A Disconnect in Spot Precious Metals Prices and The Real World

I’m sure that most of you noticed that gold and silver took deep dips on Thursday and Friday. (Spot silver declined nearly 20%–almost $9 per ounce!) Then an odd thing happened last weekend: I attended a gun show deep in the American Redoubt. I was happy to see that there were four coin dealers that had rented tables there. I had brought some cash with me, hoping to buy some more silver. I also brought a few fractional gold coins to swap for silver, or perhaps even platinum. (Since spot platinum is presently priced below gold!) But my more realistic goal was to swap for silver, since there is presently a very advantageous 53.5-to-1 ratio of silver to gold prices.

But I soon found that all four dealers were sticking to their pre-dip prices. All four of them quoted me asking prices of 26 or 27 times face value for pre-1965 junk silver (90%) coins. But with the recent dip in silver futures and spot silver, the gnomes of New York said that coin dealers should have quoted me a price of around 22 or 23 times face value. Of course, in a free market, dealers can price anything wherever they’d like, and I won’t fault them for that. How can I blame them, when they probably paid 24 or 25 times face, wholesale for their current inventories of pre-1965 coins, just a couple of weeks ago. They are of course hoping that the price of silver will soon rebound. (And it very likely will.)

In the end, since the dealers were all standing firm on their pre-dip prices, I didn’t work any cash deals for silver coins or small ingots. But at least I was able to swap some “small gold” coins for a few Johnson Matthey and Sunshine Minting serialized 10 Troy ounce .999 fine silver bars.

My experience at the gun show is further evidence that the “real world” price of commodities often differ from the “official” price. In turbulent markets where we now witness huge price swings, we can expect to see these sorts of pricing disconnects more often. Be flexible, keep cash on hand to take advantage of dips, and keep close track of market moves.