I'm not the official complaints department, but it does feel sometime like I'm left hanging out there as people expect I'm to fulfil that role. My engagement here has been on the basis of "explaining why". Problems with supply, I'm explaining why. I do the same with other issues, eg backwardation, I'll explain what it is and why. It is not pointless as it is not my job to explain what we are going to do about issues - my personal interest is in why/education. Many of my responses have been done on my personal time as in this response. As I don't run the website, telephone sales, our shop or depository business, it is not right for me to speak for the managers of those departments. However, you can be sure I bring these threads to the attention of those who need to see it. Interesting comparison. I'll just note one material difference between the Mint and mining companies they have the ability to raise capital from investors willing to take risks. Our (one) shareholder has a very high risk aversion level and limited funds spend $100m on their Mint so they can make more coins for many people who aren't voters, or spend $100m on a new wing for a children's hospital etc. Exactly. I had observed a good correlation between demand and price but that has recently broken down. It was not much help anyway as price is not forecastable. It is not price that predicts, but movements/trends in the price. The best relationship I've observed was between new highs in the gold price after which we'd see an increase in the number of Depository accounts being opened. No it wasn't a major upgrade, we had other work planned and added in a bar line for silver which doubled our silver bar from a small base. We didn't expect demand to increase by way more than double so quickly. There is not much point in continuing this line of discussion because you believe we should have known/it was obvious that demand was going to increase so much so quickly. I made the point above about our shareholder. We are not an ASX listed company who can take risks because their shareholders are willing to do that for the return. Our shareholder is interested in a dollar return, but not at the risk of votes. If we did spend a heap and then it had to be written off, the opposition would use that against the government as an example of financial mismanagement. Of course there was high demand in 2008 but I consider that an exceptional circumstance where the previously observed investor despondency at low prices being overridden by the unique economic situation at the time. Once that was over, we sort of got back to the usual market behaviour until now. 2008 was too special to read anything into IMO in terms of a sea change in investor behaviour. I consider this recent strong demand in the face of falling prices far more significant because there is no high profile single event driving it it is I think the beginning of a capitulation by investors that no rabbits will be pulled out of hats, so time to stock up while you can. We have done this in the past but we are not comfortable continuing to take orders beyond say three months at some point you have to say stop because it is clear you're not able to meet demand. Taking orders for deliver in 6 months say is pretty much the investor running a Depository account. Generally when demand is high there is no or little selling back. Increasing the buyback premium I don't think is going to suddenly make more people let go of their silver. The premium is a small part of the return the investor gets, their selling decision is more driven by the metal price. All increasing buyback premiums would do is take buyback volume from coin dealers and this forum. Perth Mint does not engage in dynamic pricing as a policy, both on the buy and sell side. This is because it would simply hurt our coin dealers, taking business from them. We sit in the market at fixed premium (a RRP if you like, on both selling and buying back) and everyone knows what that is and this gives space for coin dealers and private traders to compete and make a market. I can't see that policy changing. Don't think we're happy about losing sales to other sources. All Mint staff are on a modest bonus scheme, so no one likes seeing lost sales. You need to read this post http://goldchat.blogspot.com/2008/06/gold-value-chain-part-iii-manufacturing.html You are just not getting the message that we don't own our inventory and that we only buy AFTER we have done a sale.
Yes, the comparison applies to the miners of precious metals too. As part of the supply chain, they are affected by similar (but indirect) demand volatility as the Perth Mint. Public and private mining companies can also have risk averse majority shareholders, just like Government-owned Business Enterprises (GBEs). When this occurs, debt financing rather than equity financing can be considered for either type of entity. The bankers, venture capitalists or other financial lenders provide the funding, often without any further investment from the shareholders. The additional funding does not need to be sourced from general revenue, and it does not have to be provided at the cost of a new wing for a children's hospital, or any other politically sensitive area. But your argument seems to conflict with advice that you have given in a previous post to this thread: Perth Mint is unique amongst WA Government enterprises in that our mandate is to make a profit and we do not get ministerial directions as to how to do that. Utilities like water and electricity are for profit but their activities are politically sensitive so probably do get more "direction". Does the Perth Mint have autonomy or not? I think that we agree that price is not forecastable. In any case, you have confirmed that PM operations do not rely on absolute price levels. Forecasting demand is the issue. My assertion is that price does not predict demand at all, neither in absolute terms nor in trending terms. Price and price movements are an outcome of the interaction between supply and demand, not an input. It is not a simple relationship, especially for precious metals, where the amount of very volatile speculative demand can often exceed more predictable demand from manufacturing and underlying investment. At the risk of heading into conspiracy theory territory, I would also suggest that price signals are also often corrupted by paper precious metal futures contracts, so even a theoretical influence of price on demand would get negated. I don't believe that it was obvious that demand would increase so quickly. I think that I would have thought it likely on the balance of probabilities, but there is never any guarantee. I have already agreed that forecasting precious metal demand is not easy. The issue is how to manage demand despite the volatility. There are a range of actions that can be taken to cope with volatile demand, and I have already suggested a few of them. There are also a range of ways to mitigate risks associated