Bullion: Spot vs. Retail Pricing

Before we get into the pricing of precious metals, we need to understand why precious metals are considered investments. An investment is an item (commodity, currency or equity/stock) that has a degree of liquidity. Liquidity is the ability of an item to be converted from one form to another with relative ease. If there is no two-way market for an item, with a potential to increase or decrease in value, it cannot be considered an investment. Education is considered an investment, but only in the sense of the potential it brings of increasing one’s future income or quality of life. You can’t directly exchange what you have learned for cold hard cash, because it can’t be given to someone else to immediately use. There isn’t a secondary market for diplomas!

In a way, American Silver, Gold and Platinum Eagles are a unique kind of investment because there is not a two-way market for the items from the initial seller/market-maker. The U.S. Government sells them, but it does not, and it will not purchase them back from the buyer. The liquidity comes through the buying and selling market established by wholesale and retail buyers in the after-market. According to the instructions for wholesale buyers of precious metals Eagles, they must order following these criteria (https://www.usmint.gov/consumer/SilverAPRequirements.pdf):

• American Silver Eagles in orders of a minimum of 25,000 troy ounces in 500 oz. quantities (monster boxes). Current pricing is $2.00 over the silver spot price.
• American Gold Eagles in orders of a minimum of 1,000 troy ounces. Current pricing is: 1 oz. coins at 3% over gold spot price; 1/2 oz. coins at 5% over gold spot price; 1/4 oz. coins at 7% over gold spot price; 1/10 oz. coins at 9% over gold spot price.
• American Platinum Eagles in orders of 1,000 troy ounce minimums, 1 oz. coins priced at 4% over platinum spot price.

The website also states that all orders must be picked up F.O.B. at the United States Mint at West Point (in West Point, New York), and that the United States Mint will not repurchase its silver bullion coins. (emphasis added)

So, in addition to the substantial premium over spot that the wholesale dealer must pay just to get them from the mint, he has to find a buyer for his new product. And each middle man between the wholesale buyer to us, the retail buyer, adds a premium for his efforts in stretching the chain.

This brings up the question I get asked all of the time – how can someone purchase silver at the New York Spot Price? And the short answer is, that if you are willing to buy a large enough quantity, and you don’t mind getting the silver in shot, or crude bars of varying weights, you may be able to get it without that $2.00 per ounce mark-up. What is shot? Shot is made up of small beads of silver, much like the small pellets in shotgun shells. So what’s the problem with that? Nothing, unless you ever need to try to sell it and have to prove to the potential buyer what it is you’re selling them. It will not be in round or bar form, it will not be stamped for weight or fineness, and if you drop it, you may not be able to find it all – remember, a magnet will not attract real silver.

Depending on the quality of the silver you buy, and the quality of the product made from that silver, you can get silver rounds for substantially less than the $2.00 an ounce mark-up on wholesale American Silver Eagles. But you may run into the same problem that the wholesale buyers of Eagles have with the Mint – the seller may not want to buy your silver back. There are lots of sellers of silver that can be found on-line, but most either won’t purchase the silver you bought back from you, or they will have a high minimum quantity you need to sell them per transaction. This is when you will learn the true meaning of the word ‘value’. Before you purchase precious metals from a dealer or individual, it is good to find out what their buy-back policy is. This could save you money and a potential hardship in the future. Find a good reputable bullion or coin dealer that will treat you fairly, and develop a relationship with that person or company. If it is an individual you met through a want ad or internet site, be cautious and do your homework. Find out what a fair price is for the coins and/or rounds/bars you are thinking of purchasing. If the price is too good, there may be a problem that has not surfaced.

Be careful and have fun!


Reference: Coin World Almanac, 8th edition, Amos Media Company, 2011.