How to Price Silver based on Purity, Premiums and Packaging - Making Sense of Silver EP7

[Music] [Applause] welcome back everybody russell gray co-host of the real estate guys radio show and our ongoing series on trying to make sense of silver everything you always wanted to know about silver but didn't even know to ask and of course writing shotgun and bringing his decades of expertise as our good friend dana samuelson hi russell good to see you it's good to be seen and good to have you with us so in this episode dana we're going to be talking about silver purity we touched a little bit about that on the last episode we're going to talk a bunch about premiums and pricing because there are components of cost it's not just the raw price of the silver and there are sometimes some fluctuations and if you know what you're doing you you'll know when you're maybe overpaying or not getting the best possible price versus when you're really potentially getting a deal and then we'll talk about packaging because when these things show up or when you walk out of the store with them in your possession what's that look like you know what what are you carrying out you know and so we'll talk about that uh so let's just kick right off with with purity so we talked last time a little bit about uh the different types of silver bullion numismatic junk jewelry and even within the bullion world we talked about uh purity so why don't you just kind of give us a refresher on that dana well silver today is made it's pure it's uh we and we define that by being at least three nines fine 0.999 pure silver now there are some products out there like the canadian maple leaf that you like rust that is four nine spine and that's in my opinion that's really parsing a little bit because once you get out to that fourth decimal place place you really you know it's it's minuscule the uh well let me tell you my thinking okay so uh the east loves precious metals if there's going to be a bid on precious metals in the future as the east ascends in power my thought is i want to own it in the form they're most likely to bid for and they like four nines over three nines is my understanding i don't know if you have any thoughts on that but that that's my thinking no that's that that is true that's exactly true so that's uh that's pure silver and then there's you know silver's it's not quite as soft as gold in pure format it's a little bit more durable but still relatively soft so to harden it up a little bit they'll often make something that's a little bit less than pure and adding a little bit other metal to that pure silver will harden up quite a bit so old silverware is 92 and a half percent pure the old dimes and quarters and half dollars 1964 and earlier they needed to be durable in currency so those are 90 silver by purity they have a little bit of copper and a little bit of uh mostly copper added to that i thought it was zinc not safe too i think yeah to make up the difference it hardens it up a little bit more so you put a coin into currency it'll last 20 or 25 years without wearing out where a pure silver coin won't so that's that's what we mean by purity how uh how uh many parts are actually silver compared to what else might be in it and triple nine fine or better all right so now let's talk about something there's really a bigger problem in gold than it is at silver at least at the prices that we're at in the summer of 2020 uh but you know somewhere down the road silver could go to 150 200 an ounce let's say and all sudden maybe the game changes but that's counterfeiting and so you know if you're a novice and you're out there buying besides the obvious thing buy from a reputable dealer that you know like and trust but are there concerns that people should have what should they know about counterfeiting maybe spotting counterfeits or avoiding counterfeits well it's a silver because it has such a lower price point relative to gold it doesn't incent the counterfeiter to really try and replicate it you know they can take a metal like tungsten which has almost the same density as gold and take a a bar of tungsten and plate it with gold and replicate what might be a real gold bar and it looks pretty good it won't fool me might fool you but in silver the incentive to do that is much less now in classical vintage coins or numismatics that we talked a little bit about in our last segment you know scarce or rare dates you know sometimes they get counterfeited because if you can take an 1889 morgan dollar which is a common coin minted in philadelphia and add the carson city mint mark to the back just by adding two letters and fool somebody well then you got a a couple thousand dollar coin how do you protect yourself against that dana deal with reputable dealers you know who know what they're doing we had a a client or a prospect actually sent us a picture of an 1889 carson city silver dollar yesterday but it was a fake because it had raised little dimples on the surface which are indeed indicative of a coin that was made with a mold and not a coin that was struck with dies like this it doesn't look like a mint made product i know that yeah but you don't know that when i tell this poor gentleman that this coin was not you know u.s minted product it was probably chinese made so he probably thought he got a deal on it he was calling you to sell it and and make his quick profit and found out he was