Q: Why can’t I buy at spot?
A: The “Spot” price of any precious metal represents an arbitrary price at a specific moment in time for a specific quantity of raw metal in a paper “contract.” It is basically a market ‘gambling’ price and not an actual price for which a finished coin, round, ingot, or item of jewelry can be purchased.
The only way to buy silver near spot price is to purchase a futures contract on the commodity exchange, let that contract mature, and then take delivery. A futures contract is for a 1,000 Troy ounce ingot. That is just a raw lump of metal that weighs approximately 70-lbs. You can’t do anything with it, except perhaps use it as a door stop. When you take delivery at “spot price,” you discover that the bank will charge storage fees and delivery
charges. So, in fact, the actual charge is well above spot. Even so, it is still just a 70- lb lump of raw metal. To make anything out of that silver, the ingot will have to be melted, then undergo a very involved twelve-step minting process .
Each step in the manufacturing process adds cost to the finished product. And each step in the process requires extremely powerful and costly equipment. The process involves equipment that totals in the $Millions, all before the first coin is struck and any labor cost is considered. That’s true whether you are manufacturing silver earrings, bracelets, or coins. The manufacturing costs are virtually the same for a 1/10th oz. round as for a 1 oz. medallion.
Value vs. Utility – Why Less is More:
There are two main motives for buying precious metals. The first is investing. An investor tries to profit from the daily price fluctuations in the market. To maximize those profits, an investor must buy as cheaply as possible. The cheapest form of silver is the 1,000 oz. ingot and that is how silver is traded in the commodities market. But, because it’s not practical to lug around seventy-pound lumps of silver, they are stored in vaults and the “owner” is given a certificate of ownership. That is known as paper gold or paper silver. If the “owner” were forced to liquidate, there would be substantial storage fees and commissions involved. The second reason for buying precious metals is for financial self-protection as a hedge against inflation. In that case, utility is far more valuable than the original cost.
When the current administration took office, the price of gasoline was $1.83 a gallon. Until recently that same gallon of gasoline sold for almost $4.00. The cost had more than doubled, yet the administration said that inflation was only between 2% and 3%. How is that possible? It is because the government doesn’t include the cost of fuel and food in its inflation tables. But, you still have to pay those prices. That’s the “real inflation” index; the price YOU have to pay for the things you need. No one knows for sure what the future will bring, but many economists predict that, during inflation, silver could rise to more than $500 an ounce. At that rate, the 1,000 oz ingot you could buy today for $23,000 would be worth half a million dollars! But what could you do with it? You could put it in your child’s wagon and pull it to the store to trade for groceries, but how would you get change? You couldn’t chip off chunks of the lump of silver because there would be no way to prove it’s precise weight or purity. You would be lucky to get one tenth of its value. A similar problem exists with one-ounce coins. A 1-oz silver coin you bought for $17 to $25 would now each have the buying power of $500. But again, how would you get change? You couldn’t cut it up into smaller pieces, so much of its value would be wasted. A tenth-ounce pure silver coin would have the buying power of, say, $50 and it is a small enough denomination that it is liquid, tradable and will retain its full value. That is utility. It has greater value in those circumstances because it is useful. A clear and practical instance where smaller is better and less is more.
The Weimar Republic of Germany is a real-life study of what happens when the government manufactures money out of thin air to pay its bills. It got to the point that a one- pound loaf of bread cost three-million Marks, but merchants would trade that loaf of bread for a silver Mark coin. One housefrau who lived through that period recalled that a farmer told her to bring a silver spoon to trade for one egg. Precious metals have always had utilitarian value. Both gold and silver have ALWAYS had value; GOLD AND SILVER ARE TRUE WEALTH.