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May 8, 2006 |
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The last time I purchased some Silver Maples was in May 2004, and the last time I made a major purchase of silver was in 2002 – I paid $4.51 an ounce for a 1,100 ounce brick (to save paying taxes). The last time I made a major purchase of gold was during a trip through New Hampshire in 2003 (again, to save paying taxes) - I paid $411 per Gold Eagle. You could say that since these most recent purchases (I started accumulating precious metals during the late 1990s) I have been a seller rather than a buyer.
Bullishness aside, as a gold investor who previously watched the $300 ounce level take many years to be broken to the upside, it is difficult not to lock in profits with $400, $500, and $600 an ounce having fallen so rapidly. Here are some of my opinions on selling. How To Sell Precious Metals As is the case with cars, selling precious metals to a dealer (or middleman) is usually not as profitable as selling directly to the consumer. From my experience, the best place to sell small quantities of precious metals directly to other investors is on Ebay. Not only are premiums attractive for sellers on Ebay, but shipping costs are covered by the buyer. The downside to selling on Ebay is that it takes days for an auction to run and if you do not have a positive rating this can negatively impact the amount of buying interest you receive. Another negative is that Ebay takes a cut, although the premiums people are willing to pay make this haircut agreeable. For instant gratification, selling smaller quantities of precious metals at certain banks (primarily Scotia in Canada) is an alternative, as is visiting your local coin/bullion shop. The downside to selling to a bank or dealer is the lack of premium received; whereas an Ebayer might pay $710+ for a 1 ounce Eagle today, you are unlikely to get much over spot (currently $678) when selling to a dealer. If you sell a lot of Eagles this price difference quickly adds up. As for unloading larger quantities of precious metals, selling privately is the best way to go. Alternatively, I have dealt with a few online exchanges and have found Kitco to be an extremely reliable. And although I may get into trouble for passing this information along, I have made what turned out to be timely sales in the past on Kitco by s-l-o-w-l-y entering my order. I’ll explain: After you have compiled the list of items you want to sell Kitco locks in your prices (using Packing Slip Creator). However, until you enter your user information your order is not complete (to the best of my knowledge hours can pass before you have to finalize your packing slip with Kitco). Essentially what this means is that with Kitco you get the option but not the obligation to sell at a certain price. This can work to your advantage in two ways: 1) You lock in an order to sell 10 ounces of gold at $850 an ounce. 10 minutes later gold is trading at $800 an ounce. You decide to complete your order to sell at $850 an ounce. 2) You lock in an order to sell 10 ounces of gold at $850 an ounce. 10 minutes later gold is trading at $900 an ounce. You decide not to complete your order to sell at $850 an ounce. The Kitco route of selling larger quantities of precious metals is something to keep in mind as gold is sure to trade wildly in the future. Even so, it is difficult to beat the spread when using Kitco -- at the time of this writing Kitco was buying Eagles at $675.80 and selling Eagles at $716.66. When To Sell Precious Metals For long-term precious metals investors unloading part of your position as prices rise is a prudent plan of action. As for newcomers that may not be holding a profitable position and/or the long-term holder thinking about selling all of their precious metals, there are three scenarios that I believe could warrant selling most or all of your precious metals: 1) Gold is surging as a currency and/or financial crisis develops and central bankers are meeting to come up with a plan to avert disaster. This is the best time to sell, or as the last of the chasers arrive moments before central banks save the fiat day (assuming they can/do). 2) A healthy global slow down/recession has or is about to arrive and foreign/emerging markets are underperforming as the US markets outperform. Under this scenario the US dollar could fall in a ‘measured’ manner and the US could remain an attractive investment destination for foreign investors. 3) You decide that you have found a better use for your money. The problem with scenario number one is readily identifiable: central bankers would probably be meeting/negotiating in secret if a currency crisis arises. For that matter, with precious metals currently surging and recent G7 and IMF efforts aimed at dealing with global ‘imbalances’, there is the possibility that we are currently seeing scenario number one unfold right now. The problem with scenario number two is less obvious in that an economic slow down could bring with it the expectation but not necessarily the reality of a financial crisis. Precious metals are strong today based, in part, on the expectation of something bad happening. A drawn out recession in America is not necessarily a bad thing. As for scenario number three, Buffett is still sitting on billions and says that he can not find “screaming bargains in the United States anywhere”, emerging markets are booming, bond yields are at historically low levels, and no one can be sure what currency will outperform. Keeping part of your portfolio in precious metals still seems prudent. Conclusions To date I have sold more than half of my precious metal holdings. Should gold reach record highs I plan on selling half of the remaining half. I do not plan on ever selling all of my precious metals, although if one of the above scenarios plays out this plan could change. As for when to buy precious metals, the financial world has woken up to precious metals story, and once an investment theme isn’t fresh any longer it runs the risk of going stale. In other words, save a major correction in precious metals I would not be a buyer of precious metals today. In my opinion a major correction would mean gold around $514 and silver below $9 an ounce. What about a possible short squeeze in silver? What about the demise of USD hegemony? What about gold being the best hedge against inflation, World War III, and the next financial crisis? While these speculations are an important consideration for the long-term precious metals investor, they nonetheless become less compelling topics of discussion as precious metals attract the hot money crowd and prices skyrocket. In summary, because I own precious metals and do not foresee a painless adjustment to an unbalanced world, I consider myself a gold bull. Beyond this label rests the contradiction that I have been, and I continue to stand ready to sell.
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