the quick prophet right or he was trying to take advantage of me which happens sometimes too people know what they're doing and they try to get whoever is the greater fool so you don't want to be the greater fool so well that's why we're doing the series dana you know i mean i've known you for a long time and you've been in the business a very very long time and so when it comes to somebody that i can talk to that i feel will tell me the truth and is qualified to have an opinion you're the man so appreciate you taking time to do this series with us so let's move on to talk a little bit about pricing this is a big one i mean obviously when you're converting your dollars into silver people think about buying and i suppose in truth you are to me it's just a conversion you know i'm just moving from one form of liquid wealth to another form now granted there's no friction in dollars you know if i have dollars in my possession and i go spend them there's no there's no dilution there's no uh commissions or premiums you know like in stock trading stocks have literally become a currency because they've virtually eliminated the friction i mean you can trade blocks of stocks through these trading apps and whatnot for maybe five bucks a trade and when you're trading a thousand or two thousand dollars the friction is negligible to almost not be there and of course part of that is to create a market because when you lower the friction you know stuff stuff trades quicker right that by definition friction slows things down so that's what that term means and so there is a little bit of friction when you move in and out of currency so again i don't think that way because i don't use metals as a trading vehicle but you do have to accept just like with home equity if you have a bunch of equity in your property if you want to get it out there's some friction you're going to have loan fees and appraisal fees and you're going to have fees you're going to get to the money and at the end of the day a lot of people do it because whatever they're going to do with the money or whatever interest their savings by refinancing is worth it but there is friction there and so the same is true in in silver so there's three components of costs that i'm aware of dana and i'm going to ask you to kind of elaborate on each of them one is the spot price of the silver uh and in that is the bid and ask and then there's the mint involvement and the dealer involvement those two components get thrown in a blender from from a consumer's perspective you know it's not like i know what the mints fee is but let's just talk about spot right now and what that is and then the difference between bid and ask okay so the spot price is what we quote is our buying or selling price of unf unfabricated silver today it's based on a thousand excuse me a 5 000 ounce comex contract which is a futures contract so if that's where we get the spot price from and that is a discovery market because there's people investors and speculators all the time buying and selling these contracts in new york and london and in asia silver trades almost continuously 24 hours a day five and a half days a week and that's how we determine what we're using as our baseline to go from uh and how we price the metals so is there more buyers and sellers the spot price goes up more sellers than buyers the spot price goes down so that is where we get the spot price from is from the futures contract so that's how we start uh it's a very competitive market and it's widely traded uh then the mints you know making a silver bar a thousand ounce bar which is what if you buy a 5 000 ounce silver contract from the comex exchange and you don't sell it back to the exchange they're going to send you 5 000 ounce bars which are about this big they weigh about 70 pounds each uh and they're bulky and there's really no way to sell 500 ounces unless you get out a hacksaw and cut that bar right in half which i've actually done once or twice because if the bars get a little too heavy they have a little tolerance you can't ship them with the post office or ups because over 70 pounds is an unshippable bar it's too heavy so that happens once in a while you keep enlightening me i keep learning all these interesting little uh trivia precious metals trivia that i didn't know right okay thousand ounce bars really aren't practical so most manufactured silver is a hundred ounce bar a ten ounce bar a five ounce bar or a one ounce coin which is actually just a round bar yeah so let's bring it back down to pricing because we're just you know we're just this is joe blowing the street trying to figure out silver and we don't want to get lost in the weeds of uh you know the the jargon and all that but basically you've got a price for the metal itself and that price is created in the futures markets and uh you know just a nickel tour in the futures markets is just where uh there are it's it's it's really designed to create pricing stability for producers because producers need to know when they make the commitment to produce they kind of know about what their cost of production is going to be they don't want to start that process until they know they've got a buyer down the road and so they will sell at a price that is today's price that's the spot price today's price and the idea is that they sell it in the future for a higher the future buyer is going to sell for a higher