Topic: Current Precious Metals Market (a micro-economic perspective)

[Panda Halves]

The talking heads keep spouting their typical rhetoric about gold and the precious metals market. Most of them speak in abstractions and economic jargon about the price of gold and macro-trends. So, to bring things down to earth I went to my local bullion dealers for some local level market perspectives. All of them were buying, most of them were not selling any cheaper than before the recent price decline and one of them had inventory but refused to sell anything gold due to the market. In my experience is NOT typical of a cold market where fear drives prices down. While it may be true that these small time dealers may not be able to afford to sell items they bought for lower than they bought them, however they’d rather take the chance that the market is going to rebound than to sell low now and guarantee a loss. In my opinion this is optimistic and a good sign for bullion on a micro-level.

Q: My question for other forum members is what is your experience with local dealers of physical metal?
 *If the experience is the same or similar then this could be more enlightening than all the noise out there.

Happy Collecting!
PH

[ChineseCoinQuest]

Well said PH!

[exchange]

Q: My question for other forum members is what is your experience with local dealers of physical metal?
 *If the experience is the same or similar then this could be more enlightening than all the noise out there.

Happy Collecting!
PH

This Kitco thread may answer some questions.
https://www.kitcomm.com/archive/index.php?t-117709.html


exchange

[BobW]

I have found that www.tulving.com offers a good representation of the precious metals bullion market. This is not however a marketplace for buyers or sellers who are dealing in small quantities. The buy/sell spread difference is typically around $23 for one ounce American gold eagles. This is not a good source for pandas.

Tulving has been out of most silver bullion for the last two weeks.

[Batman]

On a micro-level, from what I can tell, sales of gold coins/bullion have actually risen this past week given the recent price drop.  In my opinion, this is purely a function of bullion holders averaging down their cost.  At some point this will stop. Unfortunately people that invest in bullion do not drive the price of gold.  The price is driven by the paper market.  The price trend for gold is down and that is where the traders will continue to move the price until some event stabilizes the price.  The markets (stock and gold) are moving back toward fundamental based decisions.   Since the printing of money has not, to date, driven inflation, which stoked fears over the last 4 years to buy gold, many are moving out.   

[davidt3251]

The pricing mechanism is destroyed. Who wants to buy a 1oz Canadian silver Maple for $29 when the dealer buy price is $23?

Thats a 30% loss when you drive off the lot. But this isnt a new car, its not supposed to be like this. It takes a lot of guts to buy on a 30% spread. Some buyers will wait it out.

In Vancouver I can still get 90% 'junk' silver for $14.50 per $1. (1966 and prior, .6 oz Ag in a silver dollar).

Or 14.5x. Usually US 'junk' (1964 and earlier) is about 10% higher price 17.5x. So if Canadian 'junk' were priced the way US 'junk' is selling right now (ie 20.5x) there is a deal in Canadian 'junk' as far as I can tell.

[Batman]

On a micro-level, from what I can tell, sales of gold coins/bullion have actually risen this past week given the recent price drop.  In my opinion, this is purely a function of bullion holders averaging down their cost.  At some point this will stop. Unfortunately people that invest in bullion do not drive the price of gold.  The price is driven by the paper market.  The price trend for gold is down and that is where the traders will continue to move the price until some event stabilizes the price.  The markets (stock and gold) are moving back toward fundamental based decisions.   Since the printing of money has not, to date, driven inflation, which stoked fears over the last 4 years to buy gold, many are moving out.   

With a 5% drop in gold prices this morning and the seemingly push to drive the price down to $1200/ounce in the paper market, I am going to make a little prediction.  There have been a number of large ebay/internet retailers of PM's that have popped up over the past several years.  I have to believe they are going to feel a painful squeeze in the coming months as gold prices continue to drop.  Profit margins are evaporating over night with such large gyrations as many of these retailers have very tight operating profits.  Look for liquidation sales in the very near future.  My guess is you will see a flood of ebay auctions as many will have to raise cash most likely at a loss.

[Honus]

With a 5% drop in gold prices this morning and the seemingly push to drive the price down to $1200/ounce in the paper market, I am going to make a little prediction.  There have been a number of large ebay/internet retailers of PM's that have popped up over the past several years.  I have to believe they are going to feel a painful squeeze in the coming months as gold prices continue to drop.  Profit margins are evaporating over night with such large gyrations as many of these retailers have very tight operating profits.  Look for liquidation sales in the very near future.  My guess is you will see a flood of ebay auctions as many will have to raise cash most likely at a loss.

