Shanghai Gold Exchange Hikes Silver Margin By 20%

Tyler Durden's picture

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BigInJapan's picture

Where are all you COMMIES coming from, anyway?!?!?!

What? Really? And somebody here was flapping their lips about APMEX "gouging" people with high premiums on the weekend, and saying Gainesville was "Down for the cause" because they kept "the same low premiums".

This is capitalism in its pure form. I wouldn't sell either.

Gotta know when to hold 'em.

Smithovsky's picture

no one is saying it's bad, just the opposite - it's just good business.  demand goes up, charge more.  what's bad is that a dealer like gainesvillecoins abandons their customers when they're desperate to buy and would be more than happy to pay a higher premium because of the huge drop in price.  besides alienating their customers, the dealer is missing out on huge profits as well.  instead of both sides winning, both end up losing bigtime.  

Snidley Whipsnae's picture

"besides alienating their customers, the dealer is missing out on huge profits as well."

If Gainsville is sitting on silver eagles that they paid $44 for and they sell them for $34 would you say that is good business?

Maybe Gainsville can cover their losses with larger volumn? lol

Please think about what you are typing prior to typing.

Given the choice of alienating a few selfish custormers that think a company should sell their inventory at a loss for the benefit of the customers, or, going out of business because of heavy losses on silver sales... which choice should a prudent businessman make?

Put another way... Why should Gainsville go BK so you can make windfall profits?

 

Smithovsky's picture

I hope you're joking.  Do you think they hold millions of dollars of inventory without hedging it with futures or GLD?  Their profit comes from the premium, not from buying at 44 and crossing their fingers and praying to god that it doesn't go down.  You're showing a lack of basic understanding of commodity business.

A gold dealer usually buys $X physical and sells the equivalent amount in, say, the COMEX futures.  As they sell off their inventory, they buy back the futures.  Let's take gold American Eagles.  A business can buy them from the US mint at spot+3%, with a minimum of 1000 coins.  So let's say a business like gainesvillecoins buys the minimum when the spot is trading $1600.  They pay $1,648,000 to US mint and they sell 10 gold futures in the market at $1600 ($1.6M value).  We'll say 10 and keep capital gains taxes out of this, to keep this simple.  Now they're fully hedged and they don't care whether the price of gold goes up or down.  Now, when you buy from a gold dealer, you'll notice how prices are pretty much in line at all of them?  That's because they all charge spot+3%mint premium+their own markup (usually 1-3%).  If gold goes down to $1000, the dealer doesn't lose anything because his futures short offsets his physical longs.  His profit comes only from his own markup.  Of course, if a dealer is himself bullish on PMs then he won't fully hedge his inventory, and I'm sure some of them don't, but then their profits are a lot more volatile.  But to suggest, as you do, that a serious dealer whose minimum inventory is in the millions of dollars (some of them in the tens of millions) is not close to 100% hedged in a commodity which can move 15% in less than a week, is absurd.  In your world, if gainesvillecoins bought all their silver inventory at, say, 35 (they pay spot+$2 to the mint for silver coins), then they'd have to 'close down for maintenance' every time spot went under 33 because all the other dealers would be able to sell it for much cheaper than they, since they are hedged and can sell at spot+$2+own markup. A bullion dealer pretty much has to be fully hedged in order to keep operating, otherwise they'll have to (temporarily or permanently) shut down when spot goes against them.  

I realize the future multiplier (100 for gold and 5000 for silver) is pretty high but it's the most liquid and trades almost around the clock during the work-week.  I imagine for smaller size they hedge with GLD or SLV when the market is open and I suspect this is what gainesvillecoins does - hence the re-opening time at 9 EST on Monday - market isn't open yet but most high-volume stocks already trade by then.  More serious dealers probably have an account with a place like BullionVault, which is open 24-7.  It's not as liquid during the weekend, but at least it's open and they can unwind their hedges there anytime.  

ETFs have a disadvantage of short-stock cost, but a big advantage of hedging with ETFs, one some dealers realize, is that it's a perfect play for when everyone realizes that they're not worth as much as their price suggests.  When it finally dawns on everyone that nothing close to 100% of ETFs are backed by physical, the dealers will profit handsomely on both legs.  Basically, being a PM dealer is one of the best businesses to be in right now.  It has no downside (hedged), pays dividends (markup), and has humongous upside.

Blankman's picture

Thanks for the info Smithy. I always wondered how those places made$$$.  Learn something new everyday here on ZH :)

Snidley Whipsnae's picture

I was half owner of a coin/bullion shop in Maryland in the late 60s - early 70s. We carried our inventory using cash reserves; ie, unhedged.

Maybe Gainsville is hedged, maybe not. You don't know either way, unless you are privy to their biz plan and ongoing operations.

IOWs, you are making a hell of a lot of assumptions.

