Will Dealers Buy Back Metals Even If Spot Prices Rise?

A precious metals dealer is in business to sell metals. Dealers usually offer buy prices for metals, as well as sell prices. The spot price of gold or silver is in a constant state of flux. Gold , silver and other precious metals prices may move up or down based on many factors, such as supply and demand, geopolitical issues or tensions, economic data and monetary policy, to name a few. Because the prices of precious metals are always changing, dealers must adjust their buy and sell prices, or dealer spreads, accordingly. It does not matter if the price of a metal goes up or down, the dealer stands ready to buy at or below the spot price and to sell above the spot price.

Contrary to popular wisdom, dealers may be particularly interested in purchasing precious metals from sellers when prices are moving higher. Why would dealers want to buy if the price is going up you might ask? The reason is simple. When prices are moving higher, supplies of certain bars, coins or rounds may get tighter and tighter. As supplies tighten, dealers may want to get their hands on as much of the metal as possible. In addition, premiums on the products may increase as well, potentially giving the dealer some additional profit potential. It is important to remember that the dealer’s function is to provide both buy side and sell side prices for precious metals. The dealer is mainly concerned about the spread between these buy prices and sell prices. Regardless of the spot price of the metal, the dealer still maintains their profit potential based on this dealer spread.

Let’s suppose that the current spot price of gold is $1,309 and that a dealer is selling a 1 ounce Royal Canadian Mint gold bar for $1,345. This represents about a $36 dollar premium over the current spot price. Now, that same dealer also says that they will buy the 1 ounce Royal Canadian Mint gold bar for $1,314. This represents a $5 premium over the current spot gold price. If the dealer buys at a $5 premium and sells at a $36 premium, then the dealer stands to make a gross profit of about $31.

Now, let’s assume that the price of gold rises sharply in the coming weeks and spot gold prices are now at $1,400 per ounce. In this case, the dealer will likely still maintain the same approximate spread on this particular gold bar. If spot gold is trading at $1,400 per ounce, then the dealer may, for example, be willing to pay $1,405 for this gold bar and offer a sale price of $1,436.

Buy and Sell Spread

Because gold dealers buy and sell gold, they are simply interested in the buy and sell spread. Regardless of what the price of gold may do, there will likely be willing sellers as well as people looking to purchase gold. Since most dealers look to make their profits on this buy and sell price spread, the actual price of gold may be irrelevant to them. In other words, a dealer will have no problem buying gold back from someone because the dealer knows that they will be buying the gold back at a discount and looking to sell it at a premium.

Bullion and coin dealers know the markets that they operate in, and are comfortable buying back bars, coins or rounds at their stated buy-back prices. Different dealers will have varying buy and sell prices. Depending on numerous factors such as the size of the dealer, the products they deal in and more, the spreads between dealer buy prices and sell prices can be vastly different from dealer to dealer. A dealer that buys and sells a lot of product will likely have tighter buy and sell price spreads. Dealers will also update their buy and sell prices as the price of gold moves.

All Market Updates are provided as a third party analysis and do not necessarily reflect the explicit views of JM Bullion Inc. and should not be construed as financial advice.