price and so they're incentivized to carry if you will that's it's called the carry and the only time that gets reversed is that the normal thing the term you may hear and i'm not showing it off to like sharing it to drag people into jargon but it was a term that i heard when i first started studying these things that confused me but basically when the price in the future is higher than the price in the present that's a condition called contango and that's the normal state of the markets right uh every once in a while weird things happen you get a thing called backwardation where it is uh it's cheaper to buy it in the future than in the now i think that's right i might have that backwards but it doesn't matter in practical sense when you're trying to figure out the pricing the base the foundational price is set in these markets where you have buyers and sellers bidding in large lots right okay now that that's just the raw material now you've got the manufacturing expense and so these bars and these coins are manufactured not just by governments and so you could talk a little bit about the private manufacturing but whether it's private or sovereign or government uh there's there's a cost of manufacturing so talk a little bit about kind of that manufacturing process and maybe somebody like a golden state that i know i believe produces the slugs for the u.s mint and then and then the u.s mint or maybe somebody like perth or canadian royal men or whatever right so these uh manufactured products the talents tolerance tolerances on them are very very strict they have to be pure either three nines or four nines fine and they have to be exact weight and then if they're making say the us mint doesn't make their own blanks for their silver eagles which you alluded to i mean these blanks have to be exactly perfect in meaning they have no they have there's this it's just a like a slug there's no impression there's no face there's no date there's nothing it's just a slug of silver that goes into a a minting process where they get right think they get impressed they roll out a sheet of play-doh or or dough yeah and then they get the exact thickness they want it to be and then they get the the cutter out and they make the rounds that then they ship to the mints that they'll actually put them through their presses and strike with their dies because you have an imprint on it so there's there's a manufacturing cost to get them pure and to get them precise so at the street level when i go to buy a coin i'm paying for the metal but i'm also paying for all this manufacturing yes yes okay and it's very competitive it's it's it's not an egregious price but it's reasonable relative to the value otherwise they wouldn't sell number one and think about it this way it's 100 ounce bars about the size of a paperback novel weighs about eight pounds that's a hundred one ounce silver coins so those hundred coins are a hundred times more time and effort to make the same amount of ounces so bars typically have a lower premium the larger the bar gets the lower the premium per ounce because you only have to make one bar where you might have to make 10 littler bars so in this case then then if you if your goal was just to accumulate max ounces of silver at the lowest possible price it sounds like accumulating bars would be the the best way to do that to keep that manufacturing premium down right 100 ounce bars are the most cost effective way for the public to buy and sell physical silver with the only caveat being that they need to be a recognized hallmark and there's four or five manufacturers worldwide to make these that we trade all the time and then you also have to take in consideration that you're restricted to 100 ounces you can't sell 50 ounces unless you of course you get out the hacksaw which i mentioned before which you don't want to do no 100 that's like the opposite of something that is a certifiable accurate right exactly okay so so now so there's a premium there and again this is like just feeding the supply chain it's no different than if you go buy a tomato or a can of soup at the grocery store there's a whole lot of people in that food chain that got it from garden to table and you're paying for all of that that's all built in but when you do it at scale the actual percentage isn't much but because the base of silver is so low relative to gold and this is the thing i noticed is that when i took the difference between spot and the price i was paying that premium and divided that number by the by the spot price i could see that you know where in gold i might be paying you know five to seven percent premium with silver i could be paying 20 30 40 i mean it just depended on what was going on right we trade gold typically gold bullion coins in a premium over the melt value we trade silver more in dollar units a dollar and a quarter dollar fifty you know two dollars two fifty it just depends on premium the cost of the the metal itself right so the the dollar premiums can pretty much remain constant while the price can fluctuate so 12 or 14 silver you know a two dollar premium is more percentage-wise than it's 16 or 18 silver where you still have the same two dollar premium but but dana you're the dealer you're not getting all that money right no no the mints don't make these for free you know we we generally make a couple of percentage points when we buy and sell physical silver