By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
In a recent five week period, there were “hotel buyers” for four of those weeks in the Lansing, Michigan area offering to purchase jewelry, coins, paper money, gold, silver, and platinum bars, and other collectibles. Yet, in my 31 years as a coin dealer in Lansing, Michigan, I have never heard of a single “hotel seller” in this area or anywhere else in the US offering to sell bullion-priced precious metals coins and bars.
To me, it is perfectly obvious why there are no such “hotel sellers”—there is not enough profit in the retail sales of such products to cover the overhead costs of trying to sell bullion-priced gold and silver in such a venue.
Over the years, a handful of comments have been posted by readers of my columns questioning my motives in writing about precious metals at the same time that I also deal in such products (along with rare coins, paper money and some other collectibles). That is a fair question to ask of me, which should also be asked of every author. There are several factors to consider in evaluating whether any writer, especially including me, presents a good quality combination of facts, interpretations of facts, and opinions.
First, the facts should be accurate, no matter who is the author. Any writer who cannot consistently get facts correct is not worth following. I strive for accuracy but have missed an item or two over the years.
Second, you have to consider whether the author presents the complete facts. I explicitly do not. In my writings I try not to repeat what has been widely covered in other media. Therefore, my covering of facts will tend to be what is missing from or not reported by mainstream media. Generally what I seek to share are facts that the potential reader has not come across elsewhere but appreciates learning about. It is my hope that my information, when combined with what is available elsewhere, provides a more complete picture that readers can use to make better decisions. Yet, there simply isn’t time to include every possible news note, so readers must evaluate whether my choices of what to include or omit end up being misleading.
Third, the interpretation of facts and opinions expressed are not a perfect science. Writers try to bring their experience and knowledge to bear to provide insights to readers. It is up to readers to consider whether the writers have adequate support for their ideas. Here is also where bias can definitely affect what writers say. I’m not trying to trick anyone, so my articles all explicitly reveal in the author’s block that I am a coin dealer. Being a dealer gives me access to certain information that the general public might not have at all or might not learn as quickly, but there is still the risk of bias.
Now, let’s get back to the issue of whether my writing about precious metals is a marketing tool to possibly attract customers to my company, and if I should be denigrated if that is true. Well, yes I do hope to gain new customers and that has happened.
However, most people who are concerned about my promoting ownership of physical gold and silver (by the way, I am not an advocate of owning platinum or palladium) simply do not understand the economics of being a rare coin and precious metals dealer.
The reason there are no “hotel sellers” of gold and silver bullion-priced coins and bars is that profit margins tend to be 1-5% on the sell side. Among many companies that sell nationwide and have higher volume, the profits tend to be toward the lower end of that range. With only 1-3% of the public owning any physical gold or silver, it would cost more to advertise to sell such products than would be recovered from sales that are made, with two major exceptions. One, there are some companies that run national marketing campaigns that charge 30-100% above cost for what should be bullion-priced items. Because of the size of their markups, they can afford to cover huge advertising costs. Buyers can protect themselves against price gouging by doing price comparisons. Two, there are some small local dealers who will only offer to sell bullion if they have first purchased it from the public, so they can make a profit on both the buy and the sell side to achieve a higher overall profit margin.
Coin and precious metals dealers local and nationwide have a lot of competition. Sometimes the local dealer can charge a slightly higher price in return for convenience and face-to-face service. But “hotel sellers” don’t exist because they could not gain enough volume when competing with local and national sellers of bullion-priced gold and silver coins and bars on low profit-margin products.
Dealers such as me who handle both rare coins and precious metals make greater profit margins on rare coins than on bullion. If I were really trying to maximize profits for my company rather than offering my best analysis, my top priority would be to advocate that people buy rare coins. My second priority would be to tell readers that prices had peaked and they should sell me their rare coins and bullion before prices drop. My lowest priority would be advocating the purchase of gold and silver bullion-priced coins and bars. So, my focused advocacy of owning bullion gold and silver just might have more to do with actually offering my honest recommendation rather than seeking to maximize short-term profits.
As you read what I write, don’t ignore or forget that I buy and sell precious metals and rare coins. But, if you are concerned about possible bias, also understand that my recommendations are not those of someone seeking to make quick profits from readers.
If you have further interest in learning “How Do Coin Dealers Earn Their Income?” you can read the article of that title that I wrote last week and is posted at http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=25370.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed athttp://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
Great post. Thanks posting such nice post. :)
It seems like its a great time to buy gold and silver bullion!
