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SOVEREIGN MAN

Gold coins at just 0.15% above spot price

May 19, 2011
Hong Kong

[Editor's note: Tim Staermose is filling in for Simon today who is out looking at property for the next several days.]

Two days ago I hit the banks along Des Voeux Road in Central Hong Kong to check out what gold bullion coins are available, and what the banks are charging.

Oddly enough, last time I reported on this, we got a lot of blowback from our readership, saying the “cheap” prices I quoted had to be incorrect.

Some people even accused me of making it up.

Well, let me again go on the record as saying that Hong Kong is “hands down the cheapest place in the world to buy gold coins.

Well, on Tuesday afternoon at 3:39pm, when spot gold was trading at the equivalent of HK$11,597 an ounce (US$1,490), Hang Seng Bank was selling a 1-ounce Krugerrand coin for HK$11,605.

That’s a minuscule 0.15% above the spot price.  If any of you know somewhere else in the world I can buy gold bullion coins for less, please LET ME KNOW! Needless to say, I put my money where my mouth is and bought an ounce.

20110519 Krugerrand and Receipt Version B 300x225 Gold coins at just 0.15% above spot price

My new coin and receipt showing 0.15% above spot

 

At the same time, Hang Seng Bank was quoting HK$12,130 (US$1,558.48) for 1-ounce Australian Kangaroo Nugget coins.

That’s a premium of 4.6% above the spot price of gold prevailing at the time.  (I was on the phone to my friend who gave me the then prevailing spot gold price from Kitco.com).

Nothing else was in stock at Hang Seng Bank.  I asked about SILVER bullion coins, too.  They didn’t have any.  The teller, whom I recognized from my many previous visits, said that in her 17 years of working at the bank, they’ve actually never stocked silver coins.

Over at the Bank of China, just a few doors down from Hang Seng, they had the full complement of Canadian Maple Leaf gold bullion coins in stock… 1 Oz, 1/2 Oz, 1/4 Oz, 1/10th Oz, and 1/20th Oz were all available.

Prices were HK$12,127 for the 1-ounce size,  HK$6,152 for the 1/2-ounce size, HK$3,158 for the 1/4 ounce coin, HK$1,325 for the 1/10th of an ounce coin, and HK$762 for the smallest of the lot — the 1/20th of an ounce size coin.

In US$ terms, that translates into US$1,558.10 for the 1-ounce Maple Leaf.  That was a 4.57% premium to the spot price.

Interestingly, the Bank of China’s own preferred coin, the Chinese Panda, was only available in the 1/2 Oz size.

They wanted HK$6,114 (US$785.54, or US$1,571.08 for an ounce).

That was 5.4% above spot gold for those, which if you do some checking around, is actually a VERY GOOD price.

The Maple Leaf half ounce coin at the same time, as per the prices I’ve quoted above, was selling at HK$6,152 (US$790.42, or US$1,580.84 for an ounce).

So, the premium on the half-ounce Maple Leaf was 6.1%, versus just 5.4% for the Panda.

This is the REVERESE of what you’ll find in North America, where the Chinese Panda coins always tend to trade at the largest premiums to spot.

A quick check online (admittedly not the same as going to a bunch of dealers in person) shows premiums for the half-ounce Panda, for example, of as much as 9%.  See, for instance:

www.onlygold.com/coins/ChinesePandasFullScreen.asp

I’ve said before that, for the right person, traveling to Hong Kong solely for the purpose of buying gold coins can make a lot of sense.  The money you save on buying your stash of coins, will save you a bunch of money… perhaps enough to pay for your entire trip.

So, you’ll have had a holiday in one of the world’s most interesting and dynamic cities essentially for free.

On a 50-ounce purchase, at $1,500 an ounce, every 1 percentage point you can save in premium is equivalent to $750.

Typical premiums on Krugerrands in Europe and North America that I’ve seen range from 3% to 6%.  (Again, please let me know if you have a source that is considerable cheaper).

Compare that to the 0.15% premium I paid in Hong Kong and on a 50-coin purchase, you’ll save over $2,100, which would be well worth the effort for some people.

Looked at another way, you get MORE GOLD FOR YOUR MONEY in Hong Kong than anywhere else I know.

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About the author: Born to a Danish father and British mother, in Dar Es Salaam, Tanzania, Tim Staermose has led an international life since the day he was born. Growing up, he also lived in Egypt, Denmark, and Singapore, before eventually settling in Australia, where he completed his education and took out citizenship. Since then he has also lived and worked in Hong Kong, and Manila, Philippines, in the field of equity research — both for a bulge-bracket Wall Street investment bank, and for an independent investment research firm. Today, when not traveling the globe looking for investment and business opportunities for the Sovereign Man community and catching up with his diverse, multinational group of friends, he divides his time between Hong Kong, and the Philippines.

Comments on this entry are closed.