from the mint or from the refinery where we get the bars from to the public okay so when i'm when i'm you know standing there at the counter in your shop and i'm looking to buy silver and i think i'm savvy and i go look up the spot price of silver and it's you know 1892 or whatever the number is and you're selling me the coin for 21.50 or whatever i'm not being ripped off but every that's just the the difference between the cost of the raw metal versus the supply chain to get it from ground you know from minor all the way into the shop and into my my hands and my safe right right the vast ma the vast uh majority of that premium is manufacturing and distribution with a small profit to the dealer it's a very competitively priced market and you know we're all competing with there's a lot of dealers we all compete with each other well it's a commodity i mean obviously it's a commodity a lot of people think that's all it is is a commodity but it it's really not that's why they call it precious metals and not just metals right copper that's more of a commodity zinc that's more of a commodity uh silver as we talked about in previous episode is he has industrial value and does often get its price spot price affected by what's going on in the commodity markets but it is also a monetary metal and it can get caught up in what's going on in the currency markets more like the way gold does and we talked about that we talked about kind of the split personality of gold and silver so if you haven't seen that episode go back and watch it let's move on and talk a little bit about um now we've talked about kind of what premiums are but let's talk about why they fluctuate because they're not always the same and there is a market dynamic in there i think sometimes based on scarcity um can you talk a little bit about that yeah so you know over a 20-year period you know for most of that time premiums are going to be very constant the mints costs are fixed the to make the blank to strike the coins that really doesn't change that much but when you get into a situation where demand can overwhelm supply uh you can see premium surge which was what we saw a couple different times during the 2009 10 and 11 financial crisis you know the mints couldn't keep up with production for the amount of demand that came from outside from the public so people bid the premiums up to get the product dealers like myself had to bid the pre premiums up to get the product so that's when premiums can rise by the same token when there's a lot of people who just want to sell silver said the economy is doing great and they want to put money into stocks uh there are times when we'll actually have some deals on silver eagles or silver maple leafs right you send out you send out those every once in a while you know you'll have a big seller come in and dump a bunch of inventory on you and you've got to get back to liquid again you're like hey we're having a blowout you know i just had 10 000 ounces of whatever come in and we'll let it go at this lower than market premium you know minimum x you know good as long as supplies last right more supply than demand so that's when we can make deals and that we've done that of course and you've seen some of those emails yeah and so i think the thing that people need to understand here is this is just like real estate great deals move quickly and so if you're on somebody's mailing list and say send you something and it's a good deal if it's truly a good deal it comes and goes pretty quickly if you're getting those good deal emails every day and hey last chance and reminder reminder then it's like maybe it's not such a good deal but but the thing is in order for you to take advantage of a legitimately good deal you have to have a little bit of experience to understand what it is you're looking at now let's just talk about junk silver and premiums real quick because as we're sitting here in july of 2020 i've seen premiums as high as six to seven eight dollars over spot and i've remembered times when that was you know a buck and a half and i'm just wondering you know obviously there nobody's manufacturing except for except for those counterfeiters nobody's manufacturing more junk silver so what is a what is a premium telling you in terms of action should you should you say hey this is too much a premium to pay is it signaling a shortage it could turn into a real shortage and a big price boost i mean do you have and i'm not saying there's an answer but i'm just wondering in your experience that do those premiums talk to you do those premium fluctuations talk to you as an investor as a dealer about what's going on well it just means that when premiums rise it just means there's a lot of demand and there's just not enough product to go around so that's what happens now uh because 90 silver the junk silver is not pure we typically buy it a little bit under melt because the last buyer the buyer of last resort would be a refinery and they're not going to pay the full silver spot price for that because they got to get that little bit of other out to make it so they've got a purification premium or discount that they're giving you when you sell unpure silver note to self four nine silver might be a better way to go just so we're not we're not paying a manufacturing premium to get it from a brand new manufacturer today because it's already made right we buy it a little under