We recently have been hosting a series of Q&A sessions on Facebook and Twitter for our fans and followers to partake in. Previous topics that we have covered were about Investing in Silver and Investing in a Precious Metals IRA. For this Q&A session, Peter helped answer questions about Investing in Gold. Here below is a recap of that session.
Q- Does APMEX utilize any hedging strategies? If so why do their premiums remain so high?
A- APMEX hedges 24/7 when the Precious Metals markets are open. (Markets close at 5PM Friday ET and reopen on Sunday at 6PM ET). Hedging allows us to lock in prices at the time you place your order. All Precious Metals dealers have experienced unprecedented demand as of late, which has drastically cut into available products. The manufacturers had no way of anticipating this sudden increase in demand. When supplies are low and demand is high, they charge more for their products. APMEX pays more to purchase the products, so premiums go up. APMEX is also paying higher prices to our customers who wish to sell their products to us. It does work both ways.
Q- Do you see a split coming in the way paper and physical Gold and Silver are priced?
A- The paper products (ETFs) claim they correlate to the actual spot prices of the metals. However, the recent drop in spot prices demonstrated that this is not always true. The paper products fell even more than the spot prices. Jim Cramer has always recommended Gold through GLD…He now says buy the physical coins. I do not see how there could ever be a split in how they are priced. They are both based on spot prices.
Q- In your opinion, why has gold dropped so much?
A- Most of what I read says gold dropped because of the paper markets (ETFs). (Speculators) The big hedge funds, who always leverage their purchases, started taking money off the table. As prices dropped, automatic sell signals hit computers and a snowball effect took place. At the same time, the physical market (Investors) bought at levels we had never seen before. There is a re-balancing between investors and speculators. The basic reasons for owning Gold as an investment would seem more valid than ever….as a long term investment
Q- Do you see Precious Metals reacting to the over flooded market of Gold and Silver certificates? Do you believe the Silver incident is coming?
A- I do not know if the certificate market is big enough to move the overall market. If you are referring to ETFs, then yes, they definitely move markets. I am not sure what you mean by Silver incident, but I am not seeing anyone predict an explosive move up or down.
Q- Taking into account Gold’s recent volatility and the current economic environment, what are your thoughts as to where Gold is headed in the short/mid-term?
A- I only think of Gold as a long term investment strategy. Many analysts advise that a 4-12% insurance policy should be considered by all. I am not aware of anyone who consistently predicts short term prices with accuracy. Short term becomes more of a bet than an investment.
Q- My local coin dealer says don’t go for 90% junk. Rather go for bouillon bars and rounds. Thoughts?
A- Our customers who believe there could be a time they need real money to buy food, often buy 90%. If purely for investment purposes, I would not disagree with your dealer. Keep it simple and buy 1 oz. coins, rounds or bars.
Q- It reminds me of what happened to Silver a few years ago when it dropped from like $30 to $10 but yet you couldn’t find any physical Silver at $10.
A- Yes, similar for sure. It is not that Gold and Silver are in short supply. The problem is that the manufacturers who make products cannot keep up with demand.
Q- Peter, personal question. What is your personal favorite product, round, bullion and manufacturer?
A- I like the simple Gold & American Eagles. It is just a personal choice, many of my colleagues like Maple Leaf, rounds or bars. If you want rounds I would go APMEX rounds because most of the time they are the best price. They are made by the Sunshine Mint. For bars, I personally like the Pamp Suisse in assay.
Q- Why did the mint suspend production of the 1/10th oz Gold round?
A- I do not know, but I am fairly sure the reason was they were struggling to keep up with production of 1oz. coins
Q- Is there a shortage in physical Silver? I still see people selling plenty of Silver.
A- It is not that there is a shortage of Silver; there is a shortage of Silver products. The manufacturers did not anticipate the buying frenzy. They are struggling to catch up to demand.
Q- Exactly how does the paper futures market effect the Precious Metals market and how much can the price be manipulated through the futures market?
A- This is not an area of expertise for me, but I think of it like this. The future markets allow speculators to place leveraged bets on whether prices are going up or down. Other speculators can monitor the direction of the bets and either jump on board or play the opposite view. The reason it can really move markets is that they control much more Gold or Silver than they actually had to pay for. It is a leverage bet. I might buy a Gold contact at 100 oz. but I only have to put 10% down. The market reacts as if 100 oz. has been sold. Hope this helps.
Q- If APMEX hedges when they make their sale instead of when you purchase from your suppliers, aren’t you basically helping to drive down prices after you have sold your product?
A- it is actually the opposite. If we sell 100 oz. of Gold we buy a futures contract. If we buy 100 oz of Gold we sell a futures contract. Our goal is to stay neutral.