I try and stay away from math in these writings because eyes glaze over, but I wanted to go a little further in depth here to not only defend the silver dealers, but also tell you about other options out there.
I only started buying silver 2 years ago. I have a pedigree, with this, however. My dad was big involved with the silver run up in 1980. I was born in 1975 and spent days as a child going through cardboard cases for beer filled with dimes/nickels/pennies/quarters hunting for interesting change. I’d spend hours doing it. I was a high focused child. The years were 1981-1985 or so, and I was looking for mercury dimes, roosevelt dimes before 1965, wheat pennies, indian head pennies (yes, I did find a few of these), and buffalo nickels. My childhood had me with a starter coin collection involving indian head pennies, silver half dollar commemorative coins from the US mint, and a tube of buffalo nickels. From my mother’s side, she was a foreign exchange student in high school in 1969 in Peru and came back with a bunch of silver that I have since inherited since her passing. Not a lot in weight, but you see a lot of llamas, ashtrays, and a necklace that is black from tarnishing. I also got this little idol looking thingy with what looks to be about a gram of gold in it.
So by the time I got involved in silver in 2019, it was reliving my childhood with my parents. What started me off on this was the Sept 2019 repo issues, but I went to a coin shop after my grandfather (mom’s side) left me a roll of silver roosevelt dimes and a peace dollar. No billion dollar inheritance here. That was about $80. I told the guy I wanted bullion, and he told me to keep what I had – and showed me the shiny. Holy shit I was hooked, IMMEDIATELY.
My first thought with the coin dealer was that he was going to rip me off. See, the peace dollar had a $37 price on it. The guy said, “no” and offered $15 or the like. That got me upset, but it was from a lack of knowing anything. Turns out, my grandfather had bought that either at the peak in 1980 or 2011 – and it was cull peace dollar and would have been worth close to that then. It looked a little like my father’s handwriting, so it’s even possible that went back 40 years. Point is – I got upset because I thought he was trying to fleece me. It was an industry I did not know.
I don’t pretend to know the workings of their business. I found out, soon enough, that if you have a bad reputation, you go out of business quickly. I worked with my local coin shop in York, Steinmetz. My experiences with them have been wonderful, but also uber professional. I wanted at times to shoot the shit a little – the guy seemed really friendly, but the place was always pretty busy when I went in on the weekends. My first purchase there is when I bought on a card because I had no cash, and learned quickly that purchases on debit/credit get that passed on to you. Cash next time. Got it.
What I saw there was a ton of stuff, but I also learned quickly that the bigger the item, the lower the premiums. I just wanted to buy a few ounces (hahahahhaahha – I later became addicted) so I bought a 10 oz bar and some eagles and rounds. I saw the eagles were at like $3 premium and I felt somewhat robbed, as I saw the 10 oz bars at like $1.50 per oz. Again, I was John Snow and knew nothing. I had bought all of my physical silver before Feb 2020 in a matter of 3 months of every weekend going there and buying all I could. Sold old exercise equipment, computers, and liquidated anything useless. I was a fan mostly of the eagles for resale value (they tend to give you over spot for them back) and 90% silver. Loved the cull morgans and peace dollars, but then got “weight” with later year Roosevelts and Washingtons.
I was buying silver at like $16 and $17 and the premiums averaged like $1.75-$2. Couldn’t beat it. Silver then went to $11.75 in March or so and NO ONE had it. That’s when you buy tons on OneGold or the like. I digress….
I don’t know if these guys are buying supply from us, then hedging. I wish I knew if they did, how they did. Futures? Does this hedging create overhead?
In this LCS (local coin shop), he’s putting all of these dimes through a machine – which costs money, and time to do. He’s got coins everywhere, it’s a controlled mess. He knows where everything is. There’s a machine there to test silver. That costs money. He’s got employees. I would imagine rent on the building. Medical coverage. Accountant costs. Energy costs. And all of this is being paid for by premiums on this bullion. The numismatics there seem to not be touched.
I know this is controversial, but when silversqueeze happened, my local coin shop was cleared out. No one was selling, and he wasn’t getting in monster boxes of eagles for weeks or months from his distributor. Usually, when prices go up, you see people also coming in to sell back. This was a raid. There was virtually nothing there. No cull morgans or peace dollars, which is what I was there for. There was a no-name 100 oz bar there, and not much else. Even some of the high end pandas were sold out. The only things that were left were a few coins with rats and bats on them. Some series I didn’t give a shit about, but either way, no product.
My first thought was….he doesn’t have shit to sell. I need to look elsewhere. The online things were jokes. $45 for eagles. WTF?
I then realized what happened to the LCS. He had no idea what the hell silversqueeze was. He just saw price launch and he was cleaned out in a few hours. Done.
No product for weeks. And, perhaps he might get some product, but he’d have to pay way over spot for it. While everyone was eager to buy Eagles at $3 over spot, no one was selling to him for spot +$1. I didn’t know if this guy did much with hedging, and my guess was he was concerned about price going right back down and he’s stuck with a lot of silver he paid over spot for.
