+++ Buy a lot, save a lot? +++

(from the series: Your question about precious metals - part 3)

Today I would like to address a question which rather comes from a statement of @Tommy_oh_c137 under the bar purchase of @TeilzeitKapitalist was taken:

"Would have bought directly ne ounce, save money."

Is this statement true? Basically, yes. In precious metals trading, the principle is: "The more, the cheaper." So if we buy more gold, the price I have to pay per gram goes down as a rule.

The calculation example using the 5g bar of @TeilzeitKapitalist is the following:

We assume that he bought the 5g bar for about 290€ (290€/5[g]= 58€). So he paid 58€/gram. If he now bought the mentioned ounce (nominel 31,1g gold) at a price of 1.770€, his price per gram would have reached 56,91€/gram (1.770€/31,1[g]=56,91€).

So he saves 1.09€ per gram of gold. If he would buy the 31.1g with 6 bars of 5g and one 1g gold bar, the total amount would be 1,806€ (assuming a 1g bar price of 66.00€).

A difference of 36 EURO.*

The statement is therefore plausible and realistic.

But: The same can be continued with 50g bars, 100g and even more with a kilo of gold. The more gold "I" buy, the more I approach the middle rate for gold.

Why do small bars cost relatively more than bars over 1 ounce?

I have already explained it above. The more gold is purchased by the customer, the cheaper the price per gram becomes. The same principle applies, of course, to traders who are themselves customers at the next higher instant in the purchasing chain. The more gold I purchase from banks, refineries or third party dealers, the more favorable my ratio becomes in the purchase price.

In addition to the price, there are forming and minting costs, operating, personnel and marketing costs, and shipping costs.

Let's assume that the manufacturer costs 54,03€ (ounce: 1696€ according to the stock exchange minus 0,50€ melting costs per gram) in the purchase of melted gold (melted gold or raw gold (i.e. mine gold) are to be considered differently, more about this possibly sometime). The gold is melted and poured into a 100g bar. The process costs money to the manufacturer, the so-called molding cost is 2.5€ per 100g bar.

The refiner sells the bar plus shipping costs of a flat 36€. Assuming it sells the minimum quantity of 25 pieces, the 1x 100g bar costs 5.487€ including shipping. (Originally number mistake; thanks @BregisMoon )

If this 100g bar is now minted by 10 (so is minted into 10x 10g bars) so the price per gram increases again. So instead of 2.50 euros, 3.50 euros, for example, will be due. Coined again in 5g or smaller notation, the minting costs can increase by a factor of 5.

There are also constant minting costs, where the following applies: If the minting costs remain at least the same, the share of the minting costs nevertheless increases as a percentage in proportion to the low price for the bar. Result: The gram of gold costs more with a smaller quantity (percentage calculation incoming...).

This is of course only a calculation example, because the forming costs become more expensive, the less the customer is a regular customer at the Scheid company or buys only modest quantities.

It is not uncommon for minimum purchases to be set at the beginning of each year or periodically renewed. If one should not come as a dealer on the sales, then the business relation ends faster than one can look.

Also, the form costs set here are actually set too low, but is irrelevant for the example.

The embossing and forming costs therefore describe the amount of work required on the material. If this increases due to the smaller standardization, this is reflected in the price per gram. It is not for nothing that the 1g bar costs 10€ more per gram than per ounce.

The statement whether I "save" money when I buy larger quantities is true and correct.

But... Let us come to the actually more important question for the investment in precious metals:

Does buying larger quantities of gold actually make sense?

Basically, the answer to the question depends very much on the intended use and the investment objective, which standard size is purchased. And then, of course, the wallet.

Here I also go back to the example of the 5g bar.

If we assume a portfolio with a size of approx. 5700€ and acquire a 5g bar at a price of 290 EURO, we have a weighting of 5% in the total portfolio.

So if you are aiming for 5-10% as a target for gold in your portfolio, you have already laid a foundation with this purchase.

If @TeilzeitKapitalist however, the ounce that makes more sense in terms of price goes into the vault, suddenly the entire risk allocation collapses like a house of cards. The share is then a remarkable 23.6%.

I once addressed this in another post on the subject of paper gold or physical money. We have then no more small anchor for a lifeboat, but that of a cruise ship. Whether this is sensible is a matter for debate.

So how to proceed? Not to buy gold?

Who buys gold, acts from the drive of security, the risk control, the value protection or simply investment diversification. Those who buy precious metal should therefore apply the same rules of the game as for single asset investments. The amount of precious metal in the portfolio must necessarily match the risk tolerance of each investor himself. The general rule for 5-10% precious metals in the portfolio may not apply equally to all investors. This allocation stems from the fund manager's understanding of parking a portion of value-hedged investment instruments outside of fiat money.

The principle: Gold is always worth its price does not say anything else. The sentence should also read more accurately: "Gold is always worth its purchase price until "I" sell the gold at a higher or lower price."

Whoever buys gold, therefore, buys gold in the amount of his risk allocation and, above all, appropriate to his portfolio size.

How should our protagonist proceed when the value of the portfolio increases?

The easiest way to maintain and permanently continue the risk allocation for precious metals in the portfolio is with a savings plan on an ETC certificate (value-hedged with gold, e.g. EUWAX 2 Gold from Börse Stuttgart). To do this, we calculate once the monthly savings rate on shares, put our target allocation in the ratio and save in percentage terms simply the nominal value per month to maintain the weighting. Advantage, I can increase or decrease the rate at any time, have no storage costs and still a (usually) physical deposit of the shiny precious metal. About the risks I have already written in detail in the addressed article about paper gold or physical gold (see link tree in my profile).

For those who prefer physical gold, I can recommend the method of one-time purchase. Depending on your financial possibilities this means one purchase per quarter, per half year or even per year. With this variant I proceed in such a way that I estimate my year-end volume of my depot (because I invest e.g. regularly money by savings plan or single purchase of shares) and then at a fixed time the risk allocation with gold corriegieren as far as it is possible. In our example with 5g, the purchase of 5g would be due again in the next year, because the deposit may have grown by double. It does not matter if the risk allocation has gone down to 2.5% over the year, as long as I return to my 5% share at the end of the year.

The fun fact about all this: You do it like every other fund manager. At the end of the year, at the annual report of an investment year, the risk allocation is corrected and straightened out.

At some point you will have some 5g bars in your portfolio. However, since the gold price is subject to the same fluctuations, you have an average price with your purchased bars, the gold is probably again more expensive than last time, you can probably switch to a correspondingly higher bar against a payment of a small difference (namely between the purchase and sale of the bars). Or you just leave it at that, because 1kg of gold is just about the size of a big bar of Milka chocolate... try to illustrate that with the same value of silver...

Another advantage of your denomination: You can partly sell your gold when needed and don't have to sell 1 ounce or more right away.

In no case, however, the position should deviate excessively upwards, but just as important is a sufficient amount of precious metal to prevent a purely cosmetic measure (example: 500€ in precious metals with a deposit of 100,000 euros is, just 0.5% weighting... is therefore rather a thin thread instead of anchor rope on the cruise ship).

It is clear: Who has an appropriate portfolio or a certain risk allocation in mind, which makes an investment with 100g or ounce denominations meaningful, should do this, because this is then actually the "cheaper" method of investing in precious metals.

I wish you a golden future and much success! 🍀

*the prices mentioned are actual prices of a single dealer, as of this morning around 8:30.

#gold
#edelmetalle
#fragedelmetalle
#learn