Photo Credit: James St. John
I would like to make a public service announcement. Right now it is possible to purchase gold below spot on eBay with very little effort. In my experience this is an almost unprecedented situation. Sure, sometimes bullion dealers have specials where they sell gold coins for a couple percent over spot. But selling gold below spot? It's simply unheard of…until now at least.
Before I give the big reveal, I'd like to talk a bit about the circumstances behind how this somewhat bizarre situation came to be.
When most of us think of gold bullion, we picture 1 troy ounce bullion coins struck by sovereign governments. Some popular examples are the American Gold Eagle, the Canadian Maple Leaf, the Australian Kangaroo, the British Britannia and the Chinese Panda. There are others, of course, but this short list will keep things simple.
Gold bullion might also bring to mind bullion bars or rounds struck by private refiners and mints. Pamp Suisse, the Scottsdale Mint, Valcambi Suisse, the Perth Mint and Johnson Matthey are some of the better known names in gold bullion. These gold bars and rounds are equivalent to government issued bullion coins, with very little difference in quality and no difference in gold content.
But all conventional bullion bars, rounds and coins are sold above spot. This is because the government or private mint that strikes them, along with the distributing wholesale dealer, needs a profit margin and the only way to get that margin is by charging a price that is higher than spot. It might be a small profit margin - often between 2% and 5% for a 1 troy ounce piece - but it is a positive number nonetheless.
So the real question is why would anyone ever sell gold below spot?
Sure, you might occasionally find gold jewelry scrap sold below spot. But scrap jewelry isn't an ideal form of gold to hold because it isn't widely recognized or accepted. This is because the gold content can be difficult to verify. In addition, a refinery charge must be taken into account if you ever want to process the scrap into a usable form.
But I'm not talking about buying scrap gold jewelry here. I'm talking about buying a legitimate gold coin with a known weight and fineness struck by a well-respected government. Buying gold coins below spot is far superior compared to stocking up on junk jewelry.
Once again we are faced with the question, why would anyone ever sell gold below spot?
The magical answer to this conundrum is a concept known as sunk costs. If a coin was minted long enough ago - usually many decades - then no one is trying to make a profit on its manufacture any longer. These coins have passed through many hands over the years. All the time, effort and expertise consumed during the long-ago production of an older gold coin is considered a sunk cost. This means that the premium on common older gold coins can actually go negative in some circumstances, although typically not by very much.
But I have another trick to get these coins even cheaper. EBay allows its users to supercharge their bullion purchases through the use of its eBay Bucks program. EBay bucks rebates normally accrue on eligible purchases at the rate of 1%. But if you wait for a promotional period, it is fairly common to get special bonuses of 10%. You can then combine this with a cash-back credit card rewards program to enhance your leverage in acquiring gold below spot.
I will use an enhanced 10% eBay Bucks rate in conjunction with 1% credit card rewards as my baseline assumption for all premium calculations below.
eBay Bucks Eligible Pre-1933 U.S. Gold Coins For Sale
Using these criteria, generic pre-1933 U.S. gold coins are at the top of my shopping list. These iconic coins were struck from the 19th century right up until the Great Depression in the early 1930s. Denominations range from the small $2.50, or quarter eagle gold piece, right up to the massive $20 double eagle gold coin.
But the best thing about common-date pre-1933 U.S. gold coins is their price. These unique mementos of Americana can be found on eBay in circulated XF to AU condition at 3% to 8% below the spot price of gold (once incentives are factored in).
For example, I spotted a random-date $20 Liberty Head in AU condition (which contains 0.9675 troy ounces of pure gold) for 4.3% over spot. After accounting for eBay Bucks and credit card rewards, you could buy this coin for -3.6% under spot.
If you don't have the $1,500 to splurge on a gigantic double eagle gold coin, you could always get yourself an XF $5 Liberty Head half eagle (containing 0.2419 troy ounces of gold) for around $400. This coin sells for 7.0% over spot without eBay Bucks and -4.8% with them (at the time of writing).
But the best deal I found in pre-1933 U.S. gold coins is a $10 Liberty Head coin (with 0.4838 troy ounces of fine gold) in AU condition for 4.2% over spot before eBay Bucks and -7.3% under spot with them.
Now here is where things get really interesting in our search for gold below spot.
If you are willing to be open-minded, you can find foreign gold coins that trade for even lower negative premiums! I'm referring specifically to British gold sovereigns, 22 karat fine coins containing 0.2354 troy ounces of pure gold. These classic gold coins circulated throughout the British Empire during the 19th and early 20th century and were considered the soundest money in the world for well over a century. Gold sovereigns were even struck during the mid-20th century, primarily for use in certain Middle Eastern/South Asian countries that traditionally favored these coins above all others.
eBay Bucks Eligible British Gold Sovereigns For Sale
Right now you can get yourself a random date BU sovereign from the reign of Queen Elizabeth II for only 3.5% above spot before incentives and -7.9% below spot after eBay Bucks and credit card rewards. This nearly 8% discount to spot means that you are buying each ounce of gold for about $118 less than the going spot price of gold when it is trading at $1,500. Now that is a bargain!
But before you dive in, please read the fine print on the eBay Bucks program. It does have some stipulations and exclusions, as will any credit card rewards program that you use.
Also keep in mind that these gold coin deals are so good that they regularly sell out. That's why I don't link to the specific coins I've found, because I know that by the time I post this article they will all be gone. But there will be other deals of the same type that will be just as good, provided you exercise a little patience. And anything that allows you to buy gold below spot is worth the wait in my book.
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