By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
In a recent five week period, there were "hotel buyers" for four of those weeks in the Lansing, Michigan area offering to purchase jewelry, coins, paper money, gold, silver, and platinum bars, and other collectibles. Yet, in my 31 years as a coin dealer in Lansing, Michigan, I have never heard of a single "hotel seller" in this area or anywhere else in the US offering to sell bullion-priced precious metals coins and bars.
To me, it is perfectly obvious why there are no such "hotel sellers"—there is not enough profit in the retail sales of such products to cover the overhead costs of trying to sell bullion-priced gold and silver in such a venue.
Over the years, a handful of comments have been posted by readers of my columns questioning my motives in writing about precious metals at the same time that I also deal in such products (along with rare coins, paper money and some other collectibles). That is a fair question to ask of me, which should also be asked of every author. There are several factors to consider in evaluating whether any writer, especially including me, presents a good quality combination of facts, interpretations of facts, and opinions.
First, the facts should be accurate, no matter who is the author. Any writer who cannot consistently get facts correct is not worth following. I strive for accuracy but have missed an item or two over the years.
Second, you have to consider whether the author presents the complete facts. I explicitly do not. In my writings I try not to repeat what has been widely covered in other media. Therefore, my covering of facts will tend to be what is missing from or not reported by mainstream media. Generally what I seek to share are facts that the potential reader has not come across elsewhere but appreciates learning about. It is my hope that my information, when combined with what is available elsewhere, provides a more complete picture that readers can use to make better decisions. Yet, there simply isn’t time to include every possible news note, so readers must evaluate whether my choices of what to include or omit end up being misleading.
Third, the interpretation of facts and opinions expressed are not a perfect science. Writers try to bring their experience and knowledge to bear to provide insights to readers. It is up to readers to consider whether the writers have adequate support for their ideas. Here is also where bias can definitely affect what writers say. I’m not trying to trick anyone, so my articles all explicitly reveal in the author’s block that I am a coin dealer. Being a dealer gives me access to certain information that the general public might not have at all or might not learn as quickly, but there is still the risk of bias.
Now, let’s get back to the issue of whether my writing about precious metals is a marketing tool to possibly attract customers to my company, and if I should be denigrated if that is true. Well, yes I do hope to gain new customers and that has happened.
However, most people who are concerned about my promoting ownership of physical gold and silver (by the way, I am not an advocate of owning platinum or palladium) simply do not understand the economics of being a rare coin and precious metals dealer.
The reason there are no "hotel sellers" of gold and silver bullion-priced coins and bars is that profit margins tend to be 1-5% on the sell side. Among many companies that sell nationwide and have higher volume, the profits tend to be toward the lower end of that range. With only 1-3% of the public owning any physical gold or silver, it would cost more to advertise to sell such products than would be recovered from sales that are made, with two major exceptions. One, there are some companies that run national marketing campaigns that charge 30-100% above cost for what should be bullion-priced items. Because of the size of their markups, they can afford to cover huge advertising costs. Buyers can protect themselves against price gouging by doing price comparisons. Two, there are some small local dealers who will only offer to sell bullion if they have first purchased it from the public, so they can make a profit on both the buy and the sell side to achieve a higher overall profit margin.
Coin and precious metals dealers local and nationwide have a lot of competition. Sometimes the local dealer can charge a slightly higher price in return for convenience and face-to-face service. But "hotel sellers" don’t exist because they could not gain enough volume when competing with local and national sellers of bullion-priced gold and silver coins and bars on low profit-margin products.
Dealers such as me who handle both rare coins and precious metals make greater profit margins on rare coins than on bullion. If I were really trying to maximize profits for my company rather than offering my best analysis, my top priority would be to advocate that people buy rare coins. My second priority would be to tell readers that prices had peaked and they should sell me their rare coins and bullion before prices drop. My lowest priority would be advocating the purchase of gold and silver bullion-priced coins and bars. So, my focused advocacy of owning bullion gold and silver just might have more to do with actually offering my honest recommendation rather than seeking to maximize short-term profits.
As you read what I write, don’t ignore or forget that I buy and sell precious metals and rare coins. But, if you are concerned about possible bias, also understand that my recommendations are not those of someone seeking to make quick profits from readers.
If you have further interest in learning "How Do Coin Dealers Earn Their Income?" you can read the article of that title that I wrote last week and is posted at http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=25370.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed athttp://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.