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Why do spot prices matter?

racecap97racecap97 Posts: 58 ✭✭
in Precious Metals
Currency guy lurking in the PM forum. So my question is why does the spot price even really matter if you can't buy anywhere close to it? It would seem that the coin stores just make the prices up as they go, they seem to change from day to day. For example, back when it was around $46 spot price on silver a "large" coin store near me was selling UNC ASE's for $3 over spot. I was at the same coin store yesterday and bought 10 ASE's for $5 over spot. A woman that worked there said I got a great deal because the guy that worked there should have been selling them at $5.50 over spot. Today I went back and bought 10 more (should have got them all at once yesterday) and today they are selling at $6.50 over spot. So my question is: why does spot matter if you can't buy at spot anyway? It would seem to me that the "real" value of silver is set by the market and its waaaaaaaay over spot. At least at this time.
ALWAYS LOOKING FOR INTERESTING WWII HAWAII NOTES.

Comments

  • QuartergoldeagleQuartergoldeagle Posts: 62
    Becuase it's a free market... buy @ $3, $4, $5 over spot or Choose not to buy and go elsewhere. They will Ask for what they want and you have the choice to pay that. ASE always have a premium to them , buy generic to get closer to spot price.
    Ebay Seller Americansilvereagle 800+ feedback
  • OzzyAndyOzzyAndy Posts: 344
    It's because the price has dropped so quick and dealers have paid more for the bullion they have. If it settles at this price for a few weeks, you'll see it get back to being more normal but this is far from normal.
    Still thinking of what to put in my signature...
  • GrumpyEdGrumpyEd Posts: 4,749 ✭✭✭
    If you bring back the 10 you bought yesterday and ask to sell them I bet they offer based on current spot price so it does matter.


    It's a free market, they can try selling or buying for whatever people will accept.


    Ed
  • HaydenHayden Posts: 112
    Part of it is because the market is closed. The spot price is actually just the last price that a trade was executed at, things will correlate more closely once the market reopens. Part of it is because eagles always carry a premium, and part of it is because, as a previous poster mentioned, prices on physical products tend to be somewhat sticky, that is they do not immediately adjust to reflect changes in the spot prices. This is particularly true for brick and mortar operations. Your dealer is also charging you about $2-$3 per coin over the market rate.
  • derrybderryb Posts: 36,793 ✭✭✭✭✭
    Physical metal sells for spot plus a "premium." Spot is the base price at which PM product pricing begins. The additional premium varies on different physical products (eagles, bars, etc.) and is based on the demand for the product. To get an idea of how premiums stack up against each other look at apmex.com's different prices on products that contain the same amount of gold or silver. Higher premiums are also a good indication of which products are easier to sell. For that reason a bullion buyer should not shy away from something with a higher premium since when it comes time to sell the premium remains and the item is easier to sell. It is wise to know the going "premium" for a particular product so that you know if you are being asked to pay too high a premium. $6.50 is too high a premium for a silver eagle in today's market.

    Also keep in mind as demand grows and availability weakens premiums will increase.

    "Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey

  • jmski52jmski52 Posts: 22,822 ✭✭✭✭✭
    What derryb said. Spot is simply the market price on the exchange for the current month, and everything else uses that number as a reference point. Over the years, you may see some bullion selling at spot, or over spot, or under spot depending on market conditions.

    What we have at this moment is a market that has taken a major hit and there are probably very few holders of physical metal who are willing to sell at a low premium after a major decline. It's just the market at work. If the decline continues for months and silver suffers a steady string of losses down into the teens, there might come a time when sellers become demoralized and start reducing their premiums, or even start discounting it. That's just how it goes.

    My opinion, silver isn't going to languish more than a few weeks, 3 months at the most. I think that there are enough factors working in silver's favor to be too worried about this correction. In this environment, if you are buying silver you simply have to shop around and buy the best deal you can reasonably find. But be careful and do a little research on the dealer too. Apmex, Tulving, CNI, Gainesville, Silvertowne - are all pretty credible bullion dealers. A local guy might be fine too, as long as he comes with some references.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • vibr0nicvibr0nic Posts: 614 ✭✭✭


    << <i>So my question is why does the spot price even really matter if you can't buy anywhere close to it? >>



    RC, you can by 90% silver coins at spot all day.
    I like large size currency and silver dollars.
  • racecap97racecap97 Posts: 58 ✭✭
    Don't get me wrong, i'm not complaining that i'm paying over spot. I understand completely well that I have the choice to buy or not to buy, i'm not a child. I bought thinking I was probably paying too much because I wanted to own some physical silver, no worries. I also understand that i'll be paying a premium to buy the ASE's or Maples, ect.... and that bars or rounds sell cheaper. My question was meant to gain a better understanding about why "spot" matters at all when dealing with physical silver. Is "spot" the last major paper deal or was it an actual physical metal transaction? If I was trying to buy paper silver right now would I be paying spot for it or VERY close to it? I'm not thinking about buying paper silver as i'd rather have the real stuff in my posession. Just trying to get a better understanding. Thanks for the help so far!!!
    ALWAYS LOOKING FOR INTERESTING WWII HAWAII NOTES.
  • racecap97racecap97 Posts: 58 ✭✭


    << <i>If you bring back the 10 you bought yesterday and ask to sell them I bet they offer based on current spot price so it does matter.