melt and we sell it for a little over melt yeah now in a situation when there's a lot of demand well the bid will rise so right now the bids on junk ninety percent we're paying a dollar and two dollars over melt to buy it and we're selling it for three to four to five dollars per ounce over over melt to sell it because there's just more demand than there is physical product to go around and the caveat is we can't go to the mint and say hey make us more of this exactly right exactly so you know it's it's basically a rising premium is an indication of shortage and a low premium is an indication of abundance and there are times when a below market premium meaning one particular dealer is offering something below everybody else means he's got a glut of inventory he's trying to liquidate is that right here right that's nine that's the case 95 of the time but every once in a while a dealer will sell silver at cost or a little under cost to uh get people on their list insider tip yeah and sometimes that's good and sometimes it's not so good because lost leaders typically mean they want to sell you something they they can make more money on like higher priced numismatics or collectibles that maybe not may not be the best thing for you to own yeah well i go back to if you don't know what you're doing stick with you know sovereign minted bullion and you're going to be in pretty good shape especially if you're dealing with a reputable dealer and one you know if you decide to really get into this and decide to delve into you know some of these other more esoteric uh areas especially numismatic then for sure you're going to want to have somebody like dan and dana just just speaking of uh newman's numismatics i can't say there's another word but i can't i'm not even gonna but but you had some involvement in an organization i mean you've got some real expertise in this area right oh yes yes i've been in the marketplace for 40 years and i'm a member of the professional numismatists guild which is the leader see now you had a hard time saying it so i don't feel so bad here i am a radio uh guy and i i can't say the word right so um the png the professional numismatist guild is the leading organization of rare coin dealers in the united states you have to be invited to become a member you have to abide by a code of ethics you have to have financial wherewithal and you have to agree to binding arbitration which means if i get into a dispute over another party whether it's another dealer or a client over a transaction i agree to be uh subject to binding arbitration uh with the jury of my peers where we can both go and not have to go to court to come up with a solution yeah the png wants the best thing for the hobby and for the public and i'm a past president of the png which is you know there's only been about 30 of them in the last 60 years we have a two-year term so uh it's it's really quite an honor to be a member of the png and to be a past president so well that's that's why you're my guy right so good so um all right well let me uh oh i know the one last thing i want to throw out there when you know when i see premiums start to rise to me that's an indication of shortage and the big question in my mind is what is the cause it sends that's that's a signal to me to research why is there a shortage of course the easiest thing for me to do is call you uh and look at the basic headlines and see if there's an obvious answer if there isn't or i get some suspicion that hey maybe you know we're like there's a real problem out there and there's going to be a shortage and a big spike in price i may want to make a move you know that's the type of thing of just understanding where you're at so i'll just throw that out there you don't need to comment let's um close this thing up and just talk a little bit about packaging you know there's tubes there's bars there's bags there's there's boxes i hear this term monster box people banty about what are all those i mean when you walk into a silver dealer or you call a silver dealer or buy something online and they ship it to you what are these different packaging and options what does that look like and are there pros and cons or anything anybody that you think needs to know well it's really not that important it's kind of a ancillary top topic uh you know 100 ounce bars typically don't come in packaging uh one ounce bullion coins they come in tubes of 20 or 25. uh monster boxes are simply a a term we've come up with for uh 500 ounce boxes a 500 ounce boxes that the mints the canadian mint the u.s mint uh the australian mint the austrian that's how they ship this to their distributors into their dealers i've actually got a monster box right here this is a 500 ounce box of silver eagles it doesn't have any silver in it otherwise would be a hard time lifting it but it's it's about the size of a shoe box you think they would have made theirs blue and not green i mean it's us yeah anyway yeah so but they they come banded yes and straps on them yeah now is it bad if you take the straps off does that all sudden like delegitimize the box or create a problem if you leave it banded is it more valuable does that make a difference uh occasionally you can get a little bit more for what we would call a mint sealed box versus an unsealed box especially for earlier dates that are a little bit scarcer but if if i've sold a men's seal box to one of my