Buy Gold & Silver! But how? Through an auction? From Classified ads?

I have been working as a dealer in gold & silver since 1992. I even own a retail business that sells gold & silver coins & bars. As such you can understand why  I believe that everyone should own some gold or silver. The question that I am going to try to answer today is how should you buy gold & silver?

The way I see it there are only three ways to buy precious metals:

1) From a dealer in the metals.

2) Through auctions such as e-bay or even an auction house.

3) Answering a classifieds ads listing.

Let’s work our way backward.

3) Answering a classifieds ads listing. This is way too time consuming. You need to find out first if the person is a serious seller or are they just trying to find out what people are willing to pay. Another challenge is finding someone that is selling exactly what you are looking to buy. Then there is the quantity that you are looking for. My educated guess is that if you find someone on a classifieds site that has exactly what you are looking for & in the amount that you are looking for, then they are probably a dealer. Simply put, the hunter has now become the hunted.

No, you will not get the best price! Not even if the dealer tells you that he is having an immediate cash flow problem! If this was true, then any dealer worth anything knows where to go to get the best price and a quick turnaround time.

I will be candid with you and tell you that I do advertise on Craig’s List.

I consider it well worth the time for me to put up an ad every few days. I am getting about two replies per ad with, on average, one of them turning into an actual sale.

When I started to research starting a web site for selling metals, I wanted to know if people would buy via the internet without knowing who is selling the metals. So I went to Craig’s List, scrolled down the section, basically copied someone else’s ad & waited to see if I was going to get any e-mails.

I was surprised by the number of responses. I had put in about 5 ads and from each ad I got between 15 & 20 e-mail responses. However, I had not closed any deals. Not one of these turned into a sale. I was getting ready to give up when I decided to try another ad, but this time putting in more information in the ad so as to eliminate or answer as many questions as there were. I finally got results! I had my first sale. This encouraged me to continue. So yes, my ad has in it the exact amount that I want to get paid. I explain that I am located in an office & do not expect to meet at night under an overpass. I still get some questions like do I have 5 coins or is that too much for me to handle. I personally don’t understand this questions because what kind of dealer would I be if I only had a few coins or bars?

To sum up, with a classified ad you are dealing with a dealer, someone who wants to meet you in a dark alley or just someone who really has something to sell & it might be just what and how much you are looking for. It might even be at just the price you are looking for. So sure, if you have lots of free time on your hands, buying through the classified ads just might work.

2) Auction house or site.

About two years ago someone called me to ask what I would pay for some gold. The questions that he was asking led me to believe he had no idea what he was talking about. It sounded like he was reading something off a package. He kept asking me up to what price I would pay for this.

I think that it makes sense because from a dealer you can buy when you want & how much you want. Still, there are things to look for when working with a dealer. As I was getting ready to launch my site, I took a look at other sites to see how much other dealers charged for the items that I wanted to sell. Now leaving aside the fact that many sites are selling things that they don’t have in stock, they are also not really telling you what you are paying for the metals. Yes, I know how to figure it out, by looking at the price that they show gold or silver at & then you look at the item price. But don’t forget they also tell you that they are updating the price at the time of check out. So what price are they really quoting you? Does this mean that if they show a price difference for lets say $50.00 per oz that this is the actual price that they are charging you? I think not because if it were so then they would tell you $50.00. So you will only find out the price after you have agreed to buy it from them.

Some of them are saying that you can buy it for as little as x above spot. Here I have found two different situations. One, the price of spot is very different then you think it is. I called someone who was advertising that they sell kilo bars at spot plus 1 ½ % so I asked what I would be charged & they quoted me about $35.00 above gold so I asked, saying that I don’t understand what spot is, lets say $800 so you are you asking me 835 & the person says that spot plus 1 ½ % is above the spot price that he is paying for gold & he was paying $827 per oz. I told him that I can sell him gold at $815 & he is paying too much for his gold & he hung up on me. Another thing that is happening is that some sites are saying silver for as little as $2.00 above silver but as you proceed with your order you find out that this is only if you are ordering 500 or more oz. 

Bottom line, do your homework and find a dealer that you can trust to sell you what you are looking for at the best price possible.

About the company: Bullion Trading LLC accepts orders of any size and processes orders using the spot price. Bullion Trading LLC only sells from their active inventory and only stocks in-demand grain, coin and bar products. Come visit our website and see for yourself at: http://www.bulliontradingllc.com/index.php       

Note: We have added a new feature to our site. You can now sign up for price alerts & get notified via email when the price of gold or silver reaches the price you want. Please see the site for more information on this exciting new feature!

