13 Secret Tactics of Bullion Dealers

Gold and silver are commodities. This means that any one ounce of gold is equal to any other ounce of gold, in terms of its metal content, and the same is true of silver. Gold and silver have emerged as money in various cultures and at different times throughout the world’s history because of this, and because they share other qualities that make them good money. But as they are commodities, the question then becomes, how can bullion dealers make money selling them?

Well, although the metals are commodities, coins, and other bullion products are not, strictly speaking. All bullion products, beyond shot, have some numismatic or collectible value. A Silver Eagle is more desirable than most generic silver rounds because its a Silver Eagle, but even a generic silver round is worth more than an ounce worth of silver shot. Still, two Silver Eagles in the same condition are equal. With the market so broad, it would be difficult for bullion dealers to make money on these commodity-like products if they didn’t have some secret tactics. This article explores thirteen of them.

But before we go any further, let’s first define what we mean by “bullion dealers.” Here, we will be using the term to refer to retailers of gold and silver products—whether they be major national businesses with online presences, local coin shops, small-time eBay sellers, or dealers at coin shows. These are the tactics they use to make a profit—some of them are legitimate, others somewhat dubious, and others clearly unethical. Naturally, not all dealers use all of these tactics, but being aware of them all will make you a more informed customer.

1. Hedging

Hedging protects against market fluctuations by playing both sides of the market. In the case of gold and silver dealers, this would involve taking offsetting long and short positions on precious metals so that they make a small profit on the bid/ask spread regardless of whether gold or silver go up or down.

For instance, imagine a big coin shop had a steady order of 1,000 ounces of gold per month. The shop could sell futures contracts for the delivery of 1,000 ounces per month for each of the next twelve months, thereby insulating itself from the fluctuations of the precious metals’ pricing. When each futures contract came due, the dealer could either make delivery of the metal or, more likely, buy an offsetting long contract on the futures market, thereby canceling out the position.

Hedging is a legitimate and ethical practice. Significant gold and silver retailers do it as a matter of insurance, but they may not be 100% hedged. Fifty-percent hedging, for instance, would allow the dealers to make some profit as gold went up while still offering some protection against losses if it went down. Local coin shops, however, are unlikely to be hedged at all. They’re more likely to use Replacement Cost Pricing as a means of protection.

2. Replacement-Cost Pricing

Let’s say a bullion retailer purchased 10,000 ounces of silver when it was just $15 per ounce. As the price rose to $20 and then to $30, he would technically be able to make a “profit” by selling silver rounds at $17 or $18 apiece—or would he?

The price at which the dealer bought a coin or another product is not as important as the price he’d have to pay to replace it. If a bullion dealer bought silver at $15, but to replace it he’d have to pay $30, then he’d be a fool to sell for anything less than $30 plus his mark-up. Bullion dealers are always going to sell at prices that will allow them to profit above the item in question’s current replacement cost. Beyond that, many bullion dealers are keen market watchers who seek to stock up when gold and silver seem to be “cheap.” A good example of this philosophy is David Gordon’s admonition that silver should be bought whenever it’s under $30 per ounce.

The concept of replacement cost pricing is especially important if you sell bullion to a coin dealer to raise cash. Do not think the dealer should then sell the item back to you based on the price you received—it will be sold back based on the price he’d have to pay to replace the item in his stock. And keep in mind that in the case of collectible coins, the spread between the price he’s willing to pay and the price he’s willing to sell at can be quite wide.

3. ‘Price Gouging’

Bullion dealers determine their prices by what the market will bear. In online marketplaces, dealers must offer competitive prices, or else provide added value, cheaper shipping options, etc. They cannot get away with charging higher prices for lower value. If they tried, customers would just shop elsewhere. In offline marketplaces, this is not necessarily the case–or, if you prefer, the proximity of the dealer offers its own value, which customers may be willing to pay for.

For instance, in a small town with only one dealer selling bullion, the dealer may get away with charging much higher prices than you could find online, or even in a more competitive offline environment. Our research found a bullion dealer in Hudson, Michigan, population 2,307, selling silver at a flat rate of $3 over spot. It didn’t matter if you were buying a single one-ounce coin or round, or a ten-ounce bar—this was his pricing.

Obviously, this dealer would never be able to do this in a more competitive environment. One-ounce rounds are more liquid than ten-ounce bars, so you’d expect to pay a higher per-ounce premium on the one-ounce rounds. But the Hudson dealer was charging the one-ounce premium on ten-ounce bars! Why would anyone buy at these prices? Because he’s the only game in town.

