How to buy gold and silver if you're from the Philippines

Chances are, you’ve heard a friend or a relative talk about gold and silver, and how investing in precious metals, whether in coins and bullion, is a smart thing to do at this time. You may have also seen plenty of shops with the sign, “WE BUY GOLD,” and figured that there must be something going on, without really knowing what exactly. If you’re curious as to what all this is about, and how you can join in on opportunities to make money from gold and silver, read on.

From this point, I will refrain from saying “gold and silver” and simply say “gold,” but when I do, I will usually be referring to both precious metals. 

WHY BUY GOLD?

The simple reason for buying gold is: to make money. But a more detailed explanation is necessary, which I provide elsewhere.

Let us assume that you have been convinced of the great advantages there are to investing in gold, and we can move on to discuss the means by which you can purchase the precious metals.

A RELATIVELY SMALL MARKET

I’m from the Philippines, and to my knowledge there is no ‘official’ market for those interested in investing in gold. In many other countries, I am sure the situation is similar: While stock exchanges are quite accessible to most people, there is little knowledge dispersed as to how to buy gold. All those articles you may have read about how gold is going up in price may make you feel left out.

Markets for precious metals are rather informal in the Philippines, with no official channels supervising any ongoing trade. This lack of regulation (read: no taxes) may even be an incentive for you to jump in, or it may stop you from proceeding. If you are looking for the government’s protection, you can supposedly purchase gold from the Bangko Sentral ng Pilipinas, with all the taxes and government tracking it entails.

BUYING PHYSICAL GOLD

If government supervision is not a priority for you, you can check out the informal gold markets scattered throughout Binondo and Ermita in the City of Manila. From your dealings there, you can also gather information as to where auctions for gold and silver coins take place. They occur quite regularly.

COINS OR BULLION?

You will also have to decide whether you want to buy gold coins, or gold bullion. The coins are generally more expensive. There is a premium or a mark-up that takes into account the coin’s numismatic value. Numismatic value relates to the historical circumstances, including the number of specimens minted and the ‘collector’s item’ demand, of the particular coin.

If you’re not too big on the numismatic aspect, buy bullion instead. The price is more straightforward in relation to the spot price of gold, although there are certain mints and their corresponding locations of high repute that buyers tend to go for, such as Pamp Suisse, making their products pricier.

TO eBAY OR NOT TO eBAY

If you’re not familiar with the online bidding system, you might want to skip to the next section. Otherwise, read on.

The good thing about buying gold on eBay is that you will discover a variety of items that you normally wouldn’t find even if you went around town for them. However, eBay, and online buying of physical gold in general, has its drawbacks.

You might get lucky and snag a gold coin or bullion bar at a small premium, or even below the spot price, but I imagine this occurrence to be exceedingly rare. Chances are, there are other buyers elsewhere on the globe vying for the same item as you. You have to be aware of vultures in your midst. The bidding game can be a tough thing psychologically, where you have to decide at what point you unleash your maximum bid. If you do so too early, then someone might raise their maximum bid and outbid you. If you do so too late, then you might find out belatedly that someone has outbid you and that you would want to raise your maximum bid, only that there is no more time. It’s tricky, but the key is to know your limits before you proceed with the bidding. Otherwise, you might end up paying for an item you don’t really want, at 100% above the prevailing price or more.

THE RISK OF SHIPPING GOLD TO THE PHILIPPINES

Aside from the high premiums you may have to pay, there is the matter of shipping. I have heard of some bad experiences, where either an order does not show up at all, or where one is charged an exorbitant amount by Customs. If you do decide to buy physical gold online, buy only items that are covered by insurance. And make sure not to let the 45-day period lapse in which you can file a dispute at the resolution center, in case the item does not arrive.

Also important: make sure beforehand that the vendor does not overdeclare your item by mistake. Otherwise, you will have to pay a large amount of duties for no good reason.

The shipping of gold from abroad is a scary prospect, and it would be preferable for you to buy gold when you’re out of the country whether for business or pleasure. Do your research on gold shops beforehand, and then just bring some gold back home with you.

SHOULD I BUY GOLD, OR SILVER?

You will also have to decide whether to buy gold, or silver. The simplest solution is, buy both. As to the proportions, there are some things to consider.

First off, gold is undoubtedly THE medium of exchange, and in times of crisis, such as what we are facing up ahead, people are going to flock to gold. Gold is just cooler than silver. It is rarer, and its status as the ultimate money is not going to go away soon.

Having said that, silver has some things going for it as well. For one thing, it has more industrial uses than gold. This means that, provided that there is a bull market somewhere in the world even during crises, silver will remain a lucrative commodity apart from its value as a medium of exchange.

Silver is more easily tradable for other goods. If in the future you will need money for groceries, it won’t do to trade the entire gold bar or coin for the groceries. But selling a couple of ounces of silver will be just right for such an everyday purchase.

Historically, silver has been more volatile than gold, and this could be a good thing or a bad thing, depending on how you look at it. Good, if you are able to sell it at its peak price, and bad if you buy it and it stays at a relatively low level. In the latter case, it will perhaps have been better to have bought gold instead.