First: Let me define over whom you have an edge.

In every trading market there are different categories of people trading it. They include:

In the silver futures market, there is the scalper or floor trader:  This is the trader buying & selling the item with no attachment to the product itself.

What this trader is concerned with is the difference between the bid & the ask. To explain these terms, know that every tradeable entity really has two prices.

The bid, which is what you get if you sell the item now & the ask, which is what you can buy the item for.  For example, If silver is trading at $10.50, the ‘real’ number if you want to sell it would be $10.495 & if you were to buy it you would have to pay $10.505.

This half penny in ether direction is the spread that represents the money the floor traders make when they buy from one person & sell it to another. This same system happens with everything such as wheat, sugar & even treasury bonds, etc.

The next kind of trader is the hedger. This trader can be from a gold & silver mining company to a dealer in metals.

For example, a dealer in metals gets an order and sells some coins & bars. He needs to replace this inventory that he just sold & buying from the market is the best & cheapest way to cover his position. The same thing happens when a dealer buys coins & bars but has no customer for it. He will go out & sell a contract on the market so as not to lose money should the market go against him.

The speculator. This trader buys or sells for any number of reasons. It might be that he or she is following the trend or any other system that they have. It might be that they have a gut feeling. It really doesn’t matter what the reason is. What does matter is that these are the people that are out there buying & selling & causing the market to move.

These people are helpful in the marketplace as they are providing liquidity & allowing for the markets, such as silver, the ability for the spread between the bid & ask to be only half a penny.

The concern with the different types of traders is that in most cases they don’t care about the underlying market. All that the floor trader cares about are making the half penny spreads between the bid & ask & to be able to do it many times in a day. The more such trades he makes, the more times he can earn the spread. All that the hedger cares about are that he can cover his exposure to the market so if he bought the actual silver then he needs to sell it at the best price. In most cases the hedger is not a true hedger in the sense that if he bought silver at 10.5 & now silver is at 10.51 he will try to squeeze out a little bit more & wont sell it till it gets a little higher. By the end of the day these people will try to be flat in the market.

What about the “speculator”? This person is buying or selling for his own undisclosed reasons. He or she feels that the price will go up or down. This is the person that really interests us. Why? Simply put, it is this type of trader who really moves the market.

In the end, the scalper is just trading for the ½ cent the dealer hedger is covering the base so in reality nothing that he is doing is moving the market all that he is doing is buying in one place & selling in another.

But the speculator is the only person that is causing the market to move. How? The speculator is the only one who is really holding a position.

What causes the speculator to cover their position? There are three reasons.

1) To take profit.                  

2) To cover losses.

3) Found a better market.

For reasons 1 and 3, you can’t predict where & when the speculator will get out of their position. The speculator might be using a specific dollar amount & since it is not known when he got in the market it can’t be determined what will compel him to get out. The speculator might also be using any number of technical tools available to him. He might be using trend lines, overbought & oversold levels or even just round numbers (for some reason people like to use all round number such as 10 dollars 10.50 & 11 and son on).

Don’t worry; we are starting to get closer to disclosing where you have an edge.

To some extent the speculator will have to cover losses. This is done in one of two ways:

1)     Essentially, the opposite of taking profit. The speculator says that he has had enough of losing & just bails out of the position.

2)     The speculator has a certain dollar amount that they are willing to lose. Now, remember, since it is not known what that amount is nor is it known where they got in, we simply can’t know when they will get out.

Now let me interrupt with a little story. It was back in 2002 & a customer/friend of mine comes up to my office & shows me his brokerage statement. His final balance was a little more than one million dollars. I don’t remember how long it took him to make this but it wasn’t more then three or four months. I told him to be careful because by this time I was already trading for 15 years & I knew that trading with a gut feeling cannot achieve such returns in the long run. Anyway, to make a short story even shorter, it wasn’t more then one month later, and he was back ashen faced. When I asked what was happening, he whispered “margin.”  To this day I don’t know why I had not warned him of this as I should have known that this was the only way for him to make so much in so little time. You see, the margin is a silent killer. Just the mere fact of getting a call from your broker saying that you have to pay up or else . . .