4. Rigging Rolls

Everyone on the Internet knows about the “Rick Rolling” meme—well how about Rig Rolling? This is an arguably dishonest practice of some bullion dealers, where they open sealed rolls of uncirculated gold and silver and take out the best, most blemish-free coins, replacing them with other uncirculated but imperfect coins.

If you’re buying strictly for the metal-content, this isn’t a big deal—and it isn’t even necessarily dishonest, if the dealers don’t re-seal the rolls and act as if they haven’t been tampered with. But if you are interested in getting the most value for your money, make sure that seal hasn’t been broken!

5. Paying Wholesale

When you look up the value of your collectible coin in a price guide, don’t get too excited. This is the retail price of the coin, and no dealer is going to pay you that amount. If you want that price, you’re going to need to work for it—you’re going to have to do the dealer’s job and sell the coin to a collector. Dealers are not collectors; they’re in the business to make money selling to collectors.

The wholesale price of collectible coins is much further from the retail price than in the case of bullion. There are two elements to the value of any coin: 1) The spot value of the metal content, and 2) “Numismatic,” or collectible value. The first of these two is undeniable: the market is huge and what is being bought and sold is a commodity. Thus, the difference between the wholesale and retail prices (or “bid” and “ask”—see below) are small.

The second of these—numismatic value—is much different. While there are millions of people buying gold and silver every day, the market for a particular collectible coin is comparatively tiny. The smaller the market, the less liquidity, and the greater the spread between wholesale and retail. This is just how markets work: look up a stock, such as Microsoft, and see what it’s “bid” (wholesale) and “ask” (retail) prices are. The difference between the two will be minimal. Now look up a smaller stock—say, one with a market cap of under $100 million. I guarantee there will be a much wider bid/ask spread.

When markets are large, it means that dealers can move product more quickly, and thus they can afford to make less per unit sold and “make it up on volume.” When markets are small—such in the case of collectible coins—dealers need to make more per unit. Dealers always pay wholesale, and this is one way they make their money.

6. Using Different Rules for ‘Bids’ and ‘Asks’

When you buy gold or silver rounds, you expect to pay the spot price of the precious metal plus a premium over spot. The premium is typically higher, on a per-ounce basis, the smaller the denomination of the round. For instance, a 1/10-ounce silver coin would normally have a much higher per-ounce premium than a 100-ounce silver bar—this is because the 1/10-ounce silver rounds are more liquid. Another factor affecting liquidity and thus premiums is the familiarity of the coin: Silver Eagles, for instance, carry a higher premium than most random generic silver rounds. This is because people know and trust the Silver Eagle.

Thus far, this all sounds fair. However, we’ve only been minding the “ask” side of the bid/spread equation—the price at which dealers sell their bullion. The “bid” side—the price at which they buy it from customers—may not work as equitably.

In my experience, bullion dealers will normally pay the same price no matter how much gold or silver you are selling them, and no matter what form it comes in. If you’re lucky, they’ll pay you roughly spot—perhaps a bit over—but they don’t normally give you a premium for Eagles, or for small-denomination rounds. On the other hand, you could put a positive spin on this: dealers who do this don’t discount generic rounds.

7. Reneging on Agreements

Gold and silver are honest money, and in general, charlatans are drawn to industries in which trickery and deception more easily go unnoticed. That is not to say, however, that everyone in the precious-metals industry is honest. There are crooks and cretins, just as with any other line of work, especially when gold and silver periodically heat up, drawing more people into the field. Real gold- and silver-bugs weed these people out rather quickly, though, so one way to be safe is to only deal with bullion dealers that have been in business for at least ten years—you’ll find no shortage of them. If you do choose to do business with a newcomer, start slowly and let the trust build.

Of course, there’s no guarantee that even a long-time dealer is legit. I once had established a fairly good business relationship with a local dealer in Saginaw, Michigan. Every week, I was buying silver rounds from him, putting 10% of my pretax income into bullion. We saw each other every week, did business, chatted—he wasn’t the most friendly guy in the world, and maybe that should have tipped me off. Anyway, he told me that he always bought back at spot. His prices were a little higher than I could get from APMEX, but I was buying small amounts, and what I was saving on shipping made up for it. Plus, I thought it was good to have a local contact. I thought wrong.

One week, I was in a cash crunch, and I needed to sell some rounds in order to pay some bills. I took a roll of twenty rounds that I had bought from his shop, and the dealer offered to pay me $2 under spot! I told him, “You said you’d buy back at spot.” He said, “Two dollars under, take it or leave it, that’s the deal.” Needless to say, there was no transaction that day, and there haven’t been any since. The good news is, this led me to find a much more reputable and fairer local dealer in Bay City, Michigan. I highly recommend stopping by Flying Eagle Coins if you’re ever in the area.