I sort of hope you're right, Batman.  Not that I'm hoping for gold prices to plummet, but it would allow me to go buy some since all my gold and chinese pandas sank yesterday when my rowboat tipped over...I got startled by what I thought was an NSA drone coming at me, but it was just a large bird swooping down.    There are strong hands in this market, and as always, some weak hands, and there will be damage...and I have dry powder, so maybe you'll be right and those of who are long-term collectors will be able to find some nice deals and fill some collection holes here and there.  I certainly do not wish business distress on anyone...I've been there myself, and there's already more than enough of that, but I do fear there will be a lot of heartache and distress and financial loss.  And assets (in all markets) will have to transfer from weak hands to less-weak hands, and hopefully there are rewards for those people out there who aren't buried in debt and who sacrificed to stash some savings away.

[pandamonium]

Silver went under $20 oz.  This reminds me alot of 2009 when metals were dropped in price.  Could there be another crash in the works?  I don't know.  Something is cooking behind the scenes and we will find out soon enough. .......

[Flegend35]

This happened in the eighties when gold went down to 200 and didn't move for 20 years. Some of the Coin dealers and Gold Buyers I refine for are stubborn and think that gold and Silver are going to rebound.Quite a few of them have Gold and Silver lots in pool accounts. I have one guy who has around 8000 oz of silver. Probably down around 50k...

[Honus]

Some of the Coin dealers and Gold Buyers I refine for are stubborn and think that gold and Silver are going to rebound.

Well I guess we know which camp you fall into then!

[pandamonium]

I don't see how they can keep prices down.  China's gold purchases for the year are now equal to entire world's production for the year.  Any knock down in price has got to be temporary.  The Master Manipulators, strong hands, are shaking out the weak hands.......same old story. ........

[GDG's]

1999 Gold was appx. 300.
2004 Gold was appx. 400.
2008 Gold was appx 800
2010 Gold was appx 1050
2012 Gold was appx 1450
2013 Gold is appx 1300
 
I think pm's were due for a pullback. I believe it is a healthy correction. I think it's safe to say we will eventually see serious inflation. I have been purchasing bullion on this pullback and will continue to do so. I had sold virtually all bullion about two years ago. 10k ozs of ag to ONE buyer in Las Vegas. I wonder if he buried it in his yard. Nice and dry out there.

[KeyDate1/2ozPandas]

I don't see how they can keep prices down.  

It is easy to understand how gold can go down even though physical demand is very strong.  The paper market for gold is 100x-150x bigger than the physical market, so when prices for gold are set at any given moment in time, the paper market determines the price, not the physical market.  To make matter worse, many to almost all of the paper instruments are not convertible to physical gold, so an unlimited number of paper shares can be created out of thin air or shorted out of thin air with 20:1-25:1 leverage with a push of a button.  For me to trade 100oz of gold futures round trip costs $4 in commissions and $10 in bid/ask spread with a margin requirement of $6400, compare that to buying physical which costs $1500 in bid/ask spread (this is wholesale spread, retail spread is $6000) and $130,000 of margin requirement. So the paper markets transaction costs are 1% of the physical market costs and investment capital requirement for paper market are 5% of the physical market requirement.  You can see why the big money prefers to trade paper vs physical.  

Back in late 70s and early 80s when Hunt brothers cornered the market, they cornered both the physical and paper markets simultaneously, which is why silver and gold prices spiked.  Then the paper regulators prevented customers from initiating new long paper positions in silver and gold and instantaneously the paper market crashed and concurrently physical market followed.  Today the paper market is overwhelming for the physical market and until everyone gets out of the paper market and invests solely in the physical market the price of gold will remain muted under normal economic conditions.  It will take serious inflation, war or major country default event to get gold to create a super spike like we had in the 1980s.

The good news is many numismatic items can do well in a flat or lower gold environment simply because the supply is so limited compared to the potential number of collectors.   The key is we need economic prosperity in China to continue, as long as you believe that number of upper middle class will rise greatly over the next 10 years everything should do well regardless of the paper gold price. US coins market peaked in 1987, despite a 7 years bear market in gold, but a 7 year bull market in economic prosperity.

Arif

[pandamonium]

Interesting comments that make alot of sense.  Here is another article that is worth the read.......


http://www.theonion.com/articles/financial-sector-thinks-its-about-ready-to-ruin-wo,32865/?ref=auto