This changes the way your thought process works. From having a rational train of though of where you want to buy or sell you go to thinking what can I do to get this guy off the phone! Another thing is that for some reason or other the margin clerks only call you when the extreme is happening. I feel that if I had the ability to take the other side of any trade that is happening because of a margin call I would be extremely rich.

Now back to the program.

All three classes of traders that I spoke about before have margin issues. The least is the scalper because he isn’t really holding any positions it doesn’t really matter to him. Nevertheless, in order for someone to make a lot of money as a scalper he needs to trade on a large scale. So if a scalper trades 10 times a day with one contract of 5000 ozs silver, then each ½ penny that he makes comes to only $25.00. I don’t know anyone in this business that will be happy to earn $250 a day & remember the 5000 represents $50,000 of underlying value. Also keep in mind that no person is right all ten times. So what does the scalper need to do? He has to over trade so instead of trading just 1 contract he has to trade several.

Now the hedger has things a little better because since he has the underlying stock, his margin requirements are lower than that of a speculator. So let’s say a dealer sold his silver at $10.00 and re-buys it on the Comex. There should not be any problem because he has the money from the sale to cover any margin requirement. But what if the dealer bought some silver & sold it on the Comex as a hedge? Now he spent money to buy the silver & he needs to have extra money to cover initial margin. If the market moves against him, he will have to cover even more money. Now granted he has not lost money because the silver is his and he now has the choice of going un-hedged or he can sell some of the silver that he has at any price to give him some money to pay the margin clerks.

This brings me to another category: the silver investor.

I will not talk about selling silver short because since silver can go up & up your risk is unlimited.

But the silver buyer that is buying silver with his or her own money & owns the silver will never be forced to get out of the silver position because of the silver market. Silver can go up, down or even stay at the same price. There is no interest to pay because you have not borrowed to buy it. No margin clerk will ever call nor will any broker call you because he has found a better investment.

You remain in complete control of your investment. No one can ever tell you to get out of it. Also, since the silver remains in your possession, there can be no possibility of a bank default that should affect you.

It has been valued since the beginning of time & at no time did it make more sense to own it than today.

About the company: Bullion Trading LLC accepts orders of any size and processes orders using the spot price. Bullion Trading LLC only sells from their active inventory and only stocks in-demand grain, coin and bar products. Come visit our website and see for yourself at: http://www.bulliontradingllc.com/index.php

My name is Isaac Kahan, a silver and gold merchant for nearly 25 years. I own a successful gold and silver wholesale business selling metals to manufacturing and casting companies. The net result is that most of the jewelry made in the U.S. is manufactured with my metals.

Over the last few years, the market for the manufacture of jewelry has been exported beyond the borders of the U.S. Earlier this year, with the value of gold and silver going up, my company began to receive thousand of ounces of gold, as well as gold and silver coins for refining.

The response was so extensive that we began melting most of the coins in order to pay for them. Shortly thereafter, I decided that a wise business decision would be to position myself in the retail market and begin to sell these coins at a better value. This allowed me to place better bids for these goods. While I was well under way creating my web site, www.bulliontradingllc.com, there was a perceived shortage of these coins in the market, inevitably causing the available supply to dry up.

I am skeptical of this supposed shortage, and believe the perception of a shortage was been caused by several possible factors. I am aware that it is now difficult to find these coins and bars since thousands have been melted by my company and by my competitors as well, but in the past, if I was ever in need of large quantities for my customers, such as grain or large bars, there has always been a ready supply.

I compare the perceived shortage to going to the grocery store and asking to buy a box of 9 eggs. The grocer will tell you that eggs are only available by the dozen. This does not mean there is a shortage of eggs, rather the form you are looking for is currently unavailable.

I believe that readers with some market-sense are aware of the main reasons that gold and silver value should once again prevail in the coming year. They include:

·         Devaluation of the dollar due to the financial bailout.

·         Foreign investors have been getting burnt and the US should soon start providing relief to US held products, increasing the US dollar’s decline.

·         Gold has been proven to be the best investment of the year and the public will get wind of this, surely influencing more investment dollars into metals.

·         Investors should increase investments into metals since it has been long accepted that 10-20% of investments should be in the metals market.

·         Hedge fund money, commonly used as a means to diversify from the direct correlation of the stock market, is being asked back. These money holders will still be using this money for risk diversification and what better outlet than metals?

The Benefits to Owning Silver:

I believe it to be market-savvy to own silver. As a trader, I have been trading more silver than gold, for several reasons. Mainly because silver moves about 2-3 times faster than the same amount of gold, resulting in more bang for your buck.

