Why Do Bullion Dealers BUY Gold At These Prices?

Discussion in 'Bullion Investing' started by Good Cents, Aug 13, 2019.

  1. desertgem

    desertgem Senior Errer Collecktor

    Few dealers are exchange knowledgeable, so they can have experienced brokerage companies who for a fee, try to produce the best results from a shaky, flakey market with physical and paper assets.
    IMO, Jim
     
    Good Cents likes this.
  2. Avatar

    Guest User Guest



    to hide this ad.
  3. Good Cents

    Good Cents Well-Known Member

    Interesting.

    Do you mean they use their own physical assets and have the broker try to eek something out of that?

    I was wondering if maybe dealers buy "puts" options when gold goes up, as a hedge against the gold they are buying today at higher-than-recent prices. Of course they can lose their money if the gold price continues to go up, but then they are also making money if the price of gold continues to go up. Maybe it's just a break-even, or maybe it a way to keep ahead or keep a balance of some sort.

    If you're going to use an experienced broker and use assets and pay fees, why not just invest in regular funds or buy bonds, etc?
     
  4. desertgem

    desertgem Senior Errer Collecktor

    Now days, only the smallest firms use humans to push the buy/sell button, most are tied into computerized trading and the fast computers on a big pipe can monitor a move and make a decision based on the limits or parameters the customer gave in microseconds, before humans can notice what happens. Yes it bring memories of the big computer based crashes, but traders ( and even some big dealers) never think it will be them. Just like every coin we buy on eBay could never be bad. :) Jim
     
  5. Michael K

    Michael K Well-Known Member

    Agree with Jeff.
    Dealers are always buying and selling at the same time.
    If they always buy below spot and always sell above spot, it
    doesn't matter what the price is, they are always going to make money.
     
    Two Dogs and myownprivy like this.
  6. myownprivy

    myownprivy Well-Known Member

    Dealers don't make the big bucks buying a few coins at shows. I'd encourage you to chat with your local coin shops about their businesses and read up on the business online. They make money on tons and tons of volume which they purchase for a few percent lower than they sell. They always buy and sell regardless of the market, because their business is buying about small margins on large volume.

    The people you describe are more like individual who makes a nice living for himself selling on ebay. For example, the guy who goes to shows to buy things that he believes will make him money. These folks can make a living doing this at coin shows just as much as they can at toy shows or thrift stores. But these are NOT anything like the dealers mentioned in this thread. The bullion dealers we are talking about in this thread own brick and mortar locations and they are they buy and sell precious metals no matter what the market. They are not especially knowledgeable about numismatics, maybe not as much as the coin dealer you describe, but they certainly know more than the general public. Their business is primarily bullion and secondarily numismatics. They make their living primarily on volume.
     
  7. -jeffB

    -jeffB Greshams LEO Supporter

    The brick-and-mortar PM dealers around here, and especially the pawn shops, make money by having a LARGE margin -- making lowball offers on material people bring in.
     
  8. myownprivy

    myownprivy Well-Known Member

    haha! Let's not lump in the pawn shops with the coin shops. Most of those guys are basically crooks trying to rip people off who don't know any better.

    May I ask, if your coin shop does business in a way similar to a pawn shop (terrible spreads), how long has he been in business? Because I suspect not long.
     
  9. -jeffB

    -jeffB Greshams LEO Supporter

    I was lumping PM "We Buy Gold" places, not coin dealers, in with pawnshops.

    That said, I've gotten some very lowball offers from dealers at shows (where competition should drive them to make better offers). Not all by any means, but some. I'm sure it may be different if you're a regular or large customer.
     
  10. longnine009

    longnine009 Darwin has to eat too. Supporter

     
    Last edited: Aug 14, 2019
  11. Two Dogs

    Two Dogs Well-Known Member

    There are hedging programs available to the big dealers. When they buy from us, they can lock in a price that will guarantee them a 1% or so margin. With large volume on a commodity such as gold or silver, they can generate a profit on such a slim margin.
     
  12. Michael K

    Michael K Well-Known Member

    Yes I was only referencing gold dealers. Not coin dealers.
     
    ActionBronson likes this.
  13. Bman33

    Bman33 Well-Known Member

    It's a tight margin game for any reputable dealer. The Brick and Mortar that I go to is mostly bullion but some numismatics. Premiums have been changing on gold a lot. So he stays in business with his spreads. A few months ago his buy back on a Gold Buffalo was $10 over melt. Now it's $15 under. Still a fair price as far as I am concerned. I think his sell premiums are low too. In this market 5% doesnt get sales.
     
Draft saved Draft deleted

Share This Page