  • Dcrain99

    There were a lot of fake Krugs made during the time late 1970s-1980 time period. I wouldn’t buy any Krugs from that era. 

  • wealthrat

     Hey Tim,

    You can get gold at slightly lower premiums than 3-6% in the US. The best prices I’ve found have been from Tulving (tulving.com). For example, spot is currently $1490, and they’re selling maples at spot + $35, which is approximately a 2.3% premium. It’s a bit of a hassle to get it up to Canada from there, and they don’t ship direct, so I tend to just get stuff locally.

    A site that has some comprehensive information on gold pricing in the Vancouver area for gold and silver is http://icanhazgoldbug.com.

  • wewontgetfooledagain

     Are there any problems bringing gold back to the US?

    • Staermo

      Why would you want to?  Store it in Hong Kong and you have a stash safely socked away from Uncle Sam’s prying eyes.

      But, for the record, no.  You need to declare it, but there should be no problems.

    • nomadcapitalist

      As Staermo said, why would you want to? While you’re at it, make both you and your gold a one-way affair. Book yourself a one-way ticket and stay in Hong Kong or one of the neighboring countries. Enjoy the weather. Start a business. Learn what it’s like to be treated right by a government.

  • Collini

    What Tim is saying about traveling to China to buy gold coins from them directly makes sense. If you buy enough coins you will save money even with the cost of the trip. However, I realize that not everyone has the opportunity to travel to China even if they have the means.

    I’m willing to make this trip for anyone who wants to purchase gold coins at 0.15% above spot, and all I ask in return is that you cover the cost of the trip. Plane fare, hotel, and local expenses. I would bring the gold back to you or even ship it from there if that’s legal. I’m willing to do this for several people. If anyone is interested make a post here and I’ll post my email address.

    • nomadcapitalist

      Mind you, you’re not really traveling to China, which requires a visa that is now harder to obtain (and costs $175+ with fees and Fedexing). Hong Kong is easy to get in and out of.

  • MrMister

    Switzerland you can buy all the gold and silver you want at tiny spreads to spot just as cheap as HK. I just want to make a note that I am long on precious metals, but the fear mongering people who say the world is running out of physical supply have either no clue what they are talking about or have a clear agenda to push (aka sell you physical).

    • Staermo

       Any particular places in Switzerland, or kinds of gold / silver … specific coins, bars?

      • Martel

        Do the Swiss add VAT to silver prices, like the EU countries?

  • Diogenes_

    re: That’s a minuscule 0.15% above the spot price.  If any of you know
    somewhere else in the world I can buy gold bullion coins for less,
    please LET ME KNOW!

    Bullionvault.com has gold for 0.13% above spot right now. There are also a few additional,albeit relatively minor factors in buying,holding and selling gold in their system.

    • Staermo

      I assume we’re talking large gold bars, not coins? And is that delivered…physical gold, in your hand?

      • Diogenes_

         I overlooked adding the bullion vault commission fee to the spot spread, which starts at %0.8 and goes down to %0.2. To get the %0.2 fee you have to buy at least $540k a year. Bullion vault also charges a storage and insurance fee of %0.12 of the gold per year or %0.48 for silver.

         You can sell in any amount from 1 gram up. You can buy in whatever amount current sellers are willing to sell. The gold is stored as good delivery bars in NY,Zurich and London. Bullion Vault is selling the service of trading in fractions of a good delivery bar. If you buy a whole bar you can take physical possession of it for a fee, but few would choose to do that because of the high reputation and physical safety of a good delivery bar within the accredited bullion dealer vault system.

         Otoh bullion vault accounts are now required to be reported to the irs whereas gold coins in a safety deposit box controlled only by yourself are not-until sold for capital gains. There are 2 other businesses similar to bullion vault, and all 3 strongly appear to safeguard and guarantee the sole absolute ownership by their customers of the fractions of the bars they choose to purchase.

      • nomadcapitalist

        Of course, if you are a resident of a country with no capital gains tax, or use a corporation in a zero-tax country, that may not be the case.

      • Diogenes_

        Correction to above:
         I overlooked adding the bullion vault commission fee to the spot spread, which starts at %0.8 and goes down to %0.02. To get the %0.02 fee you have to buy at least $600k a year.

  • Jammer56

    The point is in your first post you said “it certainly presents an interesting arbitrage opportunity”. That seemed to be the main point of the whole post. You could buy cheap gold, come home and sell it for a profit.

    But that does not seem possible. You may be able to buy cheaply which is good if you are investing, but you cannot just come home and sell that gold for a profit.

    As was asked in the comments in your first thread please provide details of how one can bring that cheap gold back and sell it for a profit. If you take it to a dealer it seems that you will lose out for sure.

    • Dwestall2

      Sell on bulliondirect.com. They have a trading system that works just like selling stocks. There is a bid and ask price. You can also place a limit order. Works great. I watch Monex.com for streaming live prices to make sure I get a good price.