I have used several different methods of trading in the silver sector of the metals market. The method I have been using for the longest period of time is called the CCI. This method, which I hope to inform the readers about through my blog, is actually correlated to the closing price of the Dow. It has been my conclusion, through the observation of the stock trends and activities, that when the Dow increased based on any number of given market conditions, silver increased in value as well. This alone should be a good reason because it illustrates a win-win situation for silver.

One the one hand, if gold were to increase and the Dow were to decrease, silver would  at least tag along with gold, not allowing for a depreciation in value. On the other hand, if the Dow increases, so should silver, since this has been the indicator for quite some time; hence the win-win situation.

Of course, given the current market fluctuations, we all need facts, reassurance, and tested logic behind our decisions. Fortunately, our resources are endless via the internet.

The question on your minds may be why silver, in fact, performed poorly this year. First, one has to realize that in the begining of 2008 gold went over $1000 and silver increased to over $20. Given that, gold then began to decline to below $700 whereas silver had a much harsher decline, reaching about $9.00. Keep in mind that the Dow was also taking a strong hit during that time as well.

My theory is rather simple.  There are only 3 possible scenarios for silver. First, if gold holds up its value, or if the Dow becomes level and ceases to decrease, silver should begin to rise, exponentially. Second, if the Dow begins to rise, it will surely influence silver to do the same. (I plan to address the industrial metal issue at another time.) The third and final scenario would be if both gold and the Dow were to decrease simultaneously, which is a highly unlikely possibility.  In the rare event that this does occur, it should not have an affect on silver since it has already declined, in relation to gold. Essentially, silver should once again gain its strength and provide investors with a sound possibility for successful investing.

About the company: Bullion Trading LLC accepts orders of any size and processes orders using the spot price. Bullion Trading LLC only sells from their active inventory and only stocks in-demand grain, coin and bar products. Come visit us & see for yourself at: http://www.bulliontradingllc.com/index.php

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Here is the track record of this Cci system. This trades only when the dow is trending up. It is not taking short trades.

Igain stands for the index gain which is silver based on the London fix.

Historical Analysis (Run All Composites): C:\CA_CCIL.TXT

———————————————————————-
Start Date: 01/03/00
End Date:   12/19/08
———————————————————————-
YEAR   GAIN     YMDD     MDD     IGAIN
—-   —-     —-     —     —–

2000  13.13%   -7.21%   -7.21%  -14.07%
2001  -5.14%  -19.36%  -19.36%   -1.31%
2002  35.66%   -7.56%  -19.36%    3.32%
2003  74.74%   -5.99%  -19.36%   27.84%
2004  28.69%  -28.97%  -28.97%   14.24%
2005  75.36%  -13.64%  -28.97%   29.47%
2006 117.91%  -27.72%  -28.97%   46.09%
2007  65.88%  -18.89%  -28.97%   14.42%
2008 -32.87%  -61.31%  -66.79%  -28.12%

———————————————————————-
SIL Buy/Hold Results
———————————————————————-

Winning Years:            66.67%
Total Gain:              +99.06%
CAR:                      +7.98%
Max. Drawdown (peaks):   -57.55%
Ulcer Index:              18.48

———————————————————————-
C:\CA_CCIL.TXT Results
———————————————————————-

Winning Years:            77.78%
Total Gain:            +1332.27%
CAR:                     +34.56%
Max. Drawdown (peaks):   -66.79%
Ulcer Index:              17.32

On a fundamental level there is no reason that the metals can’t explode. As everybody knows that the dollar is holding up because other currencies are in a worse position then the U.S. Dollar.
At the end of the day there has to be inflation as prices have to go up. I have read a good analogy that this is like someone that goes to a auction & starts to hand out to everyone ten thousand dollars. All that this does is lets people bid more at the auction. When these people are bidding up prices it is not because the prices are worth more but it is because there is more money around. This is what is happening with all the bailout money. Once all this money starts to hit the street(people) then they will have more money to pay for items hence the inflation.
In the past there has not been follow thru to the kind of action that was seen on Friday. Therefore I remain short but will use a tight stop on Monday because every now & then the market likes to surprise me.

One last note on the system trading is that these systems work for the 80% of the time that the metal markets are not trending. Every year there is 1 or 2 trending periods that last from several days to a few weeks these are the challenging times for these systems. The trick is how fast to realize that this is what is happening.