clients and they send me that box back i'm not going to want to open it because i know that i sourced it to start with and that you know it comes back with my sticker on it i know it's my my material to start with yeah if someone comes in off the street and wants to sell me a box you know i weigh it before i open it but i still want to open it to make sure that someone's not bringing me a box of rocks that just so okay well good stuff and then and then junk silver uh just bags right yeah we just counted out by the do not buy the amount of coins that someone wants to buy we trade it by the face value not by the coin it's just because we have a standard you know i call you up to say dana i want a hundred dollars of junk quarters right so you'll get 400 quarters if you wanted the same hundred dollars worth of dimes you get a thousand dimes half dollars would be 200 half dollars yeah this uh that same one dollar face value is the same per unit in ounces point seven or seven point seven one five ounces per dollar face value that's just it's just a little weird so would you consider things like peace dollars or morgan dollars are those those are those sell above the cost of a bullion coin is that that would you consider that a numismatic coin yeah um we in circulating condition they're pretty common a lot of them survive today we are starting to see some chinese counterfeits in that regard so be a little careful there that's why having an established relationship with a long-term dealer yeah is important for a couple different reasons you're gonna make sure you get good product number one number two you're gonna get competitive pricing better than a pawn shop you're gonna get the real product and number three you know when things get hot like we've been through a phase like that you're going to get preferential treatment if you have an established relationship it's the same as real estate i mean i tell you all the time you you know you do what you got to do to be the person who gets the phone call when the hot deal hits the shop i want to be at the top of that list i'm near the top of dana's list i think and i keep working to get i keep working to be at the very tippy top of it okay so that's good stuff any closing thoughts on silver purity pricing premiums and packaging before we wind down this module no the only thing that i would really add is that sometimes when premiums get a little hot you there are other products you can shop around so there are alternatives so if like right now silver eagles are bringing a little too much we're paying a little too much for them but we're selling them for even a bit more so i'm doing much more volume in canadian maple leafs or british britannias or south african krugerrands right now because they're just better value for the public so that's one of the arbitrage opportunities that exist yeah and again that goes back to just when someone is eating breathing living sleeping you know in that space all the time like we do the boots on the ground interviews with you once a month like what's going on you know you bring that type of intel hey right now the real opportunity is over here right and again these are subtle differences at the end of the day if you're accumulating precious metals for the long term might not be worth your time unless you're you're placing huge orders but if you do want to get the maximum out of every dollar and you're you know kind of enamored of the subject matter as i am i'm a coin collector at heart uh then it's kind of fun to kind of understand what what are all these pieces that's why i thought the series would be fun to do because i spent a lot of time in my career explaining to real estate investors precious metals and not just you know how to use them strategically but to get into the weeds a little bit about like what is this really all about how does it work so i think we've covered a lot of ground we've got two more modules left to go before we call this a day so dana thanks so much for for sitting in on this one we'll see in the next one thank you russell always great to be with you hey thanks for watching our silver investing series videos we hope you're getting a lot out of them before you go three things number one subscribe when you subscribe you build up our subscription base and that helps us reach more people but even more important it helps us attract great guests and subject matter experts to share their ideas and information with you number two click that notification bell to make sure that when we do post a new video on this hot topic you're notified right away and number three share please share this information with friends help them get on board this bus help them protect and preserve their wealth to take advantage of what's going on in the world today all right thanks so much and we'll see you in the next video [Music]

Channel: The Real Estate Guys Radio Show

Views: 74,188

Rating: 4.8334723 out of 5

Keywords: precious metals, investing in silver for beginners, investing in silver 2020, investing in silver coins, investing in silver bars, real assets to invest in, real assets investments, silver price, precious metals 2020, silver price analysis, how to price silver, how to calculate silver price, how to calculate junk silver price, How To Calculate Silver, Silver Purity, Silver Premiums

Id: Y7_iAeyM13U

Length: 32min 4sec (1924 seconds)

Published: Thu Aug 20 2020