $$$, there are better deals than .5% over spot right here in the

good ol' US of A.

 

.9999 gold bullion @ .25% over spot all day long.

BGO's picture

Coins for sure. Bars, probably.

blindman's picture

link?  if you would be so kind sir.

BGO's picture

post an email address and I'll send you a link... or you can send email to me... proedit@gmail.com

ThisIsBob's picture

Even if not a super bargain,  seems to me that one ought to have coins of the country where one anticipates they will be sold or traded.  "Coin of the relam," and all that.

Going to be a lot more comfortable trading ammo for eagles  than for bears.

Small, portble, inexpensive devices which could quickly and accdurately test for weight and purity of something that had "GOLD" stamped on it would be handy.

Dr. Gonzo's picture

Just as long as you are bringing that gold in to the U.S. If you are taking it out they will find it before they even get to squeeze your junk. Aren't there tariffs on this sort of thing? Your are supposed to declare certain values on what you bring back or you get a smuggling charge. Plus they only let you leave with 10k in cash if I'm not mistaken which means you would have to pay an additional premium of 3% to the Hong Kong bank if you use a credit card. I don't have deep enough pockets to work this scam out but I'm sure some people are doing it. At least we know enough now to take enough $ when we go to Hong Kong to get a gold panda.

Botox4U2's picture

Aren't there tariffs on this sort of thing?

 

No as long as you declare it you can take any dollar amount of bullion out of the country. A friend of mine just flew from Vancouver via Salt Lake to Bucharest with about 90,000.00 in gold bullion...no hassle...just declare it

Gunther's picture

Something does not make sense:
Simon black states that Maple Leafs sell in HK for less premium over spot then minting costs (and cheaper then in Canada??) and Harvey Organ states that in Shanghai gold bullion trades at a premium of some 23 $ over spot.
scroll about 2/3 down:
http://harveyorgan.blogspot.com/2011/01/massive-raid-on-silver-and.html

Botox4U2's picture

Simon black states that Maple Leafs sell in HK for less premium over spot then minting costs (and cheaper then in Canada??)

 

These are fakes, beware. Either that or the seller is an idiot for losing money but hey it takes all types.  DON'T DEAL WITH CHINA is my opinion.

Dr. Gonzo's picture

 Shit. It's the silver pandas they get you on. They want almost 35% above spot for those. I just checked and you can get any quantity of gold panda at APMEX for less $59.99 over spot right now. This is the same price as their gold eagles. I had to order a few different silver pandas last week just to see what everyone is talking about. Haven't seen them yet but there is no way at this price they can replace my work horse- The Maple.  

tradewithdave's picture

Those pandas are cute.  Sure seems like the idea of a "people's republic" is really catching on.  Check out today's blog post on how you too can jump on the red wagon that's rollin' into town this week.  Just imagine tellin' the grandkids about how you came to buy those coins when they stop by to check on you when your working as a greeter at Wal-Mart.  You can buy them a Slurpee and a pretzel and show them what a U.S. dollar used to look like cause you kept an old one folded up in your wallet: http://tradewithdave.com/?p=4872

 

Eric The Red's picture

Sorry, I wouldn't trust any Chinese coin.  Lots of other choices out there.

Spigot's picture

Yes, gold plated tungsten coins usually sell at a discount. Caveat Emptor.