Wednesday, May 4, 2011

Buying Silver in Japan

I would like to point out that, even after the recent drop in silver's price, if you live in Japan, and wanted to buy small amounts of silver, had you listened to my advice, you'd have done OK even with the recent 10% silver price drop.
Perry Como - Silver Bells
(Thanks to Max Keiser for the idea of putting silly music videos in my blog. 
"Soon it will be Christmas time!!!!")

I think I need to write an explanation as some people seem confused as to what this blog is about. It is specifically about "Media, Marketing and Japan." And, since this is Japan, when I talk about some subjects like "food shortages" or water rationing, I am talking about Japan. (By the way, don't want to get on that, but water is still being rationed in Tokyo nearly 2 months after the great Tohoku earthquake and tsunami to one bottle per person, per day).

Now, sometimes I do write about investing and buying precious metals and stocks. I get all giddy when I stumble into what seems like an easy money maker and I want to tell everybody. That happened recently with a post entitled Buy Silver at $1 Dollar Over Spot But Do it RIGHT NOW!  In that blog, I recommended that people buy at a site that I had found an error on and was selling silver one ounce rounds at a mere $1.13 over spot price. I told people that if they were going to buy one ounce rounds, then to buy them now as the site would block the sales when they opened for business the next morning. The site blocked the silver sales the next morning as I predicted they would. 

Of course. Most people don't run businesses to lose money.

But, this blog is still about Japan. It seems that I must constantly remind people about that. If you don't live in Japan, then my advices on buying precious metals, etc. might not be so useful to you as your tax and exchange rates are vastly different. I am not licensed to be giving anyone any legal or financial advice. I do give tips and I do recommend places to shop or buy. Especially when it comes to buying silver or gold in Tokyo.

 28 kilogram and up bars of silver have no margin markup in Japan -  
Anything smaller has a huge markup. 

Like I said, I do love telling people an easy way that I found to make some extra money. I did that in the late 1970's when I found out the Hunt Brothers were trying to buy up all the silver. I took all of my measly savings out of the bank and bought all the kilograms bars of silver I could. I don't remember exactly what the silver price was, but it seems to me that I bought at around $7.48 an ounce. I loaded them all up in my car (worried that they were too heavy) and went home. It seems that it was only a few months (it might have been more than a year - I was always high in those days) later that I sold all of those kilogram bars at about $44 an ounce! All I really do remember clearly was that after it was over was "Wow! That was easy!" and that
I was 18 year old kid & 
had a check for over $16,000 dollars in my hands that I knew I had better cash immediately. Which I did. 

Was it genius that I made this trade? Nope. Just simple reading the newspapers and listening to what people were saying.

I've been very lucky enough to make some good money on deals like this several times in my life. These kinds of "Easy money" deals don't come too often. Many years later, I made a killing on Citibank and the first Gulf War. Can't remember which came first.

I cashed in big time on the first Gulf war because George Bush I, and everybody else, said that Saddam Hussein's Iraqi military was the world's #4 mightiest military (remember?) Bush and the rest of the US "Leadership" went on TV and announced that we were going to bomb the Iraqi military for at least month. 

I wondered why they broadcasted this information. "Gee... Talk about giving away the plan and a giveaway of money!" I thought. I looked up what company was the largest supplier of jet plane fuel to the US and UK forces and found out that, at that time, there was really only one company that did that and that companies name was Occidental Petroleum. 

Once again, I took out almost all of my savings and bought all the Occidental Petroleum shares that I could. I think they were $11 dollars or so a share. Within one month, after Schwarzkopf said that bombing the Iraqi's relentlessly was yielding lower and lower returns, and that they'd have to invade, I sold all my stocks. 

I profited about over $20,000 on that one. Not bad for a months work. So did my two friends who actually listened to me. (Well, then, just like now, I only had two real friends!)

Was it genius that I made this trade? Nope. Just simple reading the newspapers and listening to what people were saying. Anyone could have done it. Trust that there were many who did.

I raked in the bucks on Citibank too when it fell to around $9 dollars a share.. I bought all I could. I traded back all those Citibank shares at over $30-some a share within a short time for a Japanese company that I felt was more stable. Glad I did that. 

Genius? Nope. I think Citibank was the first of the "Too big to fail" banks... I just read the papers and listened to what people were saying. 

