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Profile of a Gold / Silver Customer: Q&A With Two Vancouver Bullion Dealers

COMMENTARY—ProspectingJournal.com—A couple of weeks ago, while struggling to keep myself upright on the Vancouver skytrain on the way to work in the dark, wet morning, I noticed (for the millionth time) yet another “We Buy Gold!” advertisement on the back of the Metro. The discarded paper, face-down on the dirty floor of the jam-packed, steamy train, was also in the hands of the majority of drone-like office workers, who understandably had chosen to focus on the inane articles rather than pretend not to be looking at each other as every stop pushed more people into the uncomfortable sardine can. This daily ritual, the memory of which is now triggered every time I see that cursed paper, got me thinking: with all the doom and gloom news out there, with all the hype surrounding precious metals, just who is actually buying and selling this stuff?

A couple phone calls and emails later and I found myself sitting in a side room at the Vancouver Bullion & Currency Exchange, while exchanging Q&A emails with Vancouver Gold. The responses* to my strenuous questions were both surprising and, well, not surprising, yet informative nonetheless.

* Note: the responses from the VBCE in this commentary are our renditions of the spoken responses given. 

Vancouver Bullion & Currency Exchange (VBCE)

Kevin Ma from the VBCE was kind enough to take a couple minutes out of what seemed to be an exceptionally busy day to talk to us. Having waited in the VBCE’s long lines to buy a couple of silver and gold maples ourselves, we were delighted to talk gold.

So Kevin, who is selling and buying gold/silver right now? Can you describe your average customer for us?

Definitely the majority of people are male, mostly in the age range of 30-60. We find that the gold customers generally come from the more experienced and wealthy crowd—and a lot of these guys have been in the business for a long time. A lot of them tend to be Americans and they buy and sell huge quantities. As for the silver investors, it’s definitely a market that is currently filled with younger participants, and those who are willing to take higher risks.

Is the demand for gold and silver at one of the highest levels you’ve ever seen? If not, when is the last time your business has seen this level of demand?

The thing is, nobody is really selling at this point. I would say that, at the moment, the ratio of people buying to selling is about 20:1. There was quite a bit of gold selling when it was near the $1900 mark a few months back, and there has been a lot of flipping, but these days just buying and holding. Same with silver: when it approached $50 there was a lot of activity, but when that price was taken down a lot of people lost a lot of money.

Central banks across the world have become the largest purchasers of gold, why do you think this is?

Well, it’s simple really. They are buying gold to diversify. They don’t want cash and are trying to hedge themselves against the debt issues in Europe and around the world. Until these issues go away, I imagine those banks will continue to buy and hold.

A friend of ours was at the VBCE recently and noticed that you had sold out of one ounce gold coins . . . have you been experiencing shortages? Is the demand for gold outstripping your supply? Why do you think this is?

No, there are no shortages–at least not yet. The real issue is inventory. It takes 2-3 weeks for us to get our precious metal shipments from refiners and mints. You can imagine the difficulty this presents for us in terms of logistics and pricing.

Do you see a continued rise in gold prices? What factors in your opinion are contributing to this rise? Do you think this is a better time for customers to buy or sell bullion?

It’s hard to say (of course). The thing about gold and silver is they are now seen as an investment for everyone. When bad news came out before, we would see the gold and (usually) silver price go up. Yet now, when bad news comes gold and silver tend to go down with everything else. So the markets are completely unpredictable and yet gold and silver are still seen as the only commodities that are doing relatively well.

The gold business has been booming since the recession. Do you think that gold is going to continue its upward trend or is it in a bubble waiting to burst?

I think gold is still in a bull market and will continue to go up for now as the global financial crisis is far from solved. I can see gold going up to $3,000 an ounce in the no-so-distant future. However, I do think that if the world’s fiscal problems are sorted out that we could see gold and silver crash rapidly, by hundreds of dollars a day, and prices will end up lower than they are at now. This is really just how it is with any investment: everyone can’t be a winner; someone has to lose. Those who have been in the gold market for the last decade are sitting well, while those who have just entered into silver and gold bullion find that they  have to hold on for awhile as most are in the red.

We’ve noticed that you sell both government minted gold / silver bullion and privately minted gold / silver bullion. Which is more popular? What are the differences between the two that consumers should know?

Well, with gold we only ever deal with the 9999 purity and we always buy back the 9999 and even 999 (but never sell 999). With silver we buy back either. To be honest there isn’t really a difference in the physical value, so to say. The only real difference between the government backed bullion and the privately minted bullion is the mental safety.

Gold takes the spotlight but you also sell platinum. Do you have any platinum customers and if you do why do they buy and sell it?

Once gold took over the price of platinum, that metal pretty much disappeared from view. We get very little platinum sales—maybe 1% of the total precious metals sales—and when we do sell it the buyers seem to be those who think they are somehow ahead of the game [chuckles].

Vancouver Gold

Vancouver Gold, that illustrious company whose adverts tend to dominate my web browser and whose print ads have captured the hearts of many lonely skytrain riders, was kind enough to answer four of our emailed questions. These answers came courtesy of Charlie Pollock, Manager and Co-owner, who provided some very insightful (and colourful) thoughts.

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Who is selling gold right now? Can you describe your average customer for us?

In our experience, almost every Canadian has accumulated some gold that they no longer need: broken jewellery, dental scraps, or reminders of past relationships. With gold prices at the highest levels ever, there has never been a more lucrative time to clean out their jewellery boxes, sock drawers, and safety deposit boxes. (Note: we don’t buy socks). Our customers come from all demographics, but are slightly skewed towards woman aged 30 and up.

How does a person get into the gold buying and selling business? What kind of training and experience is required?

My three brothers and I, all university students or recent graduates, started buying recycled gold in Canada after realizing that there were literally thousands of local jewellery stores selling gold jewellery to Canadians, but virtually none specializing in buying it back. Our goal is to be the McDonald’s of jewellery recycling!

Is there currently a large demand for gold/silver and does this demand ever outstrip your supply?

In the past year, gold prices have increased 39% (as of July 28). Our business volumes have increased by 200%. When gold prices increase and are in the news, our offices are packed! After a bad day on the gold market, our offices are empty. It seems that Canadians really do follow the fundamental rule of investing: Buy when it’s low, sell when it’s high.

With gold prices near record highs, do you think this is a good time to sell or purchase gold? Do you see a continued rise in gold prices in the future and if so what is driving this rise?

There are a lot of smart economists who think gold is too cheap, and other equally smart ones who think it is too expensive. My personal opinion is that gold prices have become a bubble, pushed higher by fear about a collapse of the US economy and debt default. As Warren Buffett, the world’s most successful investor said: Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

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Chris Devauld
ProspectingJournal.com

Disclaimer: The author owns physical gold and silver. At this point, who doesn’t?

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