Why Do Bullion Dealers BUY Gold At These Prices?

I was curious if any of the online dealers are buying gold at the current prices and called 2 of them. They are most definitely buying gold now. And if I were to make a bet, I would bet that more people are selling their physical gold now than were selling 4-10 months ago.

My question is why are the dealers buying gold now?

Bullion Dealers have so much more exposure to a bubble than you or I. And they are buying when the market is relatively high compared to the past couple of years. If there IS a bubble and gold prices drop quickly, can't they get hit so hard as to put them out of business?

Is there some sort of insurance product to protect them from a drop? Or do Bullion Dealers have a method to hedge against a drop?

If not, then why would they buy now if a lot more people are selling physical gold than buying physical gold? They deal in physical assets, not calls or puts. So how and why do they take these risks of buying when prices have climbed so much in such a relatively short period of time?

 

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Funny thing is that when PM's are stable like they have been for the last few years, folks don't pay much attention. When we start seeing these dramatic price spikes the folks that have fringe interest in PM's start taking notice and begin buying. My dealer can't keep gold on his shelf right now and is eager to buy anything that comes in.

 

People are horrible at calling markets. I remember when gold hit $800 people could not imagine why dealers were so stupid to still buy at these prices.

Good dealers always buy and sell, and hedge their exposure on the exchanges. If done right, the business boils down the buy/sell spread, where dealers make their money.

 

There aren't many times dealers who DON'T buy. They are always buying for less than they sell. So in a time like now with gold at $1500 they might buy a Gold Maple Leaf at $1500 and sell it for $1550. Their hope is turn right around and make that 4%.

Even if gold were to drop after they bought it for $1500, it's unlikely it would drop more than 4%. So if gold dropped $20 an ounce the next week, they can still turn around and sell it $1520, or whatever, and still make money.

 

If you carefully track spot vs the dealers buy/sell price,
you'll notice that people can buy on "emotion" rather than "facts"

spot price drops .. people buy, but they don't notice that the coin price hasn't really followed spot. Of course, spot goes up and coin price goes up.

There were a few years were I was tracking spot and only buying in certain situations where the dealers prices actually dropped too in correlation to spot. Many times it didn't.

But there are also buyers where when the price goes up, they think the whole world is going bye-bye and spot price is going to the moon so they'll keep buying until the moon comes to roost. So the dealers need the metals to sell to those people.

If you read various articles out there gold is going to $1600 or $1800 in a couple months ... "Jump on the Bandwagon ..."

 

Dealers are speculators. Speculators try to anticipate the future. What's not to like here: North Korea, Hong Kong, Kashmir, South China sea, a suspected nuke blast in Russia, hard Brexit. And don't forget that negative interest rate bwainy idea in the EU-- like bondholders are really going to put up that crap forever. I'm sure there's more...pick your poison.

 

I don't think they're "speculating" any more than a grocery store is "speculating" in milk. If you want to sell, you have to buy. If you can buy at X and sell at 1.05X (or 2X for groceries), at sufficient volume, you can do well regardless of what X is.

 

The dealers who are speculators are the ones who go out of business. The ones who make a few percent at a time are the shops that stick around for generations.

 

Congratulations on your speculation.

 

I am in business. My company supplies construction materials. It is a glorious day when we can outfit a project and realize a 10% margin. We are blessed to have a solid business with a solid future..... My sister some years ago owned a successful sporting good store in a small city. When WalMart moved to town she had to cut her margins from 80% to 50% and closed the store shortly thereafter.

Whole point is, every business is structured differently. Margins are more meaningful when you use the banks money to fund your daily operations. Margins are more personal when your own monies are at stake. But rest assured... Everyone in business is a speculator to some degree.

 

You're just rude, and have no idea what you're talking about. Let's ask some dealers if they make their money on margins or by wild guesses and speculation.

 

I would speculate that your comment is rude and that your really 12 years old.

 

Speculating is not about wild guesses. It's about anticipating the future and positioning yourself to profit from it or to mitigate something bad. Grow up and get over it.

 

Some dealers ( shhhh, don't tell stackers) use options to protect a rather sudden and larger than usual shift in pricing usually through a market partner.

 

I guess we all have a different definition then of what speculating is. If a dealer buys a Morgan dollar at the coin show because he believes he can sell it in a reasonably short time frame ( or flip it at the show) at a reasonable price that to me is speculating.

 

I suspected this, which is why I asked.

What do you mean by "usually through a market partner"?