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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Drater's picture

suppled by Ft. Knox?

Matto's picture

I am curious about the business models of PM & coin dealers:

 

Do they purchase their coins directly from the mints around the world or are there wholesale distributors?

 

Where do they buy actual bullion, like silver bars etc?

 

It would seem their margins would be pretty slim if they have to pay above spot and then resell set slim percentage above that.

 

 

 

 

DosZap's picture

Matto,

Very few folks can buy from the US Mint direct at discount.

Most Dealers buy at a price a tad above spot,and then add their Premiums.

There are many Smelters/Dealers/Mfgrs, that make Gold and Silver, Pt,Pal, in coining bullion,bar form. A LOT.

Google it.

Many Dealers (and individuals can and buy direct).

You as an individual can but dierectly fromthe Perth Mint(the Western Aussis Gvt mint)/

 

Matto's picture

Thanks Dos! Sounds like a fairly tricky business with constantly fluctuating spot prices and exchange rates to contend with and a sales price determined by the current (not purchase) spot price. 

blindman's picture

@"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."

comment: this statement is false regarding common bullion transactions that do not

come with avoidable numismatic premiums.   gold eagle , on line, pay with credit

card , today $1461.  spot $1361.   those are the real numbers.  no 20%,

no $275 savings or profit here.  and the coin can be had for $1440 or less

at local dealers, walk in with cash, im pretty sure.  what is this, an ad for hong

kong?  

gold panda, online now, $1463. 1 oz gold. 

i don't get it.?

BurningFuld's picture

1 oz Olympic Gold 2009 Canadian Mint 9999 pure. Todays price $1403.00USD @ Kitco

DosZap's picture

Not legal tender..........

Abe Froman the Sausage King's picture

Agree with Dr. Gonzo...no way the Totalitarian States of America will ever allow an arbitrage to be pursued...especially with their biggest competitor that is Gold. Any arbitrage they aren't monopolizing is illegal.

Botox4U2's picture

Lots of counterfeit coins come out of China so beware. I would never buy coins online from overseas. Weighing them is important and this can't be done remotely. If there is a 275.00 spread then this smells very fishy and I would avoid it.

Temporalist's picture

 

The Tunisian job: How president's wife 'fled with $60m in gold bullion'

"Hang them all, but let's get our gold back first," shouted a group marching along Avenue Bourguiba.

http://www.independent.co.uk/news/world/africa/the-tunisian-job-how-pres...

Grand Supercycle's picture

Gold and silver charts bearish warning continues.

http://stockmarket618.wordpress.com

redpill's picture

I don't understand how anyone would subject any substantial quantity of real money to the review of the TSA thuggery, or at the very least letting the Feds know you have it. Kind of goes against the entire purpose.

savara's picture

No, in India VAT on gold and silver is only 1%