Many people seek out a local “mom and pop” coin dealership like ours, wanting to do business with a local establishment for purchasing gold or silver. Yet they wind up disgruntled when the dealership doesn’t have a huge stock of product, or the local retail prices seem “off” compared to major market websites like APMEX (American Precious Metals Exchange), Provident Metals, or JM Bullion.
So we’re going to pull back the curtain and give you the full behind-the-scenes story. From pricing to product stock, you’ll know exactly what to expect when buying precious metals locally, and the benefits of doing so.
Why bullion market prices differ from small local dealership prices
There are many complex reasons why the bullion market doesn’t move in lockstep with local dealerships.
To start, the bullion market is heavily based on the Wall Street “spot” market price of gold or silver.
That price changes every 15 seconds during weekdays from 10:30am Eastern until the end of the trading day at 4:30pm Eastern. Anyone with an internet-connected device can find out exactly what the product is worth based on the Wall Street price at any given moment.
As common sense would suggest, no business entity, from the miner to the minter, to the distributer, to the mom and pop gold shop – none of them – really wants to sell their metal product for less than market price.
The simple reality is the market cannot exist without a premium.
The premium that a consumer pays is the profit which is more or less split between the miner, the minter, the distributor, and the local shop.
The differences between refineries and types of dealerships
The Refineries
When gold and silver comes out of the ground it is in the form of Ore. The ore is not pure, so it is taken to a refinery where the impurities are removed. The ore is then turned into ingots which are 99.9% pure.
While some large ingots are sold as-is, the refinery may use smaller molds to make 1oz to 100oz bars or various 1oz, 2oz, or 5oz coins. These are called “generics.” They are made to the same legal specifications as government-issued bullion coins, but private companies are allowed to make and sell them so long as they meet the assay standards of fine gold and silver. Some refiners have their own mint creating very effective large businesses that dwarf the capabilities of main street coin shops.
Mint Authorized Dealerships
When it comes to US government-issued silver and gold, such as Silver American Eagles or Gold American Eagles, the US Mint will only distribute their product to mint authorized dealerships. One of the requirements of being a mint dealership is being backed by a massive pool of working capital and an operational capacity to move lots of product. Being a mint authorized dealership is one of the most prestigious titles a dealership can carry. There are only a handful of them in the country, and they are typically the largest coin dealerships in the nation.
Distributor Level Dealerships
The next level below a mint authorized dealership would be a distributor level dealership. This could be a coin shop, or a purely wholesale operation based in a warehouse facility. They may have a retail storefront, or they may not. These distributor level dealerships are typically the ones that mom and pop coin dealerships rely on to order precious metals from.
The Mom and Pop Coin Dealership (and how this all affects prices and stock)
Although there is a little bit of a discount available for wholesale bullion purchasing from distributor to a mom and pop dealership, it is often very small.
For instance, when we buy a 1oz Gold American Eagle from a distributor we usually must pay around $60‑80 over the Wall Street “spot” price. When all the math is done in the end, it means that for us to be able to remain competitive in the market and match the online vendors (who are typically distributor-level dealers), we only make about $20 of profit off $1,750 worth of Gold at present day precious metal prices and accepted price premiums.
You can see, then, how it winds up costing enormous amounts of capital to stock a widespread selection of bullion. This alone is an impediment to carrying a large stock for most small local dealerships.
Plus, the prices local dealerships must pay make it simply too risky to carry a large bullion stock. When even small moves in the market price of metals could wipe out the already razor thin profit margins, it just isn’t a risk most small local dealerships can afford to absorb.
The benefits of buying locally
Does all of this mean that customers should refrain from buying metals locally? Of course not! There are many benefits to buying precious metals from your local dealership.
We are happy to order products for our customers.
Precious metals transactions are simple and although the margins are small, we are still happy to make profit when and where possible. We simply require that a deal and payment be made in advance, to protect us from getting caught by the market swings.
Local coin dealerships often buy private collections containing precious metals directly from the public.
When we do this, we still offer competitive prices to those collectors, but we can leave a little bit more room than the ultra-thin margins we must work on when we are buying from a distributor.
You’re supporting the local economy.
The benefit that people most often mention is that they like supporting their local economy by buying from a local coin dealership. It helps keep local jobs intact and it fosters community wellbeing.
Your transactions are private.
Many people who buy local also appreciate that their bullion transactions are private. Although local dealerships will keep invoices of all transactions, you do not need to worry about an online paper trail – something that makes some bullion buyers uncomfortable.
It’s more secure.
Finally, buying bullion locally means you get the product you want handed directly to you in a secure location. You do not need to pay delivery fees, and best of all, you don’t have to nervously wait for the postman to arrive, hoping that your precious package will be secure and sealed.
The key to buying precious metals locally is having reasonable expectations.
You now know to expect that a local dealership’s stock at any given time will likely be low. And you know to be prepared to make a cash payment in advance of receiving your product.
With these expectations set, an understanding of how the pricing in the industry works, as well as the benefits of buying locally, we believe you’ll be well prepared to make your next precious metals transaction with a trusted local coin dealership.