The Federal Open Market Committee's announcement last week of QE4 failed to boost the stock and precious metals markets, but the longer-term consequences of a $1 trillion annual bond-buying campaign remain to be seen.
The Fed indicated it intends to keep short-term interest rates at zero until unemployment falls below 6.5%. It also announced $45 billion per month in additional bond purchases, for a total of $85 billion per month.
Precious metals, which had run up earlier in the week, declined modestly after the news and are down slightly this morning as well. Neither policy announcement amounted to much of a surprise. The short-term price action, as has often been the case recently, was counter-intuitive – further proof that markets are unpredictable day-to-day and week-to-week. It is only in the long run that we can comfortably predict the effects of all these inflationary Fed policies.
Since trading opened in Asia last night, metals are headed lower. Gold is trading at $1,696, down slightly from this time a week ago. Silver currently trades at $32.30, down $1 week over week. The other white metals are both trading essentially flat. Platinum spot is at $1,613, and palladiumspot is at $703.
How to Find the REAL Bargains in Bullion
Money Metals Exchange fields a lot of calls from customers who want to know which products are sold at the lowest prices. We can't think of a better question from the standpoint of prudent investing. Investors can't control what happens in the markets. They can, however, control their transaction costs and maximize returns by keeping those costs as low as possible.
In bullion, the transaction costs are best represented by the "bid/ask spread." The "ask" price is the price the item sells for. The "bid" price is the price a dealer will pay to buy the item back. You want to have a good handle on both of these before you make your purchase.
Otherwise, you may step over a dollar to pick up a dime. Forgetting to consider what price the bullion you buy is likely to bring when it is time to sell is a mistake even experienced metals investors sometimes make.
Thousand-ounce silver bars are a classic example. Many dealers sell these bars for anywhere between $0.50 and $0.70 over spot per ounce – that's hard to beat. However, Money Metals and other dealers are likely to discount those bars $1/oz, or quite possibly more when investors look to sell – particularly if the owner took physical possession and they do not remain in a COMEX approved storage facility.
Not to mention, those 1,000-ounce bars are hard to handle. They weigh approximately 70 lbs each. That means more difficulty shipping securely, and you won't be able to insure the shipment for its full value (unless you have access to special private insurance like Money Metals does). The Postal Service, the only carrier out there who would pay out on a precious metals claim should a package loss occur, has a $25,000 maximum for insurance.
Once you factor the bid discount and the additional risks and hassles involved with selling, those bars don't look like much of a bargain anymore.
And it's worth keeping your eye on the bid/ask spread over time because it will fluctuate. Pre-1965 90% (Junk) silver is a good example of a product where spreads are currently wider. Ask prices rose significantly several months back and bid prices have not kept pace.
Carefully evaluating the spread prior to making a purchase can also help investors avoid making a serious mistake and buying "rare" coins – where bid/ask spreads are typically 30% to 40%! Dealers pitching semi-numismatics have well trained salespeople who tell lovely stories about a coin's desirability. They run into a bit of trouble, though, when a savvy investor asks why the coin they buy today will be worth 30% less (or worse) if they sell it tomorrow.
Understanding spreads is one of the cardinal rules in metals investing. Money Metals makes it easy because we publish both our sell prices and our buy prices right on the product pages of our website – live. Or simply call 1-800-800-1865 and ask one of our Precious Metals Specialists. We will always be happy to give you a straight answer.
Potential Market-Moving News This Week
Talks regarding the "fiscal cliff" continue among Republican leadership, the President, and Democrat leadership in the Senate.
Trading activity on Wall Street and the commodities pits figures to be rather quiet as we approach the Christmas holiday, resulting in less market liquidity.
- Tuesday, Dec. 18th - Housing Market Index. Given the gargantuan stimulus being injected into the housing market – in the form of record low mortgage interest rates and Federal guarantees on roughly 90% of all new mortgages – housing data is expected to show continued improvement.
- Thursday Dec. 20th - Jobless Claims. Consensus is that that new claims for unemployment compensation will decline as firms disrupted by Hurricane Sandy put people back to work.
- Friday Dec. 21st - Consumer Sentiment. Sentiment in the initial reading for December worsened dramatically.
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About the Author:
Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.
