Why hold precious metals?
While I am a big advocate of investing in stock indexes for the maximum long term growth potential, there are two reasons why investing some of your money into precious metals may be a good idea.
a. If you are the type of person who feels compelled to sell when the stock market is going down.
b. If you might need to take out money when the stock market isn’t doing great.
Not always, but it’s often the case that Gold and other precious metals fare better when the stock market is doing worse, and vice versa. At the moment, gold is at an all time high, while the US stock-market is also at its highest point in several years. This is largely because gold has been bolstered by the uncertainty caused by multiple ongoing wars, while simultaneously the US stock market is in the middle of something of a AI boom.
Still, when the stock market crashes is often when gold prices soar.
If you are tempted to sell your stocks whenever the market takes a dive, having a holding of gold or other precious metals might make you feel safe enough to hold onto those stock investments and ride out the plunge. This is a good thing since buying and holding has historically been the best strategy.
Likewise, if you know you will need to spend money sometime in the next few years, you should theoretically keep that money in cash – but stuff happens, and things come up. If you have money in precious metals, then you will have option selling them when the need arises. You can invest some of the money you don’t plan to spend soon into precious metals, knowing that the chances of precious metals and the stock market both dropping by equal amounts is slim.
The advantage to holding precious metals over cash is, of course, that while prices fluctuate for other reasons, metals are basically immune to inflation. With the resurgence of inflation in Japan, this is particularly relevant.
Where to buy precious metals in Japan?
For purposes of this discussion, I’m going to assume you want to get the gold in your hands, and ignore “virtual” gold, such as EFTs, etc., which only exist on the computer.
You can buy ingots from manufacturers like Ishifuku, Nihon Materials, Mitsubishi Materials, Tanaka Kikinzoku, and others.
Some of these (such as Nihon Materials and Tanaka) have physical shops you can visit to buy ingots, while several of them also have “tsumitate” schemes where you can buy a flat amount (in yen) per month, which will be credited to your account. When your account has a high enough balance, you can “withdraw” the amount in the form of an ingot. All of them have a normal mail order service as well.
Besides the above, there are various used shops around Japan which sell “used” ingots, coins, and of course jewelry.
Investing in physical gold is tricky because a large ingot costs an extremely high amount of money.
Large Ingots
For example, if you wanted to buy a 100g gold bar right now… it would be something like 220 man yen – equivalent to several months of pay. Likewise, when you sell a large bar, you have to sell the whole bar at once even if you only need a little cash. This can lead to tax liability of you netted big profits.
Small Ingots
The smaller the ingot, though, the less efficient the transaction is. To take an extreme example, a 1g ingot costs well above the market price of gold, and doesn’t make any financial sense except as a novelty.
Coins
Gold coins tend to cost more than the market price of gold in general, but there are two main types:
- Commodity coins – The value is based mainly on the gold plus a markup for minting.
- Rare coins – The value is based mainly on the rarity of the coin.
Investing in rare coins is more akin to investing in stamps or other collectibles, so we will not consider those here.
The thing to understand is that with commodity coins, the price is mostly dictated by the spot price of gold, and they are usually a better deal than very small ingots.
Jewelry
Much like coins, gold jewelry is sold at a markup from the price of the raw gold, to cover manufacturing, marketing, and packaging costs. The markup can vary from item to item and brand to brand. In order to make gold more durable as jewelry, it is often allowed with other metals, leading to a less pure gold which is worth less for investment purposes. For example, many necklaces, rings, etc., are 18k instead of 24k gold. The same thing is true for Platinum, where you will often see PT900 or PT950 instead of 100% pure platinum.
Used coins and jewelry
Theoretically, gold is gold, and it doesn’t matter if it’s “used” or not – but especially for coins and jewelry, people will may more for a new pristine one than a scratched up used one. Even a scratched up coin will be worth at least the price of the gold it’s made from.
The same thing is true for jewelry: Even a scratched up or broken piece of jewelry is usually worth at least the spot price of weight of the material it’s made from, discounted for purity.
Ingots are discounted only very slightly, since there is not much of a premium placed on them to begin with.
Where to buy used precious metals?
Let’s say you want to buy some coins or jewelry such as rings, where could you buy them? There are many shops in Japan that focus on gold and precious metals, but one interesting thing is that many of the shops are only interested in buying them, not selling them. Presumably they are selling them in bulk to manufacturers.
To be sure, there are shops that sell gold coins, platinum jewelry, etc. – but visiting lots of shops looking for the best deal can be very time consuming. If you line outside a major metropolitan area, then you may also not have a lot of choices close by.
Can you trust online purchases?
Obviously, you can trust purchases from the online stores of the ingot manufacturers – but what about other places?
If you look on Mercari or Yahoo! Auctions, you can find gold coins, and even ingots for sale used. You can also find various jewelry for sale as well – but are these real?
Sadly, there have been numerous cases where people have bought these items online and taken them to professionals to be examined, only to find that they are fake. Even in a low crime country like Japan, the temptation to take the money and run is just too high.
For example, if I bought a gold coin on Mercari and took it to be tested, it would take me some time and effort. Once the results come back, I have to contact the seller and dispute the transaction. The seller could claim that I switched the item, etc. Sure, after a number of claims their account would be banned – but not before they made a tidy profit.
As a result, I would say it’s advisable to stay away from any one on one personal transactions – online or in person.
So then the question is what companies might be selling coins and jewelry online.
Visiting a local “Hard Off” store recently, I noticed they had a few gold coins and some Gold, Silver, and Platinum jewelry.
I asked if they tested this jewelry, and they said that indeed they did test it with the proper equipment prior to buying it. For the jewelry, they estimate the ratio of the weight of any diamonds, etc. vs. the metal, but for pure metal jewelry they know the purity and weight definitively.
Since there were only a few items on display, I asked if there was any more. They told me that what I saw was all there was in stock at this store, but of course different stores had different items. More interestingly, they told me “You can always look online on the Hard Off Mall. Indeed, that is interesting!
Given that they sell everything from appliances and video games to fancy glasses and tableware, you need to search for what you want – but they do have a variety of coins and jewelry at good prices.
Most importantly, you know you’ll be getting what you pay for, since it’s a large public company and they test before they buy.
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