Why Are Americans Dumb Precious Metals Traders?


June 13, 2019

Pat Heller


When it comes to buying and selling physical precious metals, it seems like the majority of Americans tend to get their timing wrong.

India and China are the world’s two largest gold and silver consuming nations.  Invariably, residents in those nations buy precious metals when prices are low.  When prices jump they at least slow down purchases and may become net sellers.  The same pattern tends to be true across Europe and in prosperous nations elsewhere.

That’s not how the average American has behaved over the past four decades.  All too often, when prices are soft, they tend to sell.  When prices are soaring is the time when most Americans are rushing to purchase.

On May 17, the price of gold broke below $1,280.  For the next week or so, coin dealers across the U.S. were buying from the public such a large volume of bullion-priced physical gold coins and ingots that the premiums on one-ounce gold American Eagles slid almost 2%!  Yet, at the same time this was happening, public demand to purchase gold soared in India.

The price of silver was well under $15.00 for the entire month of May, so there was no surge in liquidation by U.S. sellers.  However, when the silver spot price topped $15.00 during part of the day last Friday, there was an uptick of American sellers.

In trading circles, side widespread selling is referred to as “capitulation.”  This occurs when holders of precious metals (or other investment assets) are so fatigued at waiting for prices to reach their “target” levels that many of them decide to sell and redeploy elsewhere.  Such a capitulation is usually a sign of a market bottom.

By the way, the opposite also tends to be true.  If you hear multiple total strangers start talking about now being a good time to be purchasing physical gold or silver, that probably indicates prices are near the market top.

Now, I don’t mean that all Americas are dumb precious metals traders.

For decades, we have emphasized to our customers to purchase the high-volume gold and silver bullion-priced products that have the lowest premiums.  Typically, the low premium options are those that are no longer in current production.  In gold issues, for instance, Austria 100 Coronas, Mexico 50 Pesos, and U.S. American Arts Medallions trade at a much lower price per ounce of gold content that Australia Kangaroos, Austria Philharmonics, Canada Gold Maple Leafs, South Africa Krugerrands, and U.S. Gold Eagles or Buffaloes.  In silver products, U.S. 90% silver coins are often the optimum low-premium choice (although U.S. 40% silver half dollars tend to sell at an even lower cost per ounce than 90% silver coins, they tend to have a higher percentage buy/sell spread and the storage costs are higher for storing the 60% copper-nickel content).

For the most part, our long-term savvy customers follow our recommendations and purchase the lower premium products.  It tends to be the newer or less experienced customers who prefer to purchase gold or silver products in even troy ounce weights, even if that means paying a higher premium today to do so.

So, what did the recent gold and silver liquidations to our company reflect?  What gold that was sold to us was overwhelmingly one-ounce gold American Eagles.  Very little was sold back to us of the low-premium gold issues.  The same goes for silver with almost no increase in 90% silver coins being brought back to our company.  What we purchased instead were ingots and the higher premium one-ounce coins such as Canada Silver Maple Leafs and U.S. Silver Eagle Dollars.

My interpretation of this pattern is that the “strong hands” were those who purchased low-premium gold and silver and mostly held onto their precious metals.  In contrast, the “weak hands” tended to be the less knowledgeable buyers of precious metals.  From this I conclude that the prospects for gold and silver prices going forward are quite positive.

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