I live in Melbourne. In the city around Collins St in particular there are numerous gold and silver dealers. Over the last 5 years gold and silver have both been on a general decline. How do such businesses make money, cover overheads rent/employees etc buying and selling a declining asset? What is the general business model of a precious metal dealer? Do they hedge with gold and silver contracts? Do they generate income from GST accounting adjustments? Is anyone else curious about this?
If above board, they will all have to hedge, not just bullion dealers but every business that has a stake in PM even jewellers hedge. Hence the huge paper pm market. They buy cheap and sell high, just like any foreign exchange dealers, who by the way all hedges all the cash they have
Im happy to find a dealer selling cheaper than stackers. Specially when spot is low *just around these times I believe they are making money in every market due to mark up. Im not an expert but logically they are buying at say 100 and selling at 105 and making some money that way. If we are to sell it to dealers they wont buy at spot. I have no numbers to support this. Having said that its not a business for anyone as it carries many risks.
For dealers it's not that hard I would imagine. When they get an order for X amount of gold or silver, they instantly buy X amount of gold or silver to replace it. Do that fast enough and regularly enough and they would not lose on a day-by-day basis once you have payed for that initial stock. No need for hedging in that case. Of course margins are razor thin.
I know of one small coin dealer that buys at what i would call wholesale, 80% of spot price, i can only see the dedicated bullion dealers buying at a greater discount from spot.
