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Why the Auction? I'm not selling out!

By: Jason Hommel, Silver Stock Report

-- Posted 13 October, 2008 | | Discuss This Article - Comments: Source:

(Auction for 125 Engelhard 100 oz. silver bars!)


Auction Bids Canceled -- 125 bar Auction Still On October 11, 2008
Auction: 125 silver 100 oz. bars -- Engelhards October 8, 2008 

So many people wonder if I'm selling out.  I'm not.  Let me prove it. 

If you are in Real Estate, and if you are flipping houses, does a sale mean that you are you "getting out" of Real Estate?  No.  You are IN real estate.

I'm flipping silver!

I could explain it in general terms, as I have already numerous times:

How to make $100 million in less than a year from $500,000 October 2, 2008
The World Needs a Free Market in Silver September 7, 2008
Make $400,000/year on your Silver! August 19, 2008
Silver Shortages Cause Price Disconnect August 17, 2008
What the Silver Shortages Mean August 15, 2008

But still, many people don't understand, and are making false assumptions, so here's the specifics:

This week, not including the auction, I've sold to my local coin shop, on Thursday and Friday:

2 bags of 90% silver at about $15/oz.
1500 1 oz. generic rounds at $14.20/oz.
4 boxes of Monster Eagles at $15/oz.

Total oz. of silver sold: 4940
Total cash raised: $72,900
Average price per oz. sold: $14.76/oz.

I took that cash, (and more that I had in my accounts) and I bought, starting on Friday, from and

3 1000 oz. COMEX bars (3,117.82 oz.) for $33,360.66 and then,
2 1000 oz. COMEX bars (2087.13 oz.) for $22,357.24
2 1000 oz. COMEX bars and 5 Ohio bars for $27,225

Total cash spent: $82,943
Total silver bought: 7704.95 oz.
Average price per oz. purchased: $10.76/oz.

Difference: $4.00/oz.
Total silver sold: 4940.
Immediate gain on 4940 ounces: $19,760.
Cost to mint 4940 oz. into rounds again?  Hopefully $1.00/oz., or $4,940.
Total profit: $19,760 - $4940 = $14,820

But the real profit is that I actually gained more silver, 2700 ounces, on the dip!

Of course, that's small scale.

I'd like to do that with about 20,000 oz. per week.

That would be about $60,000/week.

At that pace, it would make $3 million/year, and I could book my profits as silver, too!

It's very weird.  I never thought I'd be trading silver at the bottom, but the high premiums, or spreads between different kinds of silver demand it.

Back when silver was $5/oz., I never ever paid the $2.50/oz. premiums for Silver Eagles, but back then, the premium was 50% over spot!

Those premiums dropped all the way to $1.79 over spot when silver was dropping from $20 to about $15/oz.  At that time, I finally bought my first 7 boxes of silver Eagles.  At that time, the premium was $1.79/$15 = 11.9% over spot.

Sure enough, due to the silver shortage, the premiums for Eagles has soared to $6/oz., which, at $10.50/oz., is 57% over spot now! 

So, that's why I sold my Eagles, even though I actually got less for my 4 boxes of Eagles when I sold them today!  But I really gained, because I could buy more silver, in a different form.

This utterly proves that the silver market is not "locked up" because dealers are "unwilling to sell at a loss".  Dealers deal.  They will sell anything if they can replace it.  The problem is that they cannot replace it, because the largest mints are backlogged for 2-5 months!

This also proves that dealers are NOT price gouging the public!  I'm not setting the price, the buyers are setting the price in a free, open market setting, where anyone can bid.

That contrasts with another auction about ten years ago that was not open to all bidders.

It's very ironic.  When I got into gold and silver, around 1999, GATA and I were upset at the Bank of England selling off their gold in a series of "dutch auctions", because it appeared to be an effort to manipulate the price of gold down.  And perhaps it did, because you had to be a major bank to bid!

Is ironic for a second reason.  Typically, items are sold in auctions when they are reposessed by banks, and thus, auction prices are "distressed" prices, or lower than normal. 

However, in a manipulated market, a controlled market, where products are in short supply, items sold at auction will command a higher price.  But still, things sold at auction will be the most fair, free market price!

My auction is also ironic for another reason.  I'm now supposed to send my 1000 oz. bars to the mints, and I'm supposed to auction off my good and finished bullion products to the public, and thereby "turn" it all, over time, to get more.

So, what form of silver is left for me?  I suppose I'll try to keep about 75-90% of my silver at any one time, and turn the rest out.

The reason for me to hold some back is due to the many risks.  Today, there is banking risk, bank holiday risk, Mint bankruptcy risk, Mint delay risk, ordering replacement silver risk if no bars are available, bullion seller default risk, mail loss risk, employee theft risk when mobilizing the silver, etc.

I also have the risk of trading size, which is much bigger sizes than ebay normally has available, and I didn't want to give 8-10% to ebay on the gross, so I had to inspire the creation of online bidding software to allow trading in volume. 

The World Needs a Free Market in Silver September 7, 2008

Congratulations to Peter Spina for being the first with a functional auction website, and allowing me to test it!

In the long run, this will not only help me, and you because you can buy this silver, but it will greatly help the entire silver market!

In time, the public will be able to sell silver at auction online, for lower fees than

I had thought that silver would only become more liquid as prices rose!  But surprisingly, we are facilitating increased liquidity as silver prices dropped, because of increased public demand!

So, my first online, automated auction, allowing competitive real time bidding is now at:

Reminder:  I had to cancel the dutch auction bids that started last week, and start over with new listings.  The reasons are explained here, where people hotly noted the unfairness of how the dutch auction software was working:

As one observer noted: "You cannot place a new bid at any amount less than the highest bid! so you cannot come in and outbid anyone except the top guy! How the hell does that work? So some guys are going to get bars for $1401 unless a bunch of new guys come in willing to pay more than $1675? It makes zero sense."

I explained the problem yesterday:
Auction Bids Canceled -- 125 bar Auction Still On October 11, 2008 

And we fixed it, by cancelling the dutch auction format, and listing 26 individual regular auctions.

Already, the first two bars have been bid to $1676. and $1672.

But many of the single bars are only bid to $1200 or so.

And many of the two-bar auctions are only bid to $1000.

One of the 5 bar auctions is only bid to $860!

And the two lots of 20 bars are only bid to $800 per bar, or $8/oz.!

Don't wait to the last minute of the auctions to sign up.  Sign up now, save your username and password, and submit a low-ball bid to test it out, just for fun.

Jason Hommel

My offer:
For the price of just a few ounces of silver per month, you can look at my silver stock portfolio. Once a month, at the end/beginning of the month, around the 31st or 1st, for paying subscribers, I update the stocks I own and the percent of each stock or position in my portfolio. It's very simple. Very revealing. Very useful. It's not trading advice. It's not a model portfolio. It's my portfolio.  Sign up here:
Paying subscribers also get access to the member's forum where some very, very smart people discuss silver, stocks, economic issues, growth rates, why peak oil & global warming are frauds, and many other things.

-- Posted 13 October, 2008 | | Discuss This Article - Comments:

Last Three Articles by Jason Hommel, Silver Stock Report

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