Tactics silver Bullion Dealers use to make more money

Tactics silver Bullion Dealers use to make more money

Silver is a commodity just like gold. Both these metals have been used as currency by various cultures for centuries. Both share the qualities that make them good as money instead of fiat currency. However, the question of how silver buyers make their money if they are only dealing with something considered to be a commodity?

Well, for starters coins and bullion bars aren’t really commodities in the real sense of the word. Bullion products and numismatics silver coins have value to collectors. For instance, an American Silver Eagle coin is worth more than an ounce of a silver round which makes it more desirable. The precious metal market is broad and it would hard for dealers to make money off these commodities.

However, bullion dealers have different ways tactics to make money from buying silver products. It pays for customers to be aware of these tactics.

Replacement-Cost Pricing

If a bullion buyer bought 100 ounces of silver then the price was $23 an oz. If the price of silver rose to $25 and more, the buyer would technically make a profit if he sold the silver at $18 or $20. That’s logical but is that really what happens.

The price a bullion dealer buys silver is not important as what it would cost to replace the silver. He might pay $17 for silver but should anything happen to the silver it might cost $30. It would make better sense if he sold the silver at $30 plus the mark-up. Bullion dealers will always buy your silver at a price that will allow them to profit above the silver product’s current replacement value. So a lot of bullion dealers stock up on silver when it seems to be cheap.

Understanding replacement cost is important well when you sell bullion to a dealer to get cash. Do assume the dealer will then sell the silver item based on the price you bought it for. It will be sold based on the price he would have to pay to replace the item. You have to keep in mind that in the case of bullion coins the price he is willing to pay and the price he’ll willingly sell it for can be really wide.

Price-gouging or anti-competitive pricing

Bullion buyers determine their prices based on what the bullion market can bear. Dealers cannot get away with higher prices for a low value. They can do that or provide some other added value. If they aren’t offering competitive prices, customers would shop somewhere else. For instance, if you only had one silver bullion buyer near you, he may get away with offering low prices because he has no competition. He may offer a flat rate of may $4 over the spot-price regardless of whether you are selling a one-ounce silver bullion coin or a 10-ounce bar. He can do this because he is the only buyer in town but if you are willing to go online you might find that there are more buyers who would offer better prices because online buyers aren’t limited by where they are located.

Paying Wholesale

When searching for the value of your silver coins in price guides try not to get excited. What you will get is the retail price of the silver bullion coin and there is no silver buyer who will offer you that price. Bullion buyers are in the business to make money, not spend it.

Numismatic coins and bullion coins are different. Others are more valuable and important to collectors whilst others are valued for their silver content. There are two elements that come into play when it comes to valuing coins. The spot price of silver and the collectible or its numismatic value. The spot price is important and it has a bigger market. There are millions of silver bullion coins sold all over the world and the difference between retail and wholesale prices is small.

The numismatic value is different. Collectible coins are rare, only a specific number is minted. However, the collector’s market is very small. The problem with a small market is that the liquidity is also small. However the spread between the wholesale or bid price and retail or ask prices is wider than for bullion coins.

When the markets for particular products are big then dealers can move what they buy more quickly than when the markets are smaller. They can make more on the volume of products they buy to sell. However, when markets are small they have to make more on every unit they buy and sell.

Buying for the Meltdown Value

With the rise of precious metal buyers, a lot of people rush in with their “worthless” silver to turn into cash. Buying second-hand silver bullion products has become a huge money-spinner for a lot of bullion dealers. The problem is that most people do not understand the process and can fall victim to unscrupulous dealers. It really is up to you, the seller to educate yourself. With so much information available on the internet, there is no excuse for not knowing what you need to know when you sell bullion.

There is nothing wrong with engaging in mutually beneficial financial transactions and there is definitely nothing wrong with making profit as long as the tactics used are fair. To void being taken advantage of, sellers need to educate themselves, it’s in their best interest to do so. A buyer will generally be more circumspect with a seller who comes in knowing what they have, the value, the spot price, and what the fair price for the bullion should be.

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Mark Thompson: Mark, a business law attorney turned blogger, provides readers with easy-to-understand insights into legal issues affecting businesses.