Nice piece, Patrick. But I think you only skirted gently around the truth of hotel buyers. Their “game” is to offer obscenely low prices on gold and silver they buy. They routinely lie to sellers about weight and fineness, and use non-market prices FAR FAR below true value. In the “real world”, that outside the communities where a coin show is going on and those absent a true “brick and mortar” coin shop, the buy/sell “vig” facing physical gold or silver owners is ridiculously high. Where I live, one needs a 40% increase in bullion prices just to break even.
Also, Patrick, while your omnipresent belief that gold and silver are underpriced and are going higher made sense for NEARLY all of the last 12 years or more, it’s not looking so sprite for the last year. I was with you when metals were down, through the 1990’s and most of the 00’s. But there comes a time when one has to realize that a market is overbought and the question “How high is up?” has to be answered “About 2 months ago it topped out”.
For silver, we topped out in late April 2011, and gold in August. I don’t expect to see those levels again any time soon, if at all in my lifetime, and I’m only 57.
I agree that Patrick Heller is right to be bullish about gold and silver.
Firstly, the annual LBMA (London Bullion Market Assocaiation) gold forecasts for the year, showed, from 25 respondents, a mean averag low for the year 2012 of $1441, mean average high of $2057, and a mean average middle of $1763.
In the years that I have been observing these forecasts, they have been conservative (too low), and the most consistent of the 25 forecasters said $1590; $2100, and $1765 respectively.
With gold currently at around $1620, most market professionals expect gold to average 10% higher this year.
Secondly, we should all ask what alternative stores of value there are, which are undervalued, which are overvalued.
Particularly, we should ask what the real value is of the world’s reserve currencies, starting with the US dollar.
There are many who believe that too many dollars have been “printed”. I am not into American politics, but I believe the Bush administration overspent and undertaxed. There has always been a temptation for all governments, particularly democratic ones, to take the easiest way, and that is to borrow now pay later, which helps it to stay popular, but defers the day of reckoning to the next government and generation.
I remain incredulous that the trading value of the US dollar has remained as relatively high as it has. Heavy deficit financing is a kind of Ponzi scheme. One day enough people will get nervous, and there will be a sharp decline in confidence in and exchange value of the US dollar. There may even be a “run” on the dollar.
Other major currencies are not immune.
If or when this happens, hard assets such as gold and silver will rise in inverse proportion to the drop in value of the dollar.
The problem with your thesis, Mr. Chard, is that the numbers don’t bear it out. The whole idea that there has been a huge “printing” of dollars is partially a myth. I’d go so far as to call it MOSTLY a myth. The St. Louis Fed cranks out money supply figures weekly, and there simply IS NO huge increase in the money supply. In addition, the Velocity of Money is now LOWER than at any time since the number was first calculated in 1959.
The hyperinflation narrative simply doesn’t bear up to critical examination.
So what is my prescription?? Domestic economic growth, all of it we can get. Tell the corporate outsourcers and offshorers to go to h*ll. Tell them they are what they are – domestic economic treasoners. It should cease to be “okay” with ANYONE that our goods come from starvation wage countries. Then tell our domestic ecological idiots to go to h*ll along with the outsourcers. We need domestic production of EVERY DARNED THING – energy, including nuclear, smokestack industries, petrochemicals, EVERYTHING. The global warming thing? Go to h*ll. If the problem is truly “global” then going to China solves NOTHING! It makes it WORSE!
We need an American rebirth of “made it here” being the mantra that inspires economic patriotism. Trade is a joke. It enriches the few hugely and impoverishes many times as many. Yes, dammit! I am calling for an all out global trade war. Build it in America, or we’ll dump it in the ocean.
I’m afraid Mr. V. K. you are wrong in your wrong in your analysis. The only reason the dollar is still viable is that it holds “Reserve Status” due to the petrol-dollar distinction. More and more countries are negotiating currency swaps in their own currencies i.e. China, Russia, Iran, Pakistan, etc.
The rumblings are growing louder for a basket of reserve currencies. If that should come to fruition, with our 16 Trillion dollar deficit, and hyperinflation looming just around the corner, one can see the dire situation we are in. Fiat dollars might fool some of the people but it will not fool all of the people.
We are on the precipice of a cascading waterfall of terrible economic news about to be released shortly, and when that happens my suggestion would be to hedge yourself accordingly in precious metals and other tangible assets for you and your family’s protection. All the best.