So here’s my LCS guy and he has no idea…weeks or months…until Eagles are coming in. He doesn’t know. How does someone run a business when you don’t know about re-stocking your shelves? Here’s some math, and I apologize in advance.
IF you normally sell 10,000 eagles per month at $3 premium, you have $30,000 in revenue. He was paying the distributor $2 per coin premium so he was profiting $1 per coin.
Now, I want you to pay the bills when you don’t know how many Eagles are coming in for the next 4 months? And, when you do get them, premiums are now $4 from the distributor. If you wanted to just make the same profit, you are charging $5 premium. But…..remember, you don’t know how many eagles you might get. It might be 1,000 or it might be 5,000 – but your distributor doesn’t sound too confident.
So if I get 1,000 eagles, my idea here is to charge $10 premium. I pay $4 premium, so I’m now profiting $6 per coin. But instead of selling 10,000, I’m only able to sell 1000. Instead of my revenues being $10,000 for the month, they are only 6,000.
Month 2 happens, and I am not getting any word of when I’m getting more in. I jack my rates up to $15 since the last time I did $10, the shelves were cleared in a day. I then went 3 weeks with no shipments. If I sell all of these, that’s $15,000 revenue. I normally make $10,000 so if I sell these, it’s now 50% more revenue!! Most people are pissed, but buy anyway. It takes 3 weeks to sell.
I then get a shipment of 5,000 eagles, and I put it at $12 to see how they sell. I normally WANT to sell 10,000 but if I’m only getting supply at weird times and can be cleaned out in a weekend – and the US mint is shutting down – how am I to get more eagles? Could I go months without getting a shipment? In that month, I sell 5,000 eagles at $12 each for $40,000 profit!!
THAT WAS A GREAT MONTH!!
Now, all you see is the high premium. $10….$15. Yes, it seems like you are getting crushed. But as a bullion dealer during raids, what the hell are you supposed to do? You are worried about:
- Getting your shelves raided in a single day
- Not being able to restock shelves
- Missing potential profit by undercharging which might lead to your shelves being bought out in hours.
As someone who WANTS physical, you get upset at the dealer. You call it GREED!! In the above, did the coin dealer have a good month or two? YES. Why? Because YOU want product you want to buy at $24 that you THINK is going to $100. So this guy is supposed to then move triple or quadruple volume with no hope of securing stock, paying overtime, and you want to get rich? Is he also supposed to put up lots of money to boost inventory and then you might not buy it, and he’s then on a line of credit to pay this extra inventory?
The problems I see with retail buying of bullion is where it is sourced:
- People selling coins back
Imagine you are a distributor selling eagles. You have TONS of interest, but only so many coins coming from the US Mint. The US mint can only get so many blanks from Sunshine or whatever – Sunshine also has other customers and they all want more – and are paying higher fees to jump to the top.
This is a supply/demand issue where there’s capacity to make only so much. The mints like sunshine are probably making as much product as they can. Maybe to make more, they would have to spend $10m more on expanding their plants. That’s a LOT of money to put out, and it could take 18 months for completion. They would need to first run 3 shifts and boost premiums for a SUSTAINED period of time before making that investment.
There is no dial to just “turn up” production so all of the stackers now can get theirs. This is precisely why Mike Maloney calls gold and silver Unaffordium and Unobtainium.
The second part there is people selling back. I DID sell some back when I was able to get about $30 an eagle. I took some profits and put that into expenses to fix up my one rental. I DID create some inventory for you guys to buy, but the guy was paying $4 over spot to get my eagles. DEAR GOD.
So – those of you who want physical, you have some options here.
- Pay more at a LCS or an online retailer like Apmex or SDBullion to get product. Note, that when inventories are tight, you are going to pay more in premiums. It is not THEIR JOB to make you happy with you buying at $10 over spot, and it’s not THEIR JOB to ensure you make a profit when selling back. You and 170,000 of your closest friends just announced a raid, and with that, you can clean the shelves of every retailer, in the world, in a weekend. And….where the hell are all of them getting the silver to restock their shelves in a day? They can’t. When you announce a raid, they all need to jack up the prices to prevent getting cleaned the hell out. Problem here is security. How much do you want to store at home? How much do you want to pay in premiums to get it? Does it really matter if silver is going to $100 if you pay $25 or $33 for an eagle? If your game plan is to buy at $25 and sell at $30, don’t buy physical. IF you think it might go to $50, $100, more – perhaps you buy physical and hold – perhaps sell to pay off your house, debt, or hold until Mad Max times.
- Buy bigger bricks through retail at lower price per ounce. I like 10 oz bars. 100 is too much for me, but if you have deep pockets, this might be for you. IF we moon shot one day to $100-$200 an ounce, it might be tough to move 100 oz or 1000z bricks.