  • CarmA

    Re: Well, on Tuesday afternoon at 3:39pm, when spot gold was trading at the equivalent of HK$11,597 an ounce (US$1,490), Hang Seng Bank was selling a 1-ounce Krugerrand coin for HK$11,605.

    (11,605 / 11,597) – 1 = 7bps

    • Staermo

       Typo…HK$11,587 was the equivalent gold price at the time.  The point remains the same.  CHEAP

    • Dwestall2

      The Kugerrand and AE do not contain an ounce of gold in them. They should sell at spot or less. I never understand why they sell for a premium to the Canadian Maple leaf?

      • Jardooo

        Actualy they they are slightly heavier than one unce becouse they are not made of 9999 gold. But if you clculate it right, it is an equivalent to one once of 9999 gold…

  • Jytiu

    Firstly, u cannot buy 50 ounce at one time. Bank of china when I went two weeks ago only sold me 15 ounces over 2 days which I had to return several times.

    Second, the pandas that are not current year will Not be bought back by any bank in hong kong. Meaning if u bought the 2010, 2009, 2008 coins u need to sell them in the US or somewhere else but not in hong kong

  • Me and Only Me

    Thank you for a great post here.  Sorry, but I never buy gold coins.  I only buy 9999 gold bars that can be sold anywhere in Hong Kong and at any time.  Gold coins are too small for me. Hong Kong is a very good place to buy and sell physical gold.  Make sure you only buy from reputable dealers or banks and products from recognized producers.

  • bullion lover

     If I buy 50 or 100 Ounce in HK will I have problem at airports security flying them back to USA?

  • http://pulse.yahoo.com/_WDIDXAQPVZLRVI2LWA56F7IDO4 Daniel Fisher

     Hi,
    thanks for sharing the information related to the gold coins..This is really awesome and very useful post! I just came across to reading your blog it serve very useful information Nice blog, I really glad to used it.

  • The Anonymous Coward

    Tim, you also forget to mention that the banks (Hang Seng, BoC, Wing Lung) pay _above spot_ when you sell bullion back to them. The spread on Aussie Kangaroos and Canadian Maples is just HK$50 (~US$6.40) of any weight, and HK$40 (~US$5.10) for the PBoC Pandas. However, the cheapest way to buy physical gold in HK is the 5 troy-tael (1 troy-tael = 37.799g = 1.215 troy-oz) 99% fine bars… which bizarrely work out as _below_ USD spot.

    http://bank.hangseng.com/1/2/rates/gold-prices
    http://www.bochk.com/web/market/trading_rates/precious_metal_trading_prices.xml?section=market&level_2=trading_rates&fldr_id=279
    http://www.winglungbank.com/wlb_corporate/en/page/go_do_method=interpreter&mappingName=8ae467ae1c7894ed011c87979680022c.htm#

    • nomadcapitalist

      Yes, they do pay above spot when you sell. Again, because they view it as a transaction. Not some kooky, cumbersome store of value that no one understands. They make it up in volume. So it is indeed a great place to sell gold, too.

  • http://www.facebook.com/people/Mark-Grant/547583362 Mark Grant

    I was in china last week and bought a set of 5 2011 gold pandas over the counter of a bank.
    Im going to try and sell them and see if I make a profit to test if this actually works.
    I paid 3.8% over the spot price of gold when I bought them. This was cheaper than any listed price at the major coin dealing web sites.

    Im trying to figure out the best way to sell them.
    I live in Australia. I could list them on ebay but they charge a big fee.

    In what countries do people pay the biggest premiums for gold coins ?. Mabey I would have been better returning home via some other country and stopping off to sell them there ?

    Or I could try to hunt down some local coin collectors meeting and see if they will pay a high price for them ?

  • http://www.physicalgold.co.uk/krugerrand krugerrand coins

    Ya most of the folks interested in gold coin which have less premium and high purity.Gold coin with 0.15 is good to invest.It is near to spot price.

  • http://www.physicalgold.co.uk Sovereign coins

    Hey,nice post.Well written article. Its interesting article upon the information related to gold coins. I enjoy at the time of reading this article.I like this .Keep sharing with us.

  • Jardooo

    http://www.monex.com/liveprices
    canadian maple leafe 3% above the spot

  • nomadcapitalist

    Chinese hate silver. It’s not as shiny, not as much a store of value, and the color is similar to one that represents death in their culture. Plus, they love precious metals and lugging around a lot of silver is much more of a pain that carrying a few gold coins.

    Silver is much more widely available in Singapore, but premiums are at or slightly higher than what you’d pay from an online US silver dealer.

    Premiums are so low because people are trading in and out of gold. They love the stuff. And unlike in the Land of the Free, they believe it’s actual money. Not some kooky commodity. Premiums have to be low considering their view on PMs.

    This is part of why Asia will lead the way this century.

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