- ♦You probably don't have deep pockets
♦You're brand new to metal trading
♦You don't have a lot of experience doing many other types of trades
Part 1: Buying
The way you need to start out is the most obvious way: buying. The easiest way to get metal is to trade FRNs (Federal Reserve Notes, aka Paper Cash) for the Metal. This is also referred to as "buying" it. The cheapest way to obtain metal by this method is to, like everything else, buy it in quantity. This accomplishes two things:
- ♦Quantity Discounts offered by seller
♦Lower shipping and handling charges (yes, this must be included in your Dollar Cost Average (DCA))
This method is not wallet friendly but is about the only way that you can get started. Now, you can try buying locally, which I encourage to support small businesses, but you will most likely pay more. This will happen because of two reasons:
- ♦The seller doesn't know you, and you two haven't established a rapport
♦Small businesses don't have the same economies of scale as the large online sellers so they have to charge more. In addition, the store has the added overhead of rent, electricity, etc.
So, don't expect to walk into a coin shop "guns-a-blazin'" with the latest printout of today's spot price and demand it. You'll learn quite quickly that the dealer has probably run into a million people just like you and will just as soon tell you to walk out the door. Remember, this guy is sitting upon thousands, if not hundreds of thousands, of dollars worth of highly liquid assets, he doesn't need your business, he has other customers to serve.
Part 2: Trading Metal
Once you have some metal, you may want to increase that. There are a few ways to do this, but you need to understand your course of action. Smaller denominations (aka Fractionals, Fracs) like 1/2 oz, 1/4 oz, 1/10 oz, etc are considered more valuable to some because of their increased liquidity and higher price.
What does this mean? You could potentially buy 1/10 frac gold coins, and potentially trade 8 or 9 of them for a 1 oz gold coin. The reason I say 8 or 9 is that most times you have to make some type of cash offer along with your fracs to make it more fair. Few people will trade a 1 oz coin for just .8 oz in fractional. You will find more people willing to trade .9 oz worth of fracs for a 1 oz coin, but there probably won't be a line of customers so be patient. That sounds great, what's the drawback? Ahh yes, the drawback.
- ♦Fractional coins cost more per oz. You'll end up paying roughly spot + $100.00 (at the least, but more commonly +$200.00) for a fractional 1/10 gold coin. Meaning if spot is 1100 an oz, you'll probably be buying a 1/10 coin for $130.00 or $1,300 per oz.
Similar rules apply with silver as well, but due to silver's affordability, there isn't as much advantage trading silver fracs for silver 1 ozers.
Crossing Borders
Crossing the metal borders is where you can really gain some leverage trading. In order to do this you must become very comfortable with the concept of the Gold to Silver Ratio (GSR). The GSR is just that, the price of Gold (POG) divided by the price of silver (POS). What this ratio tells you is how many ounces of Silver you can get for each ounce of Gold. Historically the GSR has been on both sides of the spectrum.
During roman times, I believe, the GSR was 1:3 meaning one ounce of Gold could get you 3 ounces of Silver. The largest gap we've seen recently was about 1:85 and currently it is 1:60 meaning that one ounce of Gold will buy you 60 ounces of Silver.
So you're asking yourself: How can I play this ratio? By Trading your Silver and Gold on http://bullionstacker.com/ (BS) you can take advantage of this ratio. How you play it will depend on where you think Silver or Gold is going. Today you can get 1 oz of Gold with 60 oz of your silver, but if you believe that Silver will out perform Gold, meaning that the POS will increase faster than the POG, then you will want to wait, because if POS does increase faster then you'll see the GSR decrease. Lets say the GSR decreases to 52, Now you can get 1 oz of Gold for only 52 oz of silver, which means you've saved 8 oz of silver!
But What if I think Gold is going to outperform silver? Then you better buy Gold now, or trade for it now. When the POG outperforms the POS then the GSR goes up. So if you can get into Gold now then you can wait for the GSR to go up. So let's say you trade your 60 oz of silver for 1 oz of Gold. Then the GSR goes up to 72. You can now trade your 1 oz of Gold for 72 oz of Silver. You've now increased your Silver holdings by 12 ounces and you really didn't have to do anything! Or you can stay in Gold and be happy that it outperformed Silver.
Conclusion:
This is just a Primer to help you learn the fundamentals. I did take liberties with my numbers and do not guarantee that anything in this Article will go as stated. In many scenarios I neglected the cost of shipping and handling, which should be considered. In nearly all instances, the person shipping the Silver will need to pay more and this should be considered in the calculations.
Using this Article: This article is the copyrighted work of Debris and is to not be republished anywhere without this notice and citation links to both http://bullionstacker.com/ and http://uselephant.blogspot.com/ . Thank you.
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