Smithovsky's picture

Oh boy.

That explains a lot, at least I can see where you're coming from now.  In the late 60s-70s there was no such thing as internet or online stock brokers or gold ETFs or futures.  If you wanted to hedge yourself it would be very very difficult and very very expensive.  These sites sell thousands, tens of thousands of coins per day so their inventory, and hence risk (if unhedged) is probably a bit bitter than your coin/bullion shop in late 60s-early 70s.  Also, these days, if a gold dealer sells 100 1oz gold coins, all he has to do is click his broker icon on his iPhone, buy back 1000 GLD shares, and he's eliminated all his risk and pocketed $3200 risk-free (2% markup on $160K worth of coins).  Snidley, as much as you yearn for the good old times, I'm afraid times have changed in the last 40 years, business has changed and the world has changed (mostly for the worse).  

You're making a big assumption that I'm making assumptions, not stating facts, if you catch my drift ;)

tmosley's picture

Not everyone hedges.  You can usually tell which ones don't by whether or not they are open on a day like today.  Find their downtime statistics and calculate the likelihood that they "just happen" to be down today of all days.  I'd bet the probability is less than 0.5%.

Smithovsky's picture

You're missing the point.  Everyone hedges.  The smaller joker-dealers hedge in GLD and SLV or with the futures, so they can only unwind their hedges when those markets are open.  The bigger, more serious ones, who don't want to alienate their customers, hedge in markets which trade 24-7 but which are not as accessible to the smaller dealers either because of their size or just pure laziness.  

tmosley's picture

Nope.  You are 100% wrong.  Small dealers by and large do not hedge.  This is why I won't be able to buy physical silver locally for the next two weeks or so, barring further declines, which will only push it back that much more.

MOST small dealers are, in fact, gamblers, which is why they won't last.  The smart ones, and the ones that last a long time are hedged, but that is a minority.  Sorry, that's the way it is.

Smithovsky's picture

I'm sure there's one or two idiots out there but I think you have a few things mixed up. 

The reason you won't be able to buy anything in the next two weeks or so is because the moment prices started going down hard, everyone descended on the dealer and bought up his whole inventory.  It's not that he's not sitting on them, he genuinely has nothing to sell (and OK, the small ones who didn't hedge are sitting on them, praying to god it goes back up quickly so they can resume business).   

It takes a few weeks to order new coins from the mint, that's why you're going to have to wait.  If your dealer had any brains, and if you were willing to agree to it, of course, he'd take your order at these prices and promise to deliver when the new inventory arrives.  He can order from the mint at today's spot+mint premium (3% for gold 1oz eagle, $2 for silver 1oz.eagle)

But, of course, if you'd agree to that, then you might as well order from an online dealer, which is what you should do now, and not wait 1 or 2 weeks to buy from your local dealer, when prices might be higher.  

A lot of people here seem to think that the coin market is the physical market.  IT'S NOT! Production always lags demand, so if there's a spike in demand, it takes the US mint a week or two to step up the production.  Just because you can't get coins from your local dealer doesn't mean that there's no physical out there, it's just that the producers don't have a crystal ball and couldn't have predicted the 15% drop and a corresponding increase in demand for coins.  Order online from big dealers and you won't have the gratification of having it in your hand today as you would with a local dealer, but at least you'll lock in today's big downtick, albeit you'll have to wait a few days to hold it in your hand

tmosley's picture

Sorry, you don't know what you are talking about.  Dealers were open on Friday, but didn't open on Monday.  DIDN'T OPEN.  Hell, one of the dealers in town just got shut down because he got robbed but didn't have insurance, and couldn't deliver a large shipment that he had already taken money for.  The fact is that if they were genuinly out of inventory, they would be open hoping people would come in to SELL.  

Also, nice job trying to convince us that people who buy and sell a product are not the market for that product.  

Smithovsky's picture

OK, you win, not 100% of dealers hedge.  Like I said a bit earlier, there are a few out there but othose are gamblers and will only do what's best for them, screwing you in the process.  They are not the market and they're not in it for the long-term. They are local here-today-gone tomorrow gamblers and just because they're lying to you by not opening or trying to sell you a silver eagle for $40 when you can buy it for $33 on kitco or tulving or apmex or whatever else is out there, doesn't mean that the physical is now worth $40 or that there's suddenly a shortage of physical out there.  The coin market is miniscule compared to the total bullion market, and the 'local-store' coin market is miniscule compared to the total coin market, since most volume is done online, so don't take your cues from your local coin store not being open on Monday.

If you really want to take full advantage of the downticks but don't trust the paper PMs in the long-term (as you shouldn't), open an account with a broker, put in your bids in GLD or SLV where you want to buy and once you buy go to the online dealer which has the smallest premiums, buy from them the same $ amount value, selling the ETFs at the same time.  You'll lock in the price you want and will hold physical and nothing else.  It will be much much cheaper than buying from a local store and you'll never have to worry about not participating on the day of the big downtick.  