Now, when I recently recommended that people in Japan stock up on food and water and begin buying precious metals (even when many other's are warning about Japan's debt and even after the food shortages after the big Tohoku earthquake) in Japan's Financial Armageddon is Coming in 60 Days? I get attacked by naysayers. In that last article mentioned, I wrote about my past track record on recommending silver and gold as savings and a hedge against inflation:

If you had taken my advice, you would have easily more than doubled your investment in gold and taken over a 520% profit on silver. It's still not too late to get into gold and silver but a price correction is coming so wait a bit.* There will be no price correction on food. Stock up now, while you can. 

I wrote that a price correction was coming in silver and, like a miracle, silver dropped 10% in value about 2 hours after this was posted. I bragged about that timing by adding this comment:

*Note: A few hours after the posting of this article (check the dates and times) the price of silver dropped almost 10%.

Nevertheless, one reader seemed to want to nit-pick and wrote: 

Of course, the fact that you were also screaming for people to buy just a week ago at around $49 near the top of the parabolic move is mighty impressive, too.

This reader was referring to Buy Silver at $1 Dollar Over Spot Price but Buy it Right Now! an article which I posted whereby I was recommending to people to take advantage of an error on Perth Mint's web page. They were selling silver at $1.13 over spot price. I defended my position by writing:

I was pointing out that I had found an error on Perth Mint's web page that was still selling silver at a mere $1.13 dollar over spot price. The title of the article is: "Buy Silver at $1 Dollar Over Spot But Do it RIGHT NOW!" That's pretty simple to understand what the sales point was there, isn't it? It's not about current price, it's about buying and cutting the sales margin you have to pay. The point was the price over spot! I also mentioned that they would correct that error by morning, which they did. 

That reader got mad and said something like (I'm paraphrasing): 

"(A few dollars dealer margin doesn't matter!) Which is more expensive, a $49 dollar sale with a $1 dollar margin or a $45 dollar sale with a $3 dollar margin?"

What this person fails to realize is that he is considering this from a foreign perspective and with 20/20 hindsight. Of course total cost must be considered. That's why my advice is right and his will always be a day late and a dollar short.

A) No one knew that the price of silver was going to drop to $45. It could have just as well gone up. 

B) With that, I told people to buy at the $1 dollar margin. Because, even at the high of $49, a $1 dollar margin is unheard of (unless you buy 1,000 at a time).

C) But I knew for a fact, that a $1 dollar dealer margin is a steal that cannot be matched a protects me from a, say, 8 ~ 10% price drop when you consider that others will charge $5 dealer's margin on a $49 dollar purchase.   

D) At $49 with a dollar margin (in obvious error) I told people to buy. After the site in question found their error and deleted it, thereby killing any opportunity to buy at a $1 dollar dealer's margin, I told people to hold off and not buy. Why pay a 10% margin on silver when I thought the price of silver was pretty high?

E) Buying at $49 with a $1 dollar margin is $50. Anywhere else was selling at $54. I tell people to buy at the cheaper price and somebody thinks that is bad advice?

F) If I could predict the future, I wouldn't be buying precious metals, stocks, or commodities, I'd be at Vegas on the Roulette wheel. This reader criticizing my advice with hindsight is, like I said, either disingenuous or dishonest. Hindsight is 20/20.

G) Of course, why I get irritated at some people for making frivolous comments about what I write is that there are some people who do take my advice to heart and I don't think they like it - nor do I - when others make out-of-context remarks attacking my money advice. Some of us have families and I, for one, do take this stuff very seriously. You'll also see below where I do put my money where my mouth is. 

Now I will demonstrate to you why, even after the 10% drop in silver prices, that my advice was pretty good advice for people living in Japan who might have an interest in buying silver in small sizes (even though I have always recommended buying larger than 28 kilogram silver bars).

Some reasons I recommended buying the silver at $1.13 over spot price because:

1) Silver had gone down for three days in a row. No one knows if it will go up or down the next day.

2) One thing we can be absolutely sure of is that the regular price over spot for silver recently is anywhere between $3.50 to $5.00 per ounce over spot. Usually buying one ounce at a time will cost you about $4.65 ~ $5.00 an ounce dealer's margin (that is the huge  difference -and deciding factor - between buying now and waiting in this case).

3) It is a remarkably safe bet that, even though you won't know if tomorrow's price is higher or lower, you know you won't buy silver again at $1.13 over spot. 

4) At buying with the usual dealer's roughly $5 dollar margin, as compared to a one dollar margin, you could handle a roughly 6 ~ 8% drop in price and still make out fine. 

