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Tuesday, February 1, 2011

The Inside Scoop

Sorry for the light posting, but it's been hectic the last week or so.  My gun classes are almost all sold out for February (woo hoo! only 2 openings left), and the PM store has been absolutely crazy.  
Note to those of you that have emailed me regarding mail order for our PM business:  Thanks!  At least right now, we don't have a need for adding this service.  We're adding more employees (we're up to 3 now!) and may offer this in the future, but right now, our local business is keeping our hands full!  I can see us adding a dedicated online/mail order biz not too far in the future.

Anyone whose been watching the spot price of gold and silver has seen how prices have been all over the board.  Up one day, down the next.  The intra-day movement has been absolutely insane!

I've been watching spot very closely over the past few weeks and trying to correlate it with the volumes of business in our store.  A Tale Of Two Worlds.

Spot - driven largely by the COMEX - has been a real head-scratcher.  In general, the dollar has been weakening (which would push up the price of gold), but selling (of futures contracts) has been just as strong (pushing prices down) - click to enlarge -

(You can go HERE to see this chart breaking down the components of a bunch of different commodities.)

In our store, it has been BUY, BUY, BUY!

We can't keep silver bullion coins and bars, in particular, in the store.  Our 'small gold' - quarter ounce and smaller - is selling very well also.

If you're in the market for some gold right now, and flinch at the price, ask your local shop if it has any "jewelry grade" coins.  These are real coins that have been pulled out of jewelry and as a result, have lost any possibility of numismatic (collector) value.  You can generally get these coins at or below spot prices.

A legitimate shop won't sell these as regular coins because they have (usually) small imperfections caused by being in the jewelry.

There are generally two ways to spot jewelry-grade gold coins - bezel or clamp marks.  A bezel is a band of metal that surrounds the coin along the rim, leaving the obverse and reverse faces of the coin visible (like in a pendant).  Sometimes, clamps (little tabs) are used on the backside of the bezel to hold the coin more securely in place.

When bezels and/or clamps are removed, they almost always leave marks on the coin.  The bezel itself will usually leave a fairly obvious "dirty ring" around the edge of the coin.  The clamps (usually 4 of them) are little tabs that are evenly spaced around the back of the bezel.

Whenever you're buying gold coins, ask to borrow (or bring) a jewelers loup to examine the rim of the coin.  Look for color differences or plain old dirt along the edge. 

Also, if you see a little nick near one edge (usually on the reverse side), look 180 degrees across the coin and see if there is another corresponding nick.  It's a dead give away the coin had clamps used.

If you see any of these indicators, ask the seller if this was in a piece of jewelry.  If they say it was, ask for their jewelry-grade pricing, and see if you can get the coin for that price.

Then never return to that store!  They're not on the up-and-up.  They've show they will screw you if given the chance.

Also, expect to take a pretty good discount when selling the coin.  It will almost always be below spot.  The value of jewelry-grade coins cuts both ways!

Please, don't get greedy.  We are seeing 2 or 3 people per day that bought gold jewelry to "flip", only to find out that it's not gold after we test it.  Craigslist, a friend-of-a-friend, or some dude on the street.

Some of this stuff is VERY good.  It's all stamped 14k.  Most also say 'Italy'.  Some of it is very highly polished brass that looks just like gold.  Some is even gold plated (but doesn't have the legally required 'GP' stamp).

If it looks like too good of a deal, I guarantee you, it is.

And don't think just because you bought it in a name-brand mall store you're getting what you paid for.

I had a lady come in last week that had just bought a gold necklace from the local mall.  Big name national brand store.

Her baby daughter had reached up and grabbed the necklace, irreparably breaking it.  She brought it in to get some cash to buy another one.

Our first test on gold jewelry is to run a rare earth magnet over the piece.  If it is some sort of plated iron, it is attracted to the magnet.  I ran the magnet near the necklace, and the lady says, "Oh, don't worry about that one, we just bought it at XYZ Jewelers".  I still had to conduct the test, and lo and behold, the necklace was ever so gently attracted to the magnet!

It was heavily plated iron.

She got on the phone with her husband, and I could nearly hear him word for word, as he was yelling so loudly!

Here's the good news:  I told her to take it back to the store with her receipt - and a magnet - and get every dime of her money back.  If they balked, I told her to make a VERY public spectical of herself until she got paid back.

Oh no, she said.  She was sending her husband to get the money back.  He just happens to be a local police officer, and he'd be going down in uniform!

I have a feeling they'll get their money back  ;-)

If you're looking for silver, you've got some ways to keep your costs down as well.  In general, that means you're going to have to buy in volume.

For instance, right now, we sell single Morgan Silver dollars for $28 and single Peace Silver dollars for $27.  We recently got in a ton of them, and are selling them at very steep discounts when bought in bulk.  We've got them packaged in 20-count tubes, and are selling them at $24 per coin for the Morgans dollars ($480 total) or $23 each for the Peace ($460 total).

I'm not sure if I've shared this before, but this is a way to determine the premium over spot you're paying for various types of bullion coins (click to enlarge) - 

Notice that the Junk Silver (1964 and older dimes, quarters and halves) has "0.715" as the amount of silver in the coins.  If you do the math (0.804 ounces x 90%) it should say 0.723.  This difference is because of the industry recognized understanding that, on average, these coins are fairly well circulated, and have lost some of their silver.

If you're going to get into buying Precious Metals, it pays to be educated.  Price and premium are two of the most important factors.  Build a similar spread sheet so that you can to shopping as an educated consumer.

Less volitile coins - small gold, Morgans and Peace silver dollars.  These tend to move up and down in price more slowly than the changing spot price

Very volitile - 100 oz bars - these things have a life of their own.  One day, they are available at spot, the next day, they're at $1.50 per ounce below, and a week later, a buck over spot.  Be very stingy when buying them, and patient when selling them.

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Copyright 2011 Bison Risk Management Associates. All rights reserved. Please note that in addition to owning Bison Risk Management, Chief Instructor is also a partner in a precious metals business. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.

1 comment:

Shy Wolf said...

Perfect- thanks, Chief.