- Buy KAG through Kinesis. If you have 200 KAG, minimum, you can get those 200 ounces sent to you. You have drawbacks here with getting immediate access to your metals and potential risks with regulatory bodies. I might have to then get it sent from Australia to my house over weeks and it might get stolen in transit.
- Buy in vaults. Many on Twitter are now familiar with Bob Coleman – take a look at his site here. You also have Maloney’s goldsilver.com and the silver bullion TV guys having their vault. This is not in your physical possession, but you might be able to get some good deals here and there when the online guys are charging a ton. I saw Maloney’s upcharge on silver/gold before all of this was kind of high, but he was selling one ounce increments. Shop around to find what works for you.
- Buy in OneGold – you can redeem this with the lowest premiums on Apmex. But, if prices are $11.75 and you want to back the truck up, you can – and when price recovers to $25, you can cash out OR buy product from Apmex with your account. But the lowest tier premium could be $20.
- Buy the large slices from the guys taking 1,000 oz bars off of the COMEX and slicing them up at places like Silverback precious metals. Lower premiums total than if you bought eagles. Issues may be that years down the road, people might just not want hunks of silver from an unknown mint – but you CAN get physical here in size.
- Buy on ebay – I bought a lot of junk silver here before everything went crazy a year ago. I think I was buying at 12x face then. Sometimes I bought at 11x. I wouldn’t buy .999 silver there as you can’t tell if it’s fake, and there’s a lot of fake eagles out there.
- PSLV/SLV – if you are a big time investor, you can buy in to these and take your silver out if you have so many shares. I think it’s some crazy number like 50,000 ounces, I forget – but this is not for the common person.
Overall, EVERY decision up there has pros and cons. I think most don’t realize the supply limitations to the coin dealers. I think they only look at the premiums charged and not think about the supply chain issues dealers might have to get more supply. Meaning, if they charge too little, they can be wiped out in an afternoon with silversqueeze raiders and not be able to get supply to backfill for weeks or months. If they charge too much, they risk selling nothing and losing revenue that way.
Make no mistake, I believe many of the retailers have made a good bit of money. But what you aren’t seeing is this…
Imagine a silver raid is announced and ABC online precious metals is charging $3 over spot for eagles. They have 20,000 in stock, and have no idea how quickly they could get 20,000 refilled. On WallStreetSilver, a “small” group of 170,000 people, someone posts how ABC is only charging $3 over spot for Eagles. Within 10 minutes, ABC is sold out. They have no inventory coming in for weeks. Why would they sell THAT much of a discount to their peers? IF the industry average was $6, perhaps ABC might try and be competitive at $5.75? Maybe someone else does $5.50?
It is NOT their job to make you rich. So you must make your own decision. IF you think silver might be trapped under $30 for the next decade, it doesn’t make sense to buy $23 silver with $8 premiums. However, IF you feel silver is going over $50 or $100, and you NEED to stock up for the apocalypse, what the hell do you care if you are paying $27 or $32 for an eagle?
Remember, the dealer can get cleaned out in 10 minutes, as we saw with silversqueeze. These guys need to protect their business for the next 30 years, and if premiums are too low, you dirty silver ape bastards can wipe out everyone in a weekend and put many of these guys out of business. These guys need to protect themselves, and they will have times of making great profits mixed in with years of lagging sales when silver is $13.
Do I think some of these premiums are excessive? Perhaps. In grad school, you learn this about the free market in economics.
“What is something worth? What someone is willing to pay for it”.
IF they are charging high premiums and dopes are paying that much for an eagle, what you want to do is educate them on other options. This will have the effect of lowering premiums IF there are ample inventories they can backfill with. If you have WSS announcing raids every other month, why would they lower premiums? Just buy all the time, and not announce when you would like them to raise premiums.
I want to stay away from demonizing ANYONE in business from charging whatever they need to in order to keep the lights on. Rather, I would like to spend my time educating people on how they can get access to other forms of buying physical silver, like above – and the premiums will come down, when someone is not willing to pay that for it. However, if 170,000 of your closest friends think silver will be $100 inside 1-2 years, you will have elevated buying and premiums will remain high.
Understand your options, but do not blame a guy charging you $5 for bottle water in the middle of the desert. I bought water before we got to the desert.
Question. IF you knew that in one year, water shortages would happen. Would you buy up all the water you could now and buy stock in all of the water companies? That’s kind of where I am right now. We are approaching the shortages, and the people who know this is coming are trying to get all they can and the guys who have it are trying to sell it at what they can, while they can get it.
If you want to get rich with gold and silver, buy miners. ANY of the physical you buy above probably shouldn’t be bought with the idea of “making money” by selling it back. IF it happens? Great. But this is your insurance plan. It is THEIR livelihoods.
IF you think they are gouging? This is the United States. Go into business, take out loans, and sell for lower. Undercut them, take all of their business. You may find it’s not that simple.
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