Now, let's examine the numbers and bottom line in my advice. You be the judge.

The silver price on 04/25/11 according to Kitco was $45.97. According to Heraeus Silver Spot Price, the high for that day was $47.60.

The price that the Perth Mint was selling on their web page was $46.82 Australian Dollars (AUD). $46.82 (AUD) was about $50.19 (USD) on April 25, 2011. That means a one ounce silver round bought at a US dealer on that day would have cost you about $55 each!

Since this day, and the posting of my article about stocking up of food, water and precious metals, the price of silver hasn't done well. On the opening of May 1, 2011 (May 2, Japan time) the price of silver collapsed 10% in the first 15 minutes. Within two hours of my blog post warning people not to buy as a correction in silver price was coming. This was the point that got under the feathers of my attacker. 

I had just told people to hold off on silver as I expected a drop. When it dropped, I crowed about it. He was angry.

This guy totally misses the point. I am talking about silver buyers in Japan, not the USA. For USA advice, read your local investment adviser's page.

I was talking about cashing in on a dealer error whereby he was making a mistake on calculations about dealer's sales margins. But let's look at the facts.

In spite of all that very bad news for silver, the damage was not so bad to silver buyers who follow my recommendations in Japan. Here's why:

Take a look at the chart below that shows the silver prices for yesterday May 3, 2011. You can see that a 1 ounce round sells in Japan for ¥5145 each.  


The chart below shows what ¥5,145 yen is in USD. It comes to $63.47 (about). 


The price of silver, per ounce, at this very moment is $41.30

I'm even giving and advantage in calculations to the current date. At the time of the writing of my article, the price of silver was nearly $2 dollars an ounce higher than it is now (important to remember as my point of buying the silver 1 ounce rounds had to do with price over spot). This means that, even with this drop of over 10%, the margin over spot price, if you bought 1 ounce rounds in Japan, the dealer margin mark-up would have been about $22.17 each 1 ounce round!

You folks in the west might find this unbelievable but that's the way it is in Japan. Silver 1 ounce rounds command a massive markup margin in this country. I recommend buying larger than 28 kilogram bars from Tanaka in Ginza. 

But when you:

1) Don't have an extra $40,000 (USD) laying around; and you believe that silver will continue to rise; and you want to buy small amounts; and you want to take the advice of someone who has shopped and compared; then you know that's you might want to buy overseas. 

2) If you decide to buy overseas, you know that you cannot economically order just one 1 ounce coin. I've written before about ordering at least 15 to 20 at a time (to save on shipping, taxes, etc.) 

3) Understanding #2 above, and the fact that no one knows whether or not the price will rise or fall the next day, but we can recognize an accounting and Internet error that is only charging $1.13 over spot, then you can surmise that;

4) Jumping on the $1.13 over spot is not "just saving a dollar or two" but equals savings of anywhere between a minimum of $50 ~ $100 dollars or more depending on the buyer's order (I think, you'd have to be foolish to order under 15 rounds). So, while you folks in the west think the margin of a dollar or two is no big deal, that's only because you are completely unfamiliar with how things are done here in Japan. The price difference in my case, when ordering a "large" amount overseas, must be considered accounting for dealer's margin.

5) Westerners might think that a "$2 ~ $3 margin doesn't matter" but that is just plain foolish. It matters a lot. Where do you buy items for $48 and do not care if the dealer charges you a 2% margin (as in $1.13 per unit) or $4 dollars or more per unit (8% ~ 10%)? It is ridiculous to even think so for a moment. I hope the people who do think this way are not in charge of company finances. 

6) A dollar here, a dollar there, they add up! Especially when we are talking about the sales margin on dozens and dozens of these items.

Had you ordered, say, twenty-nine one ounce rounds from the Perth Mint like I did (enough to fill one silver round coin tube with seven more to top off another that was partially filled) during that short window I recommended; and with the price of silver dropping to today's level, here's where you would be standing right now:

Twenty-nine one ounce Koala silver rounds including handling, taxes and shipping by FEDEX to Japan was ¥126,195.32. That comes to a price of ¥4,351 yen each silver one ounce round. 

Putting my money where my mouth is. Here is a screen capture of my order of twenty-nine one ounce silver Koala rounds from Perth Mint made on the day in question.

