Gold Markups Add to Pain
The typical markup that bullion dealers charge customers is between 5% to 8% over spot prices and others (we won’t mention any names) skim even higher percentages!
If there’s anything that could ever make a ghastly pawn dealer look good, it might be grotesque the food chain markup in the physical bullion marketplace.
Here’s how it works:
The US Mint marks up the price of coins it produces (usually around 3%) to cover the value of the metal along with minting, shipping, and other costs. Authorized purchasers who buy from the Mint add their own markup. And if they sell to dealers who sell to the public, another markup gets added. Guess who’s at the bottom of the food chain? That’s right: physical bullion buyers.
And if bullion buyers are unfortunate enough to purchase fractional coins, they get hammered a little more. That’s because the markups for fractional coins, like a half-ounce or quarter-ounce, routinely reach above 10% to 20% of spot prices.
Here’s what it means:
In a rising gold and silver market (NYSEARCA:GLTR), rising prices can cover the steep transaction costs for buying and selling physical bullion. Conversely, in a sharply declining metals market – as we have right now – it’s impossible for lower prices to cover the ridiculously high transaction costs of taking physical delivery. And if we include the cost of storage and insurance, the pain worsens and that’s why owning physical metals are turning out to be a bad investment. Will it match the cold spell from 1980 to 2007?
Profiting From a Gold Shock
Contrary to what the very wrong gold experts have said all along, our firm has said that the real money in gold and silver would be on the short side.
On February 14, we wrote:
Since then, GDX has slid 33% and our February 14 DUST trade resulted in a +29% gain. But that’s just the tip of the iceberg.
In that same report, we recommended buying JUN 40 GDX put options at $190. Today, those same GDX puts are up +525% to $1,200 per contract.
Our GDX trade was a grand slam, but forget about what already happened. What’s coming next in the gold market will shock the world.
The cute idea that frenzied buying of physical bullion by Chinese and Indian consumers is a bullish event is laughable. Consumer sentiment is always a contrarian indicator, as the gold experts, once again failed to mention. The sign of any market bottom – gold included – isn’t panic buying, but panic selling.
Our examination of the precious metals market points a very high profit opportunity for investors and traders who are 1) on the right side of the market, and 2) who are correctly positioned in the right investments. The gold shock could turn out to be one of the biggest investment themes the experts never saw coming.