    It's a free market, they can try selling or buying for whatever people will accept. >>



    From what I understand.........if I bring it back on Monday they will pay spot or $1 over (for who knows how long) for UNC ASE's, and $1 or $1.5 under spot for circulated ASE's. I figured that the higher premiums were because they were having a rush on silver and they "could" sell it at higher prices because people would pay it. Or they were selling at higher prices because everyone is expecting silver to jump back to where it was a week or two ago in a hurry this coming week. It just seems to me that spot doesn't really matter much when dealing with ASE's or other types of physical silver right now because market value supercedes it obviously.
    ALWAYS LOOKING FOR INTERESTING WWII HAWAII NOTES.
  • gsa1fangsa1fan Posts: 5,566 ✭✭✭
    Why does the greysheet or in your case the greensheet matter?image

    Buying & selling price guidesimage
    Avid collector of GSA's.
  • OzzyAndyOzzyAndy Posts: 344
    I guess buying physical is a longer term as investment as well, so prices are more loosely correlated with spot in turbulant markets like we are in now. If you want right on spot, I guess trading paper is the way to go, since most bullion is a buy and hold for a while there isn't the pressure to have margins tight when the market is turbulant.

    Will be interesting to see what happens when markets open tomorrow, has anyone started a speculative thread?
    Still thinking of what to put in my signature...
  • jmski52jmski52 Posts: 22,822 ✭✭✭✭✭
    I bought thinking I was probably paying too much because I wanted to own some physical silver, no worries. I also understand that i'll be paying a premium to buy the ASE's or Maples, ect.... and that bars or rounds sell cheaper. My question was meant to gain a better understanding about why "spot" matters at all when dealing with physical silver. Is "spot" the last major paper deal or was it an actual physical metal transaction?

    It could be either, because both types occur on the Comex, most are paper and some are for physical delivery.

    If I was trying to buy paper silver right now would I be paying spot for it or VERY close to it?

    You would be paying very close to it.

    From what I understand.........if I bring it back on Monday they will pay spot or $1 over (for who knows how long) for UNC ASE's, and $1 or $1.5 under spot for circulated ASE's.

    That is entirely up to the dealer and probably does depend on his current position, his knowledge of who wants to buy and who wants to sell in his local base of clientele. It also may depend on your relationship with him.

    I figured that the higher premiums were because they were having a rush on silver and they "could" sell it at higher prices because people would pay it. Or they were selling at higher prices because everyone is expecting silver to jump back to where it was a week or two ago in a hurry this coming week.

    Your guess is as good as anyone's on what is motivating any specific individual when they walk into a shop to buy or sell, and on what is motivating the dealer when he prices his inventory for sale.

    It just seems to me that spot doesn't really matter much when dealing with ASE's or other types of physical silver right now because market value supercedes it obviously.

    Spot always matters, because it is the language you have to understand in order to be able to compare pricing from one dealer to the next.

    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • racecap97racecap97 Posts: 58 ✭✭


    << <i>Why does the greysheet or in your case the greensheet matter?image

    Buying & selling price guidesimage >>



    The greensheet doesn't matter in my case. I haven't read of anyone using it the whole time i've been collecting. Maybe thats why i'm having a hard time figuring "spot" out. We go by market value which is most definatly not greensheet value. Of course comparing currency collecting to PM gathering/hoarding is like comparing apples to oranges.
    ALWAYS LOOKING FOR INTERESTING WWII HAWAII NOTES.
  • CaptHenwayCaptHenway Posts: 32,116 ✭✭✭✭✭
    Please study up on "THE LAW OF SUPPLY AND DEMAND!"
    .
    Violate this law at your peril.
    Numismatist. 50 year member ANA. Winner of four ANA Heath Literary Awards; three Wayte and Olga Raymond Literary Awards; Numismatist of the Year Award 2009, and Lifetime Achievement Award 2020. Winner numerous NLG Literary Awards.
  • CoinCoinsCoinCoins Posts: 698 ✭✭✭


    << <i>why does the spot price even really matter if you can't buy anywhere close to it? >>



    i can buy metals at spot all day long, every single day of the year
  • piecesofmepiecesofme Posts: 6,669 ✭✭✭
    Take a look at what I said about 12 posts into this thread. That's my story and I'm stickin to it.

    why Spot really is just a guide, more than in stone
    To forgive is to free a prisoner, and to discover that prisoner was you.
  • gsa1fangsa1fan Posts: 5,566 ✭✭✭


    << <i>

    << <i>Why does the greysheet or in your case the greensheet matter?image

    Buying & selling price guidesimage >>



    The greensheet doesn't matter in my case. I haven't read of anyone using it the whole time i've been collecting. Maybe thats why i'm having a hard time figuring "spot" out. We go by market value which is most definatly not greensheet value. Of course comparing currency collecting to PM gathering/hoarding is like comparing apples to oranges. >>



    I was not comparing. I tried to give you a simple lesson/example.
    Avid collector of GSA's.
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