Second class silver investors

by David Heckendorf
(Canberra)

Hello Dr Jeff and fellow readers


Would it be correct to say that the average silver investor – the mums and dads – is, in a sense second class?

I suggest that we are second class for two main reasons: you might think of a few more.

The first reason I think the average mum or dad investor is disadvantage in his/her lack of bargaining power.

When I wish to buy physical silver (or gold), I take my pennies into my local metal merchant or I log into an institution’s – such as the Perth Mint – website, choose between bars and coins, and then hand over my cash or transfer the funds.

Generally speaking, there is very little opportunity for the little investor to negotiate with either the sole trader merchant or the institution merchant.

The sole trader has to make some profit after paying his/her overheads. And, the Internet site does not let you place bids for your ten ounce bars: rather it is their price or they do not want to know you.

Perhaps if we were purchasing tens of thousands of dollars of silver, the sole trader merchant might be slightly more willing to negotiate. But, who has that amount of cash on a regular basis?

The second reason I think that individual investors are at a disadvantage is that we have no (or very little) influence over the official price of silver.

It is my understanding that the official prices of metals, including silver, is set by the Commodity Exchange (COMEX).

Therefore, only contracts that are placed through the COMEX affect the price of silver. And then usually only contracts for larger amounts of silver.

While, in theory, my ten ounces should move the price if there is no other transactions placed around the same time, in practice it would be little more than a pebble on the highway.

Little investors are, in a sense, side-lined. We have little influence on the silver markets. We must accept the prices on offer or wait and hope that they come down to a level that we can afford to purchase.

It would be interesting, however, to learn of ways that the little investor might be able to make used of how the system works to his/her advantage.

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