8. Preying on the Uninformed

Coin dealers typically have a flood of customers coming in with old cigar boxes or coffee cans full of coins. Most dealers are scrupulous, and they will give even uninformed customers a fair price—of course, if the customer doesn’t understand the nature of bid/ask spreads (see #s 5 & 6), he may later think he’s gotten a raw deal, but that’s another story. However, there are dealers out there who will take advantage of clueless people who come in with their boxes of old coins. Is this ethical?

On the one hand, it is the customer’s fault: he should know what he has. In the age of the Internet, it’s really not that hard to come up with at least some idea of your coins’ value. On the other hand, many of the people bringing in their inherited collections are elderly and not familiar with the Internet, and they’re coming to their local coin shop for an honest, expert opinion. An argument can be made that they deserve honest advice.

Nevertheless, this won’t affect you so long as you are informed, will it? Actually, it can. If a dealer has a steady supply of uninformed customers bringing in valuable coins that he can buy at discount prices, he’s unlikely to want to pay a fair price to you. For this reason, regardless of your views on the ethics of the matter, you should avoid using dealers who prey on the uninformed. Instead, establish relationships with dealers whose ethics are beyond reproach—even if their prices are a little higher, it should pay off in the long term.

9. Buying for Meltdown Value

With the rash of “We Buy Gold” storefronts, and the uninformed public’s rush to turn in their “worthless” old gold for paper money, this has quickly become one of the big money-makers for bullion dealers. This is sort of like “preying on the uninformed,” but the scruples of the dealers here are not really in question—anyone can look up the spot value of gold; it does not take an expert.

In my experience, the retail offerings of these “We Buy Gold” places—if indeed they sell gold and other precious-metals products—are nothing to get excited about, neither in terms of price nor selection. I avoid them, and you probably should too.

10. Market-Making

One advantage bullion dealers have is that they meet hundreds of buyers and sellers in their shops or at their booths at coin shows. They are, in a sense, always market makers, buying from one party and selling to another. One way they can maximize their profits is by making specific matches—i.e., they hear about a particular coin a customer wants, and then find another customer who has that coin. Instead of connecting the two individuals, the coin dealer will typically offer to buy the coin from the one party and sell it to the other, turning a quick, risk-free profit.

11. Selling Extras

Just like movie cinemas make most of their profits at the concession stand, bullion dealers have much higher margins on the extras they sell: coin protectors, albums, price guides and other books, and various memorabilia items. Non-collectable gold and silver products have very low profit margins, so bullion dealers have to make up for it somewhere else. For mail-order dealers, add-ons such as insurance and “rush delivery” have high margins, too. And of course, there is #12.

12. Padding Shipping Charges

Before you buy online, make sure you’re aware of the shipping fees charged by the dealer. Even if dealers merely charge “actual shipping,” the costs can easily cut into whatever you may be saving by shopping online, especially on smaller orders. But of course, with non-numismatic gold and silver products having such low profit margins, the incentive is always there for dealers to make a little profit in shipping. Packaging and handling charges, usually included with shipping, can also take a bite out of your savings and add to the dealer’s bottom line.

Every dealer charges different shipping, and you may find it advantageous to shop around. Maybe small orders from one dealer provide the best value, while larger ones may end up being cheaper from another. Some dealers may even offer free shipping on especially large orders, and most max-out at a certain level. For example, APMEX charges $12.95 shipping on orders under $250; $19.95 on orders between $250 and $999.99; $24.95 on orders between $1,000 and $24,999.99; and no shipping at all on orders of $25,000 or more. Some other dealers may charge less than $12.95 on small orders, but if you’re making a large order, APMEX’s rates are hard to beat.

Shipping is something you should definitely consider when buying on eBay. Then again, there are several other underhanded tactics you need to be aware of when dealing on eBay.

13. Shill Bidding and Other eBay Tricks

First among them is shill bidding. This is the process by which a dealer uses other accounts to bid up the price of his own items, in the hopes that he’ll ratchet up the legitimate bids. Worst case scenario, the dealer ends up “buying” his own product, which he simply relists, so he’s out very little (just the eBay fees). Then again, the real worst case scenario for dealers who do this is the suspension of their eBay accounts—it happens!

Even seemingly “big-time” eBay users may occasionally engage in shill bidding, but there’s another tactic that is used less commonly, and almost exclusively by smaller-time eBay sellers. It involves listing an item with no real intention of sending it to the buyer—essentially using the buyer’s money for an interest-free, