Thursday, September 10, 2015

Precious Metals: The warning signs are already here

For me, I'm a pet rock lover. I like precious metals for 2 reasons:

1) It is the time-tested way to store wealth
2) It is (to me) cheap with plenty of upside as a speculative investment

I think not many people are interested in the pet rock these days. What a far cry from the 2009 - 2011 days where everybody seemed to be a gold expert, eh?

However, I see rumblings in the market and it is making me sit up and take notice.

First off, the insane chart that I showed back a month ago that had paper claims to physical claims to be 124:1 has now surged to become 228:1. That means that there are 227 other people holding the exact IOU that you have, but there is only 1 product available to be claimed. Problem? I think so.


As Dave from Smart Passive Cash Flow has pointed out, the physical supply is getting very, very, very tight. I trust him, but I went to verify on my own anyway.


If you don't believe me, you can go and check websites like SilverBullion or SilverAG yourself and see how many of their products are either "out of stock" or "pre-order" only. Even BullionStar is not spared and is out of some products (American 2015 Eagles, American Buffalo, PAMP 1oz)!


When both gold and silver prices were crashing in July, me being the crazy fool I was, started buying some physical precious metals.

At that time, Silver was trading at $14,80 and I had bought a stack of American Eagles and paid 23% price premium over spot for them. Today, guess whats the premium? 39%! I've done my research before and I know what are the normal price premiums for different products. 23% is the upper range of normal, so 39% is a high premium!

Even the humble Canadian Maple that usually trades 17-18% over spot is now selling for 27% over spot!

However, that's not the real problem. The real problem is: Are you even able to find a dealer that has inventory to sell you?

Today spot silver is at $14.65, but American Eagles are selling for $29.16. When I bought my American Eagles 2 months ago when spot silver was $14.80, I bought the Eagles at $24.57!

Spot prices are 1% lower, but physical prices are 18% higher? Whoa, that's weird, isn't it?

Across the board, premiums for almost all precious metals have risen, even if their underlying spot rate has not. This means that the physical precious metals market has been more robust and held up better than the market spot prices.

Even though prices of precious metals are still depressed, I am hoping that the price premiums of the products that I want to buy will drift lower so that I can accumulate more at a good price or if there is supply. RCM 10oz (my personal favourite) are out of stock everywhere, while the dealers that have inventory of Eagles and Maples have pushed up their premiums around 10% higher compared to normal periods.

My bullion of choice right now would be the 1oz Canadian Gold Maple where price premium at BullionStar is still under 4%.

I use BullionStar myself, so that's where I'm going to get my physicals. Of course, if you are interested to buy precious metals, don't take my word for it. Feel free to exercise your right as a discerning consumer and shop around and check out other dealers, but they probably have no inventory or have higher prices.

Whenever I think of precious metals, this quote always comes back to mind.
"I rather be 1 hour too early, than 1 second too late."

Full disclosure: If you enter BullionStar through my site, and you buy anything, I get a small commission.

Whether you buy at BullionStar directly or enter from my site, the price you pay does not change. The only difference is whether I get a cut for referring customers or not.

My personal precious metals investments are stored with BullionStar and I pay the same fees as any other regular customer.

7 comments:

  1. I have been buying up the coins and bars. Now waiting for the inventory to come in. It has been a good 2 months that my popular silvers are out of stock.

    ReplyDelete
    Replies
    1. So it's you that has been buying up all the inventory! Haha!

      I was about to get a 100oz Perth Mint bar, but when I checked again, no more inventory!

      There is only RCM (which has a higher premium) and Nadir (which I think is not good looking), so I'm hoping for more supply now! I'll just wait and see. If supply worsens, I'll just get RCM anyway!

      Delete
  2. Have to take into consideration the bigger spread when buying physical metals.

    ReplyDelete
    Replies
    1. Hi Joel, you are corright!

      Physical metals have price premiums over spot, especially more so for silver compared to gold.

      A lot of people make a very big mistake and assume that they can buy and sell at spot rate. Physicals never sell at spot. A dealer may only be willing to buy back at spot rate, discounting the brand, quality of preservation and denomination. This can be huge, which is why small denominations may not be the best investment.

      This market is definitely not for people that have not spent some time to learn more and understand it.

      Delete
  3. Is it a good time to buy silver bar now. Neebie here. Thanks

    ReplyDelete
    Replies
    1. Hi Anon,

      As a newbie, I would encourage you to learn more about precious metals until you can make you own decision to buy and when to buy. If you need to rely on opinions of others as buy or sell triggers, I would strongly advise against using real money. As Joel highlighted, this market is a lot more complicated that the stock market which more investors are used to.

      Buying precious metals without knowledge about how to buy, how to store and how to sell is a sure way to just burn money away.

      As for myself, I am waiting for supply in my preferred products to be available, so I have not bought anything... yet.

      Delete
  4. Thanks. Cause ppl are saying to hold silver in terms of uncertainty so thought of bbuying now. But really dun understand any of it

    ReplyDelete

Observe the house rules.