Originally Posted by chroNick
That's how many dealers go bust with our money, as in Tulving. That's not to say some do not use the market to hedge their bets, but it is an insurance policy not a freebee and as such it is a cost of doing business. Large dealer can afford to hedge their bets assuming they are profitable.
Sometimes they win and sometime they lose. But as it was explained to me by my local dealer which is not a major online dealer, they stay in business by replacing their inventory at todays prices when they sell their inventory at today's prices.
They are buying it from their sources at a lower premium than what they are selling it to the public for. Thus they are able to maintain a constant level of inventory no matter which direction the market is heading and they live off the profit margins not gambling off the COMEX and end up losing their business.
The smaller the dealer the harder it is to stay in business with these ups and downs without charging much higher premiums than everyone else without losing their a$$. They can't go out and buy replacement inventory every time someone comes in and buys a few ounces off the shelf. These smaller dealers are not likely to be hedging the market either as it's a pure gamble for them just as it would be for us.
The perfect example of how this works is back when we had the so called retail shortage hit in one day. Every dealer closed shop and said they were sold out, it wasn't true. I called my local coin dealer and that's when he informed me of what was really going on. There was a shortage at the manufacturing level and no one could get firm commitment to orders at today's prices, so they stopped selling everything since they didn't know what they would have to pay to replace their existing stock if they sold it. Made perfect sense, who would sell their inventory at $15 not knowing if it would cost them $17 or $18 to replace it in three or four weeks. Only a couple places keep their doors open like NWTM and that was only because they had a direct supply of Silver from a mining company. To make matters worse at the same time, Johnson Matthey announced they were temporarily suspending the production of 100 ounce retail bars. Holy crap Batman what's going on!!!
There was no shortage of Silver, just a scare that took over the entire retail market and everyone involved was taking their piece of the pie from the manufactures to the dealers with over inflated premiums, which is nothing new, they do it every chance they get....
It doesn't matter if I bought the Silver I sold today at $40 an ounce and sold it for only $20 as long as I was able to buy replacement Silver from my supplier for say $19 or $19.50 depending on your markup. I still made a profit off the difference. On the other hand it doesn't work in the dealers favor when the price is rising and he paid $20 for the Silver he sold today for $30 and was able to replace it for $29 or $29.50 per ounce. He still made the same profit off the sale. So the dealer can always sell in either direction and make money as long as he can replace his inventory the same day without having to gamble on the COMEX casino Tulving style. The only way the dealer makes any extra money is if he can replace his inventory for much less than he sells it for. In a slumping market, a dealer might gamble and not replace the product he just sold hoping the price will keep dropping so he can buy even more inventory or take more profit off the table when he does. The only benefit to the dealer in a rising market is if he sells for a larger profit and doesn't replace the inventory.
It doesn't matter if the price is rising or falling, the dealer can sell at any price as long as he can replace his inventory at a lower premium. It's just a matter of maintaining his inventory level. The value of that inventory rises and falls with the market, but he lives off the premiums from sales not the value of his stock. 100,000 once of Silver for sale is the same at $10 as it is at $50. The only time it's really any different is when he decides to go out of business, then it has a final value.
People have been selling this concept of the dealers using the COMEX to hedge their bets so they can sell Silver to us at today's prices and that's a bunch of crap, it's still just an extra gamble some of them are playing as a means of making even more money. Take away their means of replacing their existing stock and they will shut their doors no matter how many shares they have on the COMEX.
Last edited by valerb; 29th January 2017 at 13:21.
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