with these actions. ASX listed companies need to balance return on investment with community opinion as well. Most major listed companies have a public relations department to manage community opinion, and to lobby politicians when needed. They also have competitors ready to exploit any adverse community reactions. I don't think that the situation is hugely different for the PM, although I do agree that it would be better if PM was not government owned. I think that it's too easy to put down the repeated inability to supply the market down to exceptional circumstances. Yes, there was a financial crisis in 2008, and the PM could not be expected to build its business model around such an extreme event. But then it was also an exceptional circumstance that bar sales were suspended while the production facilities were upgraded. As for now, exceptional circumstances could be attributed to the European sovereign debt issues and pending defaults. We might still have a few more exceptional circumstances still to come over the next few years. Does the PM have any contingency plans in place to deal with them? The point here is that if the PM has to take orders with deliveries stretching out to 6 months or more, then that is justification for further investment in production capacity. Future demand has been locked-in. The risk of over-investment has been mitigated. As you say, the selling decision is driven by the metal price. Agreed. But increasing the buyback premium effectively increases the metal price. The current buyback price is a discount to spot, and the discount is not specifically listed, it is just part of the buyback price. Increasing buyback premiums would increase PM inventory, which would provide more supply to dealers and this forum. The value added by dealers and this forum is in the enhanced distribution network. They can't distribute if they can't source from their major supplier. In any case, my suggestion was only to increase buyback prices on PM product. If raw silver supply is not the issue, there is no benefit to PM in paying a premium for non-PM product. There is no need to compete with dealers for non-PM product. The alternate buyback proposal would most likely send more non-PM product to the dealers anyway, when potential sellers see the buyback difference at PM. PM meanwhile, can still source raw silver from regular suppliers. Everybody wins.
No mate - I was just saying that I had a headache thinking about it all - seems like a lot of going 'round in circles - noone's ridiculing at all... I also don't understand the 'vested interest' bit at all... Sorry - it's late - I must be missing something again VRS x
I have noticed when spot price drops suddenly Perth Mint waits 10 minutes to adjust it, but when sparks up the adjustment is instant. So on my last gold order I paid more on the price over spot what Perth Mint claimed to be the spot price than on the actual premium. I thought the update is automatic only the website not updated instantly. So everyone be aware do not rush in with the big order for you SMS. This practice looks like how banks reacting to interest rates changes Nice programming Bron
Sure. Just sick TD of this convo now going absolutely nowhere... I was tired & emotional. Understandably so. VRS x
Debt financing IMO adds to the risk for shareholders because it increases leverage and because your creditors have to be paid their interest and principal, whereas shareholders don't have to be paid dividends. Also, there is no such thing as the Perth Mint borrowing in its own right that will not have any impact on the WA Government's priorities. Any borrowing by Perth Mint is incorporated into the WA Government's net debt calculation, which is one of the crucial metrics used by rating agencies in assessing the Governments AAA rating. There is a limit on that net debt figure for the Government to retain its rating and thus if we "use up" any spare net debt it constraints the Government from borrowing for other activities. Our shareholder does not give us directions how to run our business, but does give us a few "rules" we have to abide by, such as "don't increase our net debt", "your dividend payout ratio is 75%". That doesn't mean we don't have autonomy. Just because you won't give you children a $500 weekly allowance doesn't mean they lack autonomy. You have misunderstood my point. I was not talking about "exceptional circumstances" in reference to inability to supply, I was talking about it in context of the relationship between demand and price. I was saying that I didn't interpret 2008 as a breach of my previously observed relationship between high price=high demand because it was an exceptional event. In any case, we don't have contingency plans to deal with exceptional circumstances because they are exceptional. It is possible that governments and economies continue to muddle along for many years, in which case we may just see continuing good demand within our capacity. We may have a exceptional corporate/government default causing a contagion, in which case demand will be huge. If we spend a huge amount and the former happens, we will book a loss when having to write off the equipment. If we don't spend a huge amount and the latter happens, we will still make money but lose on making a lot. The definition of a risk adverse person is someone who is prepared to forgo extra profit if it means they avoid losing money. Six months is not long enough to mitigate the risk of the sort of investment required for us to do what you want. Capital decisions of this size are based on paybacks over years. Plus the total amount of backorders from retail clients is not enough, and wholesale customers just won't do multi year orders. The discount is obvious if you do the comparison between our quoted spot and actual buyback price. The discount is only a few percent, not enough IMO to draw out additional metal to make a dent in the problem. Raw silver supply is not an issue. The only point in buybacks is to draw out additional metal that can be resold back into the market without requiring refabrication. There are already people offering higher buyback prices than the Perth Mint and if that is not drawing out additional metal then why would it be different if the Perth Mint did it? The Perth Mint's spot price has never been automated or programmed. It cannot be as Reuters or Bloomberg price feeds are just indicative and cannot be relied upon by our dealers as being what they will get quoted when calling a bullion bank. The Perth Mint's spot price is set manually by our dealers based on a number of factors, such as actual market prices based on dealing with banks (which may be higher or lower than the Reuters or Bloomberg prices) and the deal flow (size and speed) they are getting from our divisions. Note also that our dealing is two-way, so if our dealers don't adjust when the price drops, it means they will overpay if someone sells back to us, and they would book a loss.
