03 September 2008

Jason Hommel Reply

Jason Hommel has made some comments to my blog of 31 August that I think are important. His questions/statements are in italics and my replies below.

Yes, but where do you sit? Where are those 1000 oz. bars that kitco and perth can't seem to be able to find for customers who want them? Why do Perth/Kitco have a shortage of 1000 oz. silver bars?

It may not be clear from my blog that I work at the Perth Mint. I have updated my profile to include my LinkedIn profile and “About This Blog” link to be clear in what capacity I do this blog. I have also included a picture of my favourite new coin, it is a Good Fortune coin.

When I say that wholesale bars are available, it means in wholesale quantities. I cannot speak for Kitco, but I went upstairs and spoke to the Treasurer and he will do deals for a minimum of 20 tonnes of silver and 1 tonne of gold. Call Nigel Moffatt on (08) 9421 7403. Price will be on a deal-by-deal basis.

Depository have 1000 oz and 100 oz silver bars in stock for their clients to convert to allocate or collect. If you are a Depository client you have their contact details.

I also walked downstairs and spoke to the manager of our retail shop and they sell 100 oz bars for silver value + $74 per bar. They don’t really deal in 1000 oz bars because they are odd weight which doesn’t work well with their retail computer system and they are bulky, but I assume that most would rather 100 oz than 1000 oz anyway. Call Cathy or Liselle on (08) 9421 7428.

(Aside: while you may define collusion as something illegal, others may define it as anything that is against free market principles.)

The definition I used came from an online dictionary. See http://en.wikipedia.org/wiki/Collusion for another definition. The key elements are “secretive” and “fraud”. It does not mean “against free market principles”.

I would like to trade bullion in a free market manner, but it seems most everyone else want to "lock in" a guarantee of some sort or another.

I think it is entirely in keeping with free market principles that person A and person B have the freedom to enter into any agreement they see fit that does not hurt anyone else’s rights. There is nothing stopping person R (for retail buyer) from offering a higher price to A to secure supply of A’s silver. Anyway, even if A has committed to supply silver to B, there is nothing stopping B from selling that so acquired silver to R via auction or at a higher price.

The agreement between A and B may restrict A from supplying to R (which was all I was trying to explain) but not B from supplying to R. I therefore do not see any fraud being perpetrated against R or any restriction of the free market. In the end, the silver ends up in someone’s hands and they are free to auction it off to the highest bidder as you have recommended.

It's been my experience that people in the industry, the coin dealers, over-value their own direct personal experience, and have trouble seeing the big picture. They see the public selling silver to them, and thus, from their view, there is a "glut" … where public buying increased ten fold, and they've been turning away customers, and trying to buy from refineries, instead of sell to them, in all of 2008.There is an expression used to describe such a viewpoint. They can't see the forest because the trees are in their way.

I suppose I agree with you, but not sure this is a problem. The coin dealers operate at the end of the precious metal industry value chain so deal in “trees”, that is their business. You are exactly right, they either see net buying or net selling and either net buy or net sell from/to their source of product one step up in the value chain. This is good because it sends a signal about the volume of demand back to that source. I don’t know that they need to see the forest to do their job properly.


  1. Thank you for starting a specific thread to answer my question.

    My reply is here, which I see is already noted as linked to your article.


  2. Jason, I'm [supposed to be] :) currently working and will read through your reply in detail overnight and put something up tomorrow.

  3. Jason,
    I you have any facts please provide them.
    However, in a world where 8.3 "is about" 10, and where 12 is "just under" 20, perhaps facts don't matter any more.

  4. My response to Jason can be found at http://goldchat.blogspot.com/2008/09/reply-to-reply.html