Smithovsky's picture

What exactly did you sell in your shop?  

tmosley's picture

"Coin/bullion shop"

"Late 60's"

Wait, what?  I thought gold ownership was illegal in the US until 1974?  Or did you just sell silver?

DosZap's picture

Smith,

BINGO...........My point exactly.........................GREED.

Seems to be Pandemic these days.

(The only exception to your rule, is if it's a small dealer and they cannot afford to hedge,or choose not to).

But, the BIGGIES we are discussing, are disgusting.

Mr.Sono's picture

other company's just put larger margin hike on the price. what Gainesville did is "no words". but i do still think silver will get to low 20's and they will pay the price.

DosZap's picture

BigInJapan

Are  you in the BUSINESS or not?

You make your profit ON the PREMS,either your IN the business or OUT .

Commies my ass................

AP#$% has been gouging for months,....................................FEM, and FEED em F HDS.

OldPhart's picture

http://bullion.nwtmint.com/

up, open and taking orders (premium may be higher)

DosZap's picture

http://bullion.nwtmint.com/

Cant get them to deliver promptly in  good times.

Sean7k's picture

Never use NWT mint. They are terrible about delivery. You will spend months wondering whether to ask for your money back or whether to file a complaint with the Attorney General.

Troll Magnet's picture

wow...i'm really disappointed that gainesville would do this.  

Troll Magnet's picture

buy from providentmetals.com or tulving.  there are others.  monarch.  scootsdale. 

buzzsaw99's picture

so paper silver does have its merits then?

OldPhart's picture

Definitely, you can use the paper to roll a super-doobie, heat your house, remove unwanted fecal matter from your posterior...

buzzsaw99's picture

Just giving Troll Magnet some business there OldPhart. ;)

Blano's picture

There were lots of excuses for not selling over the weekend.  Went to my coin shop just to see if they were selling anything and they flat out said no unless I was willing to buy at cost, which was $40 and up.  No thanks.

FEDbuster's picture

For now dealers are holding out for higher prices on physical.  Went to the coin shop on Sat. and their "junk" silver coins still selling at 28x face.  I will be watching ebay this week to see if prices come down.  Should be at about 20x face or less.  Good time to buy from weak hands.  The FED has no choice but to print, Fedzilla must be fed fiat or it will die.  The govt. can only suck up all the available capital, then they have to print more.  Trillion and a half dollar deficits can't be maintained without massive money creation.  Not to mention swaps and other treasonous acts.

goldfreak's picture

I was at a coin show Saturday and Gainsville people were there, selling rounds for 32.50, 90% silver at 23 X face value, they had run out of eagles by the time I got to them. 2011 Pandas at 38.

Bought about 500 worth of stuff. I don't blame them. If the Criminals want to knock paper silver to 10, does that mean they have to give it away knowing it's worth 30? Were I in their place I'd do the same

Saxxon's picture

There's no premium for Pandas in China right now.

You sit in the lobby of a PBOC branch and the captive audience video rolls out infomercials of newly-minted commemorative gold and silver coins and ingots, over and over.  Literally dozens of different, new ones.  

The Panda carry trade is over and any premium you pay here you will eat.

And the PRC Chinese have no interest in our coins.

On Party-run t.v. (every single channel and every single line of print you read in the PRC is filtered through the Party) you have interminable ads for coins, replica coins, fake banknotes (the serial numbers are used as a quasi-lottery, semi-collectible), and reproduction ceramics.  

Every trick in the book is employed ("our phones are ringing off the hook!") [cue phone effect].  Like the dealers are dealing with the biggest bunch of rubes who ever rode into Main Street on a load of watermelons.  And maybe it's true.

It was interesting being in a country where anyone who wants a job can have one; and the middle class is walking down the Midway with their pockets stuffed with Yuan and eyes shining.

But that may be changing soon.

I'm staying in cash.

thefedisscam's picture

"There's no premium for Pandas in China right now." ???

That is NOT true!! can you point out ONE place that I can buy  'no premium" panda coins?

Everywhere I look, still selling for 7%*8% higher premium than Canadian Maple leafs! And Maple leaf price is still well above silver spot price!

here is an example, and Gainesville coins price is pretty competitive!

Panda --Bank Wire Price: $37.81/Credit Card Price: $38.87

http://www.gainesvillecoins.com/products/157011/2011-silver-1-oz-chinese...

 

maple leaves--Bank Wire Price: $34.51/Credit Card Price: $35.47

http://www.gainesvillecoins.com/products/156308/silver-maple-leaf-1-oz-9...

DosZap's picture

user2011.

Had the same damn thought, these dicks piss me off.(How fortuitous)

AP#$% the biggest Prems on the block.

