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Scott Schamber
March 2, 2022

Does Spot Price Really Matter When Buying Physical Metals?

As Russia’s assault on Ukraine started on February 24th, gold hit a 1.5-year high of $1976 and silver a seven-month high of $25.67. Not even 24 hours later, gold was already back below $1900. In light of the build up to this peak, watching how this affected some of our clients’ purchasing plans in February got me to thinking: does the spot price really matter when buying physical metals?

Yes, of course the spot price matters! When you are purchasing metals, you are always trying to get the lowest price. Similarly, if you need to sell, you are always hoping for the highest price. But it rarely works this way. Few will buy gold when the price is stagnant, but many will rush in when momentum, and news, pushes it up. Selling is even harder: as price goes up and you know you could make some major gains, you also remember why you bought it in the first place and wonder if you should wait for it to go further…or if you should sell at all.

As much as we don’t want to be “sheeple” and follow the flock, the fact is nearly all of us do it. It’s very easy to get caught up in the hubbub of what’s going on. But the latest metals’-price craziness got me to thinking. You know the reasons you are buying physical metals – I’m not talking about ETFs, or anything else today other than physically allocated bullion bars and coins – so the question is if $10, $40, or even $50/oz really matters? You purchase metals to hedge against crisis, against inflation, against currency risks, for safety, for preserving value, for passing it on to your heirs, because it is the only true form of money, etc. Most get into physical metals with a very long-term plan in mind; there are other ways to invest in precious metals for the market player out there.

When the gold and silver prices shot up on February 24th, I couldn’t help but want to share 3 recent examples of clients – and I’ll just call them friends too, as they are – that tried to get the best price. Maybe one of these sounds like you too?

The savvy silver buyer

In the first case, “John”, whom I look up to as a long-time and knowledgeable investor in physical metals, particularly silver, was convinced the silver price was going to hit a nice bottom in January/February, at which time he wanted to dive in to pick up several thousand 1oz silver coins.

John had set a goal of February 28th by when he needed to get the purchase done, and so was watching the prices closely. Even though silver spot at the beginning of January was nearly what he was looking for, he still felt confident he could get a better price. Around the 3rd week of January, silver spot spiked up, but John held steadfast believing it would correct…and it did. In fact, silver came back to prices we had basically seen in early January.

But then the news about Russia moving its armies along the Ukrainian borders popped up. Silver piggy-backed gold and started to climb.

Finally, early on the 24th of February, John told us to buy his silver as could see the writing on that wall that gold and silver were going to increase sharply, and it frankly looked like there was nothing that was going to stop prices from “going over the top”. The purchase was done, but he came up short of the goal of the number of coins he wanted to purchase. And as we know, silver started falling the very next day.

Now John is a long-time, savvy silver investor. He’s purchased when silver was lower (much lower in fact), but he also purchased some when it was higher. He believes in the long-term play of having physical silver and is also convinced it has plenty of space to go higher, which it does.

Outside of perhaps a psychological “defeat” that the price didn’t come further down, what do you think the chances are that he’ll remember the price he paid in year? Knowing John, he certainly will, but would it really matter to the rest of us?

Squeezing $10/oz out of the gold price

Another client, “Marie”, was buying 100gr gold bars earlier in February. We had just received Marie’s funds, and since we had the luxury of her being in Switzerland, we gave her a call to confirm the receipt of the funds and that we were going to purchase. However, the spot price of gold at that moment was $10/oz over what she had planned for her Buy Order.

She asked us if we could hold off purchasing to see if we could get that $10 back, but just as the price would pull back $2, it moved back up $1.50. Finally, after 3 phone calls and no decisions, we talked about it in the last call. “What really was the difference of this $10/oz?” Marie was also convinced gold prices will go over $2000 in 2022, so the question came down to if this stress of finding the perfect price was really worth it.

She conceded, we purchased, and the spot price we got was $1822 instead of the $1815 she had been hoping for. The price of gold continued to rise thereafter. What will happen? It’s hard to say, but what do you think the chances are she will remember this spot price a year from now?

2-year Gold Price in USD/oz

And I work in the business!

The last example I have is…me! If you’ve talked to me recently, you’ll know this story, and I even think I wrote about it once already a few months back. This goes back to 2019. My wife and I had decided we’d use some recent liquidity we had to buy some small gold bars.

Once the decision was made, I watched the prices while I was at work. At the time, gold spot was around $1490/oz. During the course of the day, spot started moving up. Scared it was suddenly going to take off, I executed my own order with gold at $1525/oz.

Literally, within minutes, the price started pulling back, and 3 hours later, it had already gone back to $1480. When I got home and told my wife the price I got for the gold, and then told her what the spot price was “now”, she got mad at me. “You work in the business! How could you have bought at the highest possible price today?!?!”

I was in the doghouse that weekend, feeling quite guilty as well. I could have purchased earlier in the day, but I watched the price, and when I saw it going up, I panicked. Sound familiar?

In my case, I didn’t need to wait long before the price improved, and if I really want to show off, you can say I look pretty smart today with the spot prices hovering over $1900 today. Maybe my example is a bad one, as I do remember the spot price, but I remember it for how guilty my wife made me feel vs. what the actual price was. Frankly, I can’t remember what I paid on my other purchases any longer.

The price today is even good

I’ve purchased physical gold when it was just barely over $1000 an ounce, and I have purchased gold when it was $1700. And frankly, I have no intention of selling my physical holdings anytime soon. I’ve used some ETFs to dabble in the precious metals market – you know, to buy low and sell high – but to me, physical is a different story.

As “John”, “Marie” and I see it, these physical metals represent an insurance against the crisis ahead. Insurance is something you buy that you hope to never have to use, but it’s there for you when you need it.

So, if February 24th taught me anything, it’s that spot price really doesn’t matter in the big scheme of things, especially if you are looking to use your metals as a long-term hedge against many of the ills that can befall us economically, geopolitically, etc.

A lot is written about the best time to buy gold and silver, and predictions flow as quickly as snow from the alps melts into our rivers in the spring. I get the question too from time to time: is today a good day to buy? If you are looking for that insurance like I am, if you are looking for hard assets, for real money… then, yes, the price today is even good, and no, the spot price doesn’t matter!

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