Six Valuable Lessons From Buying and Selling Silver

Yesterday morning, Kevin McElroy told you he would be buying and selling silver at a local bullion vendor. In the afternoon, he did just that – and I was there to document the proceedings. What ensued should be quite instructive for any readers who are thinking of buying or selling silver on their own soon.

Kevin bought 15 1-ounce Canadian Maple Leaf silver coins for $510. He also sold two 1-ounce Silver Eagle coins for $55.10. Why did Kevin spend so much more than he sold? As he wrote yesterday, his reasons were two-fold.  First, he wanted to build a relationship with the vendor, who opened up a shop about a mile from Kevin’s house in early April, for when he wants to unload some of the silver he bought yesterday.  And second, Kevin wanted to buy silver while it’s cheap after the metal has been beaten down over the past six months.

Another reason why Kevin bought and sold silver yesterday was to give his readers – especially those of you who have never bought or sold silver from a vendor before – a glimpse into how the process works.

Here are six valuable lessons that we learned:

1) Silver is really cheap right now. At $27.55 an ounce yesterday (it’s now moved up to $28.56/ounce), silver is as cheap as it’s been since late December. In fact, since cresting at around $43 an ounce in early September, silver has lost roughly 35% of its value. If the past 18 months are any guide, silver has now reached – as Kevin wrote yesterday – “the bottom of a strong support range.”

2) Don’t buy silver from a catalog that shows up on your front door or from watching a TV commercial. Ever. Our highly knowledgeable and forthcoming local vendor John Kirby pointed to a catalog based in New Hampshire that was selling 1-ounce silver bars for $87 a pop — $60 over the current spot price!

“That’s just sad,” John said. “It’s discouraging for the consumer.They’re selling to unsuspecting (customers) thinking they’re putting retirement away for their family. We had one lady came into my old shop with over $40,000 in coins from this company and we couldn’t pay her more than $6,000 for it. That goes to show you the mark-up. It’s vicious price gouging.”

Ordering silver through the mail from a reliable vendor even has its drawbacks. Some mail-order companies charge you $5 over spot price. Factoring in the additional shipping, processing and insurance fees can quickly add up to $7 per ounce over spot.

So it’s best to buy silver and gold directly from a vendor. John charged Kevin only $2 more than what he bought it for. That brings us to our next lesson when buying silver…

3) Vendors operate on very thin margins. Just the day before, John claimed to have bought $4,200 worth of silver just to make $130 in profits.

“The market is so volatile,” he said. “Today the market’s off 3% (from the day before), so if I sold the 150 ounces of silver that I bought yesterday at the level it should be sold at, I’m going to end up breaking even and losing my profit on it. When you’re in this business, you buy 150 ounces of silver and work on $135 of profit.”

The higher the mark-up, the greater the profit for the vendor, of course. That’s why finding someone like John who sells for just $2 an ounce more than the spot price he paid will save you oodles of money. John bought the Maple Leafs he sold to Kevin in early May, when spot prices were close to $32 an ounce. He sold them to Kevin for $34 an ounce – or 60% less than what Kevin would have paid if he’d ordered his silver through a certain New Hampshire catalog.

4) If you’re going to buy silver, Eagles and Maple Leafs are your safest bets. Those generally carry the lowest premiums.

5) Be sure to bring cash if you’re buying silver or gold. Because they operate on such slim margins, not every vendor takes credit cards – which can charge the vendor an extra 1% for each transaction.

6) The final lesson of buying and selling silver from a vendor: any vendor worth his salt is both trustworthy and knowledgeable. In addition to the low premiums Kevin paid for his silver, John bought Kevin’s silver coins for up-to-the-minute spot prices. He simply pulled up the pricing information on – a very valuable source for all things gold, silver and platinum – and paid Kevin the $27.55 an ounce they were worth at the time. Some vendors pay less than spot.

As Kevin wrote yesterday, if you don’t trust your local vendor, or don’t find him or her to be very knowledgeable, then “find another one.”

Happy Investing,

Chris Preston

Investment Reporter

Wyatt Research

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