And, as I wrote in the blog, it was obviously a mistake on the Perth Mint's part. I made the prediction that they would find the error and remove it first thing the next day. They did. And that item is not listed on sale even now, almost ten days after my initial post pointing out the opportunity to buy. For proof of that, see the below and the web page selling these items (though I do expect that the 2011 one ounce Koala's will be back soon at a much heftier price):

Screen capture of Perth Mint's silver Koala rounds page a of 10 am on May 4, 2011. Note that there are no  2011 one ounce Koala silver rounds available at Perth Mint website - or even listed. So even if you did want to buy them after the price drop, you can't. They are no longer on sale.

Now, let's look at the price of silver in Japan, if you bought those same twenty-nine silver one ounce rounds at today's price in Japan, you'd have paid ¥5,145 yen each (they were ¥5,485 on April 25, 2011). That price includes dealer's margin. That total would come to: ¥149,205 + tax. You'd have ultimately paid ¥156,665 yen for twenty-nine rounds.

If you took my advice and bought, when I pointed out the opportunity, like many of you wisely did, you would have spent ¥126,195. 

The bottom line is that, even with the recent 10% drop in silver prices, had you listened to my advice, you pocketed for yourself about ¥30,000. Thirty thousand Japanese yen is about $370 (USD). How many silver one ounce rounds could you buy with an extra $370 in your pocket? Even at Japan's outrageous markups, you could have bought at least 5 one ounce silver rounds for that money. That is a fact. Not prediction.

Yes, there are other places selling silver now that might be cheaper than the price I mentioned before the recent silver drop. But no one can predict the future. Anyway, folks, when you find a dealer selling a product at a mere 2% markup against other dealers that are taking 4 to 5 times - or more - that amount. That is money in the bank. Take the deal when you can get it. No one can predict the future.

I cannot control tomorrow's prices, but I know when I find a steal and a dealer making a mistake.

Even with the price of silver dropping 10% recently, if you bought the silver I recommended at Perth Mint on April 25th, 2011 you still made out pretty well as all buying of any equities, stocks, or precious metals comes with a risk.... My recommendation greatly softened your risk of a downside by cutting out a huge part of it.

Anyone who doesn't recognize this shouldn't be buying precious metals or any other investments for that matter.

The bottom line is that dealers are charging anywhere between $3.50 ~ $5.65 margin per silver ounce. In most cases, you get only the $3.50 margin if you buy more than 1000 units. I had found a place that was selling small amounts for $1.13 over spot. If you capitalized, you did well and cushioned your fall on silver's recent drop. The difference between $1.13 and $5.00 is nearly 400%. That's a big deal!

A few dollars does matter greatly especially when you are talking about a 2% dealer's margin or a 10% dealer's margin. A 2% sales tax would be welcomed by most people - or at least, not grumbled about by the majority. But a 10% margin (sales tax) would be fodder for huge public grievances.

Only a fool thinks otherwise. Fools and their money soon part ways.

In investing there are no sure things, but when you find a huge error in your favor and it's a sure thing, you'd be wise to take it.


PS: The recent silver price drop and drop in precious metals represents a buying opportunity. I strongly suggest that if you only buy small amounts, that you buy gold. As gold has a very small dealer's markup in Japan. In Tokyo? I think Tokyo Kikinzoku Jiganten in Okachimachi is the best place.

If you buy silver, try to buy only 28 kilogram bars from Tanaka in Ginza. Understandably, most people aren't walking around with $40,000 in the pockets... or the rest of us, there is other ways. Read this


James said...

Wow, Mike, a little defensive here... ;-)

If it makes any difference to you, when I saw your alert I went to the Perth mint site, confirmed "say, that IS cheap..." and placed an order immediately. And I still feel like I got a good deal. Prices go up and down and we can't control or predict it well, but getting a good value when you do buy is still worthwhile.

mike in tokyo rogers said...

Thanks James.
Do I seem defensive? Am I coming off as seeming to be anal-retentive? OK. Thanks for telling me. Sorry about that. Maybe I need to relax and to go to the local watering hole tonight for some cold brews and chill time.

You make sure to warn me every time you see my devil's horns appearing or that I'm acting like a spoilt 8-year-old, OK? Thanks.

James said...

No worries, Mike. Was just surprised at the level of detail you went into. I think for most people with experience of Japan, it would have been enough to say, "Uh, that's a really small margin for Japan, still a good deal."

Enjoy a few cold ones for me!

Anonymous said...

The next morning. The site blocked the silver sales the next morning as I predicted they would.

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