Recently (March 2011), however, silver has been outperforming gold, having gone up 200% in just 18 months! In the same period, gold went up about 50%. Furthermore, the gold-silver price ratio has been dropping from a record-high. It was not so long ago that the ratio was 55:1 and it is now approaching 40:1. Historically, the ratio has been much lower, at about 10:1 or even less, and silver looks poised in this direction.

So how do you allocate between gold and silver? I would suggest a 2:1 ratio, that takes into account the large potential of silver while recognizing its volatility and gold’s continued standing as universal currency. A 1:1 ratio is not so bad as well, but be prepared so that you can sell off quick in the event that the silver price is due for a decline.

HOW MUCH OF MY SAVINGS SHOULD BE IN GOLD?

The share of your savings stored as gold really depends on your consumption preferences. I’d suggest for you to invest an amount in gold wherein you have at least enough remaining liquidity for you to get by for three to six months even in the absence of your current source of income. Saving and investment is important, but should not be to the prejudice of consumption of necessities.

ONLINE GOLD TRADING

Another option for those not too particular about holding their gold or keeping it in their possession, is to purchase gold through exchanges available online. There is minimal paperwork necessary ― mostly identification and bank details to be sent through snail mail ― and the market is constant so that you can buy or sell pretty much anytime.

There are several websites for gold trading, including but not limited to GoldMoney,BullionVault and Euro Pacific Precious Metals. They guarantee a 100%-backed ownership of bullion, as monitored by a third party.

Before you go the route of online gold trading, you might want to check the ease by which you can withdraw your funds later on. If the facility does not have a function by which you can withdraw your earnings to your bank account at any time, look elsewhere. Security is another important issue, and you should read up on how the particular website ensures the safety of your money.

BEFORE YOU BID

Okay, if you’re confident in the safety of what you’re doing, you would want to fund your account. This is typically done through a wire transfer from your local bank account. Just ask your bank how this is done, provide the necessary paperwork if any, and you’re good to go. Be prepared to pay a transfer fee, from $15 to $30.

With your account funded, you can start trading. It might be helpful for you to always consider the transaction fee when making your bids. Let’s say, you want to buy an ounce of gold for $1,430, and the transaction fee is 1%. Your actual purchase price is then $1,444.30, so don’t be surprised if things don’t add up in the future if you leave out the transaction fee in your calculations.

Also, do not totally deplete your account in making your purchases. Always keep some cash in your account, by which you can pay storage fees and whatnot.

HOW TO BID

When you look at the spot market as found in sites such as Kitco, there are always two prices: the bid, and the ask. The bid is the price that buyers are bidding. The ask is the price that sellers are asking. When trading is heavy, the gap between bid and ask tends to narrow. It is rare that the bid is ever higher than the ask; this happens presumably only when sellers are overeager to dispose of their items more than bidders are eager to buy, or vice versa, but this does not last long as such offers are quickly snatched.

If you are a buyer, always look at the ask price, for an indication as to how high you may have to bid. It also holds that if you are a seller, you should look at the bid price, for an indication as to how low you may have to sell.

If you don’t want to make a drama out of the trade, and you are confident in your long-term gains, than just bid at the ask price; someone will quickly sell to you. Of course, this means less ounces or grams than you could have bought with a little more patience.

A good way to gauge whether you should buy at the moment or wait a little while is to look at the direction of the bid-ask prices. There will come a point that the bid-ask spread widens, after which the price movement goes the opposite direction.

Let’s say you want to buy at a low price. You take a look at the bid-ask spread. If the price is going up, and the spread is not widening, then that means you won’t be able to buy cheaper and you should buy already.

Now if the price is going down, how are you to judge whether you should buy already, or wait a little bit more? You wait until the bid-ask spread widens, which indicates the price is soon headed up. That will be your best purchasing price.

AN IMPORTANT MINDSET

Note that these guidelines are to maximize your purchases in the very short term. It is quite possible that in the succeeding days, or even hours, that the gold price changes directions again. You will have to be content in the knowledge that while short-term fluctuations are not predictable, you can make an intelligent guess as to the long-term prospects of your investment. As long as you keep in mind that you are buying gold to hold for a long time, you won’t be too upset or feel the need to sell as soon as the market goes down for several successive days or weeks.

GOLD STOCKS AND ETFs

There is yet another option you can take, and that is to purchase shares in companies involved in gold mining or manufacturing, and gold exchange-traded funds. For local stocks, a popular brokerage firm is CitiSecOnline. For brokerage services for foreign stocks and ETFs, check out the Nasdaq website.

FINAL WORDS

I hope that this article is of help to you. Being from the Philippines, or some other country where the acquisition of precious metals is difficult, you may have had desired to put your money in a sound investment like precious metals, but may not have known how to do so. In the Philippines, buying gold and silver to make money is still quite uncommon, but I hope that soon enough you will be one of the few who make the wise investment decision ahead of the herd.