People Keep Buying Gold on BullionVault Over Weekend
October 12th, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
I logged into BullionVault to buy some gold after the close Friday. (The Zurich market on BullionVault usually has decent liquidity throughout the weekend, with prices near the spot market close. The London and New York vaults have much less liquidity and the spread widens substantially over the weekend.)
The spot market closed at $849.90 x $850.90. By the time I was looking at BullionVault, it was something like $860 x $866. It seemed a bit weird, but I just assumed that it was a weekend/low liquidity thing.
I logged on this morning, to see if things had flattened out again…
Zurich is now $895.78 x $901.97.
People are willing to pay nearly a $46 premium to buy gold over the weekend. What’s even more interesting is that nobody is willing to sell it to them. Currently, BullionVault has 9 tonnes of gold, over 60,000 users and approximately $290m client holdings. (Most of it is in Zurich.) You’d think that some of those people would be willing to pocket a $46 gap from Friday’s close.
You’d think…
Yeah, I just looked at that. Weird. Even stranger was that my account valuation was $300.00 lower than it should be at the current selling price in Zurich ($28,000/kg). Maybe they’re using Friday’s closing spot price, but it still should be $100 higher for the amount of gold in my account. Have you ever known them to screw up over there?
I asked the manager of my local bank if she knew anything about the alleged upcoming “bank holiday.” She looked genuinly surprised, and said no, that was a new one on her. The last bit of new info she had from the FedGov was the FDIC deposit insurance increase. I asked if she were worried at all about the state of things. She said no, it’s a rough patch but we’ll get through it. She then told me that their bank had no exposure to the mortgage mess, was well-capitalized, blah, blah, etc., which was the same spiel she gave the last time I asked (I know, lady, that’s why I bank here and not across the street).
I may be being naive in expecting an honest answer to those questions from a banker. But if she was being truthful, then it looks like a system freeze is going to take even the bankers by surprise.
I’m a fan of Ebay for taking the temperature of the precious metals markets. It’s very transparent, and for the past several years I feel it’s been a perfect leading indicator for where gold & silver prices have headed. There are obviously some buying factors to take into account, but as a whole an experienced Ebayer can see through the occasional BS.
Right now Gold oz’s are selling for well over $900 (as they are at reputable dealerships), and smaller price-points command far higher premiums. Silver auctions are altogether ridiculous. Prices for anything touted as graded or certified-minted boggle my mind…why would you CARE anymore for “collector-status” coins? Will people value marginal perfection a few years from now? I wouldn’t bet on it…
Of course Ebay obviously caters to the middle-class…but nonetheless it’s still an excellent indicator.
So that’s a wonderful example of the disconnect I think you’re sensing right now – the disconnect between real asset prices and the rather imprecise proxy prices the futures are showing.
Still, to put things into some kind of perspective…I just now shopped around and found that Kitco has 1,000 oz Silver bars for $10,340 US, roughly just over a 3% premium to spot. No mid-range sizes are even available. So I found myself thinking, heck, if the average Baby Boomer has roughly $40,000 or more in retirement assets (obviously most have less, but many have quite a bit more), why are they paying such huge premiums trying to piece together 1/4 and 1/2 oz gold on Ebay? If times are so dire that Americans are sinking huge portions of their nest-eggs into 0% treasuries, why not put $10K or $20K into a 1,000oz silver bar or two — which offer far greater security (in my book) than the US Gov’t at this point, and which actually stand a good chance of appreciating…or at least keeping up w/ inflation (whatever that means anymore)?
I can only suppose the obvious answer is the simplest: what the heck would you do with a 1,000oz slab of silver, say, 10 years from now? What kind of circles do you run in that you know how and where to lay-off the occasional 62.5 lb chunk of ching when you’re in need of a little walkin’ around money?
The ceiling on precious metals prices has nothing to do with trading charts, in the long run. It’s the same ceiling power-possessing beings have always run up against for millenia: you can hide gold in small amounts, but not in big amounts.
For that you need to build a castle. Or better yet, invent a banking system.
@ skeevie
It might be a bit more complicated to calculate your balance on the weekend because you’re probably holding more gold than the size of best bid at the moment.