This manual setting of the spot price is one of the problem, because it is subjective. Sometimes the spread between buy and sell is $13, and spot is right in the middle, and sometimes is over $20 and spot is almost on the bottom. This morning close to opening (this is the time most orders rolls in) I observed spot was $17 lower than Perth mint spot. You have to understand that dealers DO NOT make 100s of dollars on bullion, but the same spot price can produce $7 or $17 over spot price at the Perth Mint. This is $100 different on a 10oz gold order, and this money comes out of the dealer's small profit margin, because we can not pretend to our customers that spot is $1671 when actually it is 1654 like this morning was. This uncertainty is very annoying situation, and top of that it could take hours to get through the telephone line because Perth Mint is understaffed and price can change a lot between orders taken and price is locked in. Dealers have to give competitive prices to customers instantly to keep their customers happy and they will come back next time, but the Perth Mint practice on orders once turned my $200 profit on a big order to a $100 loss, because on these stupid practices that nobody else do. We are working with large amount of money, but the margin is tiny if you are not a one time seller. I do understand you have to defend the Perth Mint practices no matter how stupid they are but that will not change the fact that they are a government run bureaucracy, with individuals terrified to loose even one dollar profit on a single sale and they rather sacrifice $10s of thousands of dollars future poetical profit to the mint just to defend their good paying government jobs.
The manual setting of prices is how all the bullion banks and traders operate. Gold is not traded on an exchange where the prices quoted can be actioned, it is an over the counter market. Dealers should not be basing their prices on some data feed from Reuters or goldprice.org, it cannot be relied upon as none of them are committing to execute a deal with you at their prices. If you are buying from a supplier to a customer, then you quote to that customer that supplier's spot because that is your cost price. You don't quote them based on some other supplier's price. Below is a list of our price updates so far today. I would be surprised if we were quoting $17 above market consistently up to 10am because that means our buyback price would also be $17 above and we'd lose money on them. Date/Time Gold Ask AUD 27/10/11 7:15:36 AM 1,666.29 27/10/11 7:39:21 AM 1,669.78 27/10/11 8:09:46 AM 1,670.33 27/10/11 8:15:14 AM 1,671.00 27/10/11 9:12:39 AM 1,670.32 27/10/11 9:21:27 AM 1,668.53 27/10/11 9:29:43 AM 1,670.84 27/10/11 10:00:40 AM 1,672.97 27/10/11 10:12:12 AM 1,656.11 27/10/11 10:33:32 AM 1,657.04 27/10/11 10:41:15 AM 1,655.12 27/10/11 10:53:26 AM 1,656.80 27/10/11 11:15:12 AM 1,653.00 27/10/11 11:16:02 AM 1,653.00 27/10/11 11:28:50 AM 1,654.60 27/10/11 11:51:21 AM 1,654.34 Delays on dealers getting through to cover your order are not acceptable, I'd have thought there would be a direct phone line. Suggest you take that up with Neil Vance.
Between 8.15 and 9.12 AU$ spot was in the 1653- 1657 range This is what my customers see on any website.
A long read but worth the time.....thanks to both sides for expressing their views - I was particularly interested in what Bron had to say about the internal workings of the mint. I'm guessing this is no longer an issue as I haven't had any dramas getting silver lately. Funny - drop in the price of silver would appear to equal a drop in demand and therefore no threads like this???? (as described earlier)
There are no supply issues at the moment but this thread is a good refresher of what may happen based off recent history. Further, i think that a reasonable upward surge would create demand and thus supply issues and people creating threads like this getting upset that they can't get any PMs. Today is a day for buying. I am not sure if I could say the same for a downward surge. Loose hands & a loss of faith.
I hope that wise words may be something along the lines of "buy now and/or don't cry when you can't buy any silver at the next rally in price" It would be interesting to know if the Perth Mint have changed practices, imrpoved efficiencies etc since this post started? Maybe holding a slightly larger stock of bars in anticipation of the next rise in PM prices and subsequent run on PMs.