Yet STILL, even despite all that U.S. dollar doom and gloom that the Austrian School adherants live and breathe, EVEN WITH ALL THAT, 10 Year Tresuries are STILL yielding about 1.8%, more or less day to day. Bond buyers sure aren’t concerned about inflation, hyper or even slight, are they? And at these rates, principal capital gains are about 0 likelihood. So who’s more likely to be right? A few hundred coineys infected by “ooh shiny” disease, or tens of thousands of bond buying pros? My money is on the bond traders. Sorry. No inflation coming. DEFLATION is the MUCH more present danger.
Excellent thesis by Mr Heller. The hotel buyers are mostly rip-off guys, but this is an open, free market. I don’t see any ads that print actual prices of gold/silver by carart/finess and DWT/grams. In fact, I have never seen in my life in any newspaper on the planet any buyers’ ads of anything with actual buy/sell prices, fully described, of anything – except stocks on an exchange. All I have ever seen see are ads that are trying to sell me something on sale, with vague descriptions, at rock bottom prices.
If all the economists in the world were laid end to end, they would still not reach a conclusion.
VKB’s perspective is rather narrow. What it the US governments debt as a proportion of GDP?, how does this compare with other countries?. What happens if or when all the foreign holders of US dollars decide they want to cash in their chips?
Part of my view is that the value of the US dollar, which has already fallen from 1/35th ounces of gold to 1/1600th ounces of gold in the past 40 or 50 years, is still higher than its probable real value, because of positive sentiment, and the lack of a major alternative as a reserve currency or store of value.
The dollar has further to fall. One day it may fall over a cliff.
If your assets in in dollars, it must be worth diversifying even if only as insurance.
Looking at RH’s original story, most “Hotel” and “Roadshow” gold and coin buyers pay less than market rates, often considerably less. Some of them make money by ripping people off. Much of their advertising and P.R. material is misleading propaganda. Local newspapers get advertising revenue from these people, and have little or no interest in exposing their sharp practices and poor prices, or of looking after their readers’ interests.
Reputable and reliable businesses like us, and presumably Mr. Heller’s company, tend to be more transparent over their buying policies and prices. For example, we publish the fact that our buy in rate for scrap gold is 85% of intrinsic. Most hotel buyers fail to state a percentage, although they probably pay more than the 5% to 10% offered by many of the postal cash for gold companies.
Confirmed: Britain’s Gold Was Sold Cheap to Bail Out Banks
http://truthingold.com/?p=1129
It seems like gold and silver bullion are a great investment at this time!
Even after the charter of the second United States Bank expired, financial criminal Nicholas Biddle, (routed by the superior being Andrew Jackson) continued circulating its discredited notes in Pennsylvania, and we were without a central bank for 77 years. Now we’re told we have to have it or the gravest of consequences will ensue; and observe its profound secrecy; it refuses substantive audit, implying that only its officials (and its cronies) are capable of understanding the profundities of “monetary science.” Under Biddle’s bank, which was really an Astor, Rothschild and Du Pont bank allied with The Crown, notes of branches could only be converted into specie at distant branches. The painfully clear intent was to obstruct conversion! That’s far worse than a supermarket in New Jersey handing out coupons good only at its Florida stores to its Northern shoppers. Americans can’t exchange their government’s paper for gold since before Franklin Roosevelt took power, and silver certs were phased out in June 1968. Today the government gives no commodity money for its one time promissory notes, and the organization back of the FED has a virtual lien against all private property in America. That organization can be no other than the single elitist group in global affairs refusing to release a roster into the public domain—The Pilgrims Society of New York & London. Robin Chandler Duke is current treasurer of the New York branch—she’s the widow of Angier BIDDLE Duke, who was a long time member of this, the super mafia of US/UK financial realm. USA legal tender laws have cipher effect overseas, and are headed for the same evanescent status here, as people Bellman derides as afflicted by “ooh shiny disease” see their wealth preserved and enhanced, with one caveat see http://www.nosilvernationalization.org Those thinking about affiliating with Bellman’s cotton candy concepts are advised to read “Florida Governor Laughs At Paper Gold” my May 2010 release at Silver Investor http://www.silver-investor.com/charlessavoie/cs_may10_FloridaGovernorLaughsAtPaperGold.pdf
The system Bellman so strenuously lauds can’t even keep the cost of a zinc penny below its commodity cost! And I am awash in nickels worth more than face value. Kyle Bass in Dallas owns $1 million face in nickels to take advantage of monetary profligacy of synthetic currency. Bonds? Gee, I’ll go with the “ooh shiny stuff instead without losing sleep.