When Gold was dropping last Weds my online Dealer sit CLOSED the market at a $100.00 down.(could still phone in orders) but not sell or buy online.

Floor caves in, metals are dissapearing and the prems are going WAY up.

tekhneek's picture

There's no law that says they have to take a loss just because you want to buy..

EINSILVERGUY's picture

Yeah

I was on the site trying to place and order and they rejected it. Sais the bank denied my CC. I called the bank and they said there wasn't a problem. I actually saw the item pending in my account. Went back to Gainsville and was able to get the order processed but at a $40 shift. Guess which way. I called gainsville and they had no record of my previous order and said they were swampled. I was online last night after 9:00 and the site was not down for maitenance. It was down at 7:00am cst. Sounds like they could have taken it down as a result of the drop but they woouldn't have to. They just wouldn't change prices. I noticed the spreads have increased from last night. Still got 96 ounces at $31.50 . Will wait to see if we go down to $25 and will average dollar cost more

 

EINSILVERGUY's picture

Yeah

I was on the site trying to place and order and they rejected it. Sais the bank denied my CC. I called the bank and they said there wasn't a problem. I actually saw the item pending in my account. Went back to Gainsville and was able to get the order processed but at a $40 shift. Guess which way. I called gainsville and they had no record of my previous order and said they were swampled. I was online last night after 9:00 and the site was not down for maitenance. It was down at 7:00am cst. Sounds like they could have taken it down as a result of the drop but they woouldn't have to. They just wouldn't change prices. I noticed the spreads have increased from last night. Still got 96 ounces at $31.50 . Will wait to see if we go down to $25 and will average dollar cost more

 

RagnarDanneskjold's picture

I just read the Chinese, that last bit is not about halting trading in silver. It just reminds traders to review the exchange's risk-control policies before they enter the market.

thefedisscam's picture

You are reading a WRONG piece! Here is the correct piece that mentioning one day of halting if the market has three "Dan Bian Shi" in a row.

http://www.sge.sh/publish/sge/jyzn/jysgg/7470.htm

 

What is Dan Bian Shi

http://finance.sina.com.cn/money/future/20100415/02087752074.shtml

Mr.Sono's picture

looks like they are trying to shake off weak hands, that will be drooping like bugs. and stronger hands will be getting it at a discount prices.

 

Zgangsta's picture

Bank Wars III: Revenge of the SLV.

JLee2027's picture

There was a second announcement, slightly more cryptic one, noting that if volatility were to persist, the SGE would outright halt silver trading (although the Google Translation of this previously unseen form announcement is a little sketchy)

Like closing a paper market would be a threat, lol.

Goldenballs's picture

Blackmarket in Politician and Bank proof assets starting very soon.They do not care about the how economies and people suffer,only that they stay on the gravy train and in control,in reality they are failing and spending ever increasing amounts of ever more worthless fiat to save banks and a system that has collapsed in insolvency and debt.Gold and Silver to infinity. :) :)

Who is John Galt's picture

I know. I am getting quite a chuckle reading the comments of the trolls and scaredy cat pussies that there is a panic in PMs. Its simply not true. This is a gift for the wise. Take advantage of it because it wont last long.

honestann's picture

Yes.  I am 99% certain we will NEVER get another opportunity as sweet as this one.  Perhaps the middle of today or tomorrow will be the low.  Or maybe the low is already in, but not confident of that... yet.  The western markets have not had a chance to wet their pants yet.

Smiddywesson's picture

Yes, the only question in my mind is how long they will orchestrate the selling and how low prices will go.  Don't gold prices usually go down into options expiry and then rise on the actual day  (which is tues)?

Mr.Sono's picture

very true, and i think that we will see silver in 20's. they will do anything and everything to save there banking system. and that means selling there paper silver and gold to cover the losses and keep them afloat. the boat is sinking.

DosZap's picture

Mr.Sono,

Pricing it in the $20's isn't helping me at all, I cant get any.

By the time the mkt opens it will pop $3-$4.

Last night,was enough to pull out hair.Prices not seen in MONTHS, unable to buy.........

DosZap's picture

Do this bloodbath mean we can call the ALMOST PM's?...............LOL

Smile, stack, if you can get it, because it will be WAY up come end of of year.

Conax's picture

 

All your investment paper are belong to us.

I hope this one back fires. If the wholesale supply were to really dry up, we might just get that moonshot.

I know, I know..

Strike Back's picture

Goddam these fucking banks.  Coordinated, international margin hikes to break 1600/30.  Didn't last long though.  Was sweating.

foofoojin's picture

Try being 100% phys.  It's 1:30 am and I have a test on Greek mythology tomorrow. I'm nursing my stomach on plan quick oats and a little warm milk. gotta sleep soon. somehow I gotta sleep soon.