As the price of silver touched a six-year low last week, the truth is that many customers of long-term dealers are still in a nice paper profit position. Many coin collectors and investors in precious metals realized years or decades ago that the U.S. dollar was destined to decline against gold and silver, and built their insurance positions at prices that are a fraction of today’s levels.
Most people do not have the wealth to be able to purchase a 100-ounce gold contract or a 5,000-ounce silver contract on the New York COMEX. Coin dealers are there to fill in the gap for collectors with smaller budgets. They make it possible for people across the country to make gold purchases as little as less than $150 or silver acquisitions at prices starting less than $20.
I have seen figures that there are around 5,000 coin dealerships across America. There are a handful that do not handle bullion-priced merchandise (such as specialists in paper money, ancient coins, or copper coinage), but that means that collectors and investors still have a wide variety of options to acquire their physical precious metals.
Let me give you some stories about how people have profited by patronizing coin dealers. When U.S. stock markets plummeted in 2000, one of my company’s customers had sold all his stocks right at the peak ahead of the decline. He came to our store to purchase physical gold and silver with the proceeds. A year later, he sold back to us half of the value of the precious metals he had acquired so that he could once again acquire the exact same stockholdings that he had sold in 2000. He about broke even on the precious metals he sold back to us in 2001, but he still had a sizeable quantity of gold and silver along with all the shares that he held before the decline. Since the price of gold was under $300 and silver under $6 at the time, the gold and silver that he still owns is worth far more today.
In late 1999, we had a husband and wife purchase a very large quantity of gold coins when the spot price was $262. They sold off a small portion a couple years ago in order to finance the purchase of a retirement home, something that they could never have afforded if they didn’t own any gold or silver.
By enabling customers to acquire physical precious metals in smaller transactions, without having to purchase commodity contracts costing tens to hundreds of thousands of dollars, coin dealers have performed a great service to their customers.
At the same time, the customers who purchased physical gold and silver have also prudently acquired financial insurance against the risk of decline in their paper assets such as stocks, bonds, and paper currencies. In doing so, they have helped to avoid become a burden on their fellow citizens should the financial world suffer even worse turbulence in the coming months than it has in recent weeks.
With the extreme gyrations in global financial markets recently, does that make the coin dealers who have sold their customers physical precious metals at far lower prices over the years into heroes? Or does it make the customers of coin dealers who had the foresight to acquire gold and silver years ago when it cost less all heroes because they now are not contributing so much to the turmoil?
Maybe “heroes” is too strong of a word to use. The coin dealers were merely trying to serve customers who were shut out of participating in the commodity markets. And their customers were just making prudent financial decisions. None of them became a dealer or a customer because they thought that one day their actions might help reduce a future financial crisis.
What about people who have purchased physical gold and silver since the peaks in 2011, but at prices much higher than today? Maybe right now they don’t think their purchases were all that sensible. I beg to differ. All the price fluctuations between the time of purchase and the time of sale don’t matter. I would not be at all surprised to see the price of gold reach somewhere between $5,000-10,000 and silver surpass $200 within the next few years. Should those levels come to pass, all those who bought physical gold at $1,900 spot or silver just under $40 spot and held onto it will also be “heroes” for doing so.
Demand for bullion-priced physical silver coins and ingots is getting stronger almost by the hour. It seems like multiple times last week that either premiums rose or that wholesalers stopped accepting orders for certain products. In either event, delivery times were stretching out further into the future. For example, one wholesaler bumped up his premium above spot for sales of 2015-dated U.S. silver Eagle dollars by $1 last week and expanded the delivery time by two more weeks beyond the predicted delays last Monday.
Many buyers of bullion-priced physical gold and silver are used to being able to visit or contact their dealer and being able to get prompt delivery or shipment their purchase. Now that almost all silver and a growing number of gold products are only available for delayed delivery, some of these customers are holding back on making payment to get in the waiting line. I definitely understand their reluctance. However, it is possible that delivery delays may get even more extreme than they did in 2008, when some silver products eventually took four months for delivery after receipt of payment. At today’s bargain prices, it would be a shame to miss out. However, for self-protection, buyers may want to avoid dealers that don’t have a long time in the business (I recommend looking for at least 20 years of experience serving customers in all kinds of markets). Most of the dealer bankruptcies and defaults in delivery this year have involved companies with short track records. That isn’t a perfect guide, but it is better than not using it.
Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects.
More Collecting Resources
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