I’m going to explain this and you may not like me afterward, but here goes:
Log in to BV. Pull up MARKETS and MARKET DEPTH. Use the drop down menus to select your vault and currency. (Hopefully, you’re in one currency and vault, for ease of calculation.) Set the PRICE INTERVAL to 1 and max out the rows.
Click GO.
What you’ll be looking at is BV’s order book for that moment. What you’d need to do is take your amount of gold and distribute along those bids, noting the different prices for each tier. The best bids, as I look at the screen, are only 29 grams in size at the moment.
So, if you’re holding more than 29 grams, the best bid price, which is what shows on the BV main screen, won’t accurately reflect the value of all of your gold in the market at that instant.
I’d say to try it again, during market hours, when the bid sizes are much larger. Depending on how much gold you have, you’ll have a better chance of seeing a best bid with a large size. At that point, you should be able to multiply your holding (in grams or kilograms) by the best bid and it should match the balance you see on your account screen.
@lagavulin
why are they paying such huge premiums trying to piece together 1/4 and 1/2 oz gold on Ebay?
Steve, I’ve dealt with the metal heads on eBay and I’m not sure there’s any single explanation for what’s happening there. My mother used to give my sister and me 1/10 ounce Eagles for Christmas (some years). I sold them all in one shot on eBay when it came time to “buy the farm.” People were in a bidding war over those coins. (For those of you who don’t know, the 1/10th and 1/20th ounce coins have the large minting premiums associated with them. In other words, you’ll pay the most money for the least gold when you buy 1/10 or 1/20 ounce coins.) The person who bought them asked me to let him know if I was going to sell any more. So, as someone who has sold coins on Ebay, it’s a great way to do it. I made much more than if I would have used a dealer.
You wrote:
I can only suppose the obvious answer is the simplest: what the heck would you do with a 1,000oz slab of silver, say, 10 years from now? What kind of circles do you run in that you know how and where to lay-off the occasional 62.5 lb chunk of ching when you’re in need of a little walkin’ around money?
With coins/bars, I don’t think most people consider A) the substantial costs involved with the minting premium, B) the spread at the dealer C) whether a viable metal market will exist when it comes time to sell.
For me, personally, I looked outside my window, past the cows, the goats, the trees, the river… Nope. There’s no market maker for gold coins anywhere around here.
This is why I like BullionVault so much. Almost spot price. Very liquid market. Trivial fees compared to traditional vaulting.
There are A LOT of people out there, however, who demand personal physical possession of metal. Nothing else will do. I understand this perspective, because I used to be one of those people, and still am, to a small extent. But as I dealt with dealers and ebay and then with the incredibly limited options in New Zealand, I decided that I liked having access to an efficient physical metal market, even if I didn’t live anywhere near one.
To those who say that the Internet will be down, Mad Max, etc. etc. my response would be that things like food, booze, shovels and guns will be much more fungible than gold or silver coins in an all-the-way-down situation.
Having said that, would I recommend that people get some precious metal coins for personal physical possession?
Yes.
@Kevin:
Thanks for answering the questions I myself was mulling over about buying gold. Another thing that supports what you said about using something such as BullionVault: If I were to buy, let’s say 24 Canadian Gold Maple Leaf coins, I certainly couldn’t keep them here in my residence. The landlady’s niece, who is pretty much the effective landlady now that the property-owner took off for Florida, isn’t quite “all there”, shall we say, and the front door leading to the upstairs apartments simply doesn’t lock because she is pretty much letting the building fall apart. I would at the very least have to pay for a safe-deposit box down the street at my bank. And this doesn’t seem like the best time to be trusting banks anyway.
Here’s another thing that appeals to me about Bullion Vault: A situation could come about in any of the English-speaking countries where some kind of emergency government is declared. One of the things such an emergency government might do is confiscate people’s gold. If your gold is with Bullion Vault’s Zurich, Switzerland vault, then your gold won’t end up in the hands of the emergency government. You will correct me, of course, if I am wrong in assuming this.
@ Loveandlight
One of the things such an emergency government might do is confiscate people’s gold. If your gold is with Bullion Vault’s Zurich, Switzerland vault, then your gold won’t end up in the hands of the emergency government.
You are correct.
Most of the gold that people have purchased through BV is kept in Zurich, according to Paul Tustain, the director of BV.