How To Buy Gold and Silver Below Spot Price

Thanks to credit card incentives, it might be possible to buy precious metals for less than their spot price.

While there is a recent weakness in gold prices, its felt most in the paper-backed ETF outflows (GLD, IAU, SGOL). At least some of that outflow is due to higher demand for the real stuff. The central banks of Germany, Japan, Switzerland and others are repatriating a sizable chunk of their physical gold holdings from storage in NY and Paris.

When it comes to individual investors, demand for physical metals is still relatively strong, judging by the increasing premiums which are being charged over silver and gold spot prices.

But why pay spot? Here’s how it might be possible to buy gold for less, or at least below the wholesale market price.

Step 1. Signup for the biggest credit card bonuses available

I recently signed up for a card that gave 50,000 bonus points after spending $5,000 within the first 3 months.

Since 1 point = 1 cent cash back in the form of a statement credit, I’m basically receiving $500 back for spending $5,000. That’s a 10% return on spend.

But it gets even better because those bonus points are in addition to the points earned normally (1 point per dollar on purchases). That means the end result is that I’m getting an 11% return on that $5,000 in purchases.

Step 2. Use your new card to buy physical gold/silver coins and bullion

I’m not going to endorse or recommend one dealer over another, but all of the big brokers who sell direct to consumers (you know, the ones advertising on the TV and radio) will accept credit card payments.

Of course they do charge a small premium on card payments to cover their processing costs, but that’s typically 2.5 to 3.0%. Here’s an example with Silver Eagles from a major dealer’s website:

pricing for silver American Eagles

Do the math… $72.32 divided by $70.20 equals exactly a 3% surcharge for paying with a card.

Even if you pay that 3% premium, if you are getting an 11% rebate the net difference is still an 8% discount in your favor. Is that buying silver below spot price? No, but it is below wholesale and market price.

Since coins typically sell for more per ounce than bullion, if you want a discount over spot price you should stick with bullion bars.

Even if you’re buying pre-1933 gold coins… many of them sell for only 5-10% above melt value. When you factor in those 11% rewards, it’s like buying them AT melt value!

Step 3. Redeem your points after meeting the spend requirement

With the card offer I signed up for, I was awarded the 50,000 points after making the $5k in purchases. I’ve already redeemed most, but this screenshot at least shows you how I’m getting 1 cent value per point:

redeeming points for cash back

Even if the card’s spend requirement for the bonus is more than you want to spend on metals right now, remember you can always go to drugstores and office supply stores and buy retailer gift cards at face value with your credit card. In order to fulfill the spend requirement, you can stock up on gift cards for sensible things like gas stations, grocery stores etc. that you can use yourself at a later date.

Which cards have the best offers in 2013?

#1. Chase Ink Plus & Bold

I have the Ink Plus. These are business cards but you can apply as an individual (sole proprietorship) using your Social Security instead of a business tax ID number. If you’re in the business of buying precious metals for investments, this is a great choice.

Go here and see my review of these cards and their best current signup offers.

#2. Cash back card offers

These will typically have lower bonuses amounts than what you will find on business cards. Most cash back cards give only a $100 to $200 spend bonus on new accounts. However at the same time, their spend requirements are usually lower; typically around $1,000 to $3,000. These are the best choice if you’re only looking to buy a couple thousand dollars worth of gold coins.

#3. Travel and airline offers

Airline cards usually offer the best value. Why? Because after meeting the spend requirement, with many of them you will receive 25,000 or 30,000 bonus miles. Depending on the airline, that’s usually enough for a roundtrip flight. If the cash value of that flight was $400 to $500, you end up getting more than 1 cent value per mile.

If you do this with a few travel credit cards, you could end up with enough rewards to largely cover the expense of a vacation for you and your significant other. Signup for a couple airline card bonuses and then a hotel card bonus and voila, you will have some of the biggest travel expenses covered.

Conclusion? Use card offers to buy coins

The legendary investor Benjamin Graham once said:

“If you were to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY.”

The credit card bonus strategy is basically how to buy gold/silver coins and bullion below spot. Or if not below spot, at least below wholesale market price (assuming you are buying from low cost dealers). It’s one of the simplest ways to gain a margin of safety on your investment of precious metals.

This article was written or last updated May 14, 2013

The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Wow you better go back to school buddy. 5000 x .01 = 50 not 500

If you read the article carefully it is correct. The $500 came from the 50,000 bonus points for spending $5000. The $5000 spent ALSO gets 1 point per dollar, which is an additional 5000 points worth $50 giving a total of 55,000 points worth $550 for spending $5000.