Bullion for quick buck or long-term security?

November 23, 2017

Pat Heller

Just a small percentage of the public actually owns any bullion-priced physical gold or silver, maybe only 1-3 percent of adults in the U.S. Because of this, it would take a lot to achieve a major expansion in demand. Dealers who market physical precious metals also have a huge amount of inertia to overcome, especially at a time when stocks and cryptocurrencies seem to grab headlines, touting higher prices for those assets.

There seem to be mainly two different angles by which dealers market physical precious metals. One tactic is to focus on a recent short-term financial development and predict or hypothesize that it will spark an imminent major gold and silver price boom. That creates the specter that if someone does not immediately act to purchase gold or silver, the prices will rise sharply in the near future.

The advantage for the seller of this marketing strategy is to spur buyers into action, either getting them at least to accelerate their purchases or maybe even just making any purchases at all. The disadvantage is that almost all possible financial crises fizzle out or are otherwise managed so that they don’t become the cascading crisis that sends gold and silver prices soaring. When the predicted soaring jump in prices does not come to pass, that makes the subsequent dealer cries of “wolf” likely to fall upon deaf ears.

The alternate sales spiel touts the ownership of physical precious metals as a long-term form of insurance against the risk of loss of value for paper assets such as stocks, bonds and fiat currencies. This does not carry the same sense of urgency as the tactic above. Therefore, such a sales strategy in the short-term can generate fewer sales but not disappoint customers.

Unfortunately, in marketing concepts, where a particular action is not urgent, it often ends up being long delayed or never acted upon (think of all the procrastination of people in purchasing life insurance or doing their estate planning). That is a disadvantage of this marketing campaign. Yet, it does have an advantage of satisfying buyers over the long term because they were not led to expect immediate price jumps. While it will tend to result in lower near term-sales, customers are more likely to have greater satisfaction in the long-run.

Perhaps the best marketing plan is to advocate long-term ownership while at the same time pointing out that there are political and financial developments happening in the world right now that might lead to higher prices sooner than almost anyone anticipates. That way, if prices don’t quickly spike, customers will not necessarily be upset.

Let me share a couple of anecdotal stories about long-term customer satisfaction. One time, my company bought back a 100-ounce pure silver bar about a year after the seller had purchased it for $700. He sold it to us for about $600. Yet, the customer said he was happy. He told us that if he had not owned that bar, he would have frittered away the money on beer and cigarettes and have nothing to fall back on when he really needed the $600.

In another instance, a couple came to our store late in a calendar year to purchase some bullion-priced physical silver. They said their intention was to sell it late the next summer to use the funds to pay for college tuition for one of their children. I recommended that they not put those funds into silver, even though I thought there was a good prospect that they would make a gain by then that would be greater than a certificate of deposit would yield. However, the potential risk of loss, even if the price of silver increased slightly, was high enough in that short of a time frame that I didn’t want them to have a disappointing experience with precious metals. In that instance, the customers took my advice, which lost a sale then. However, when they later came in to acquire some gold and silver for other purposes, they were quite comfortable listening to my recommendations.

As we say around my company, if you take care of your customers, your customers will take care of you. Long-term patronage by a smaller number of really good customers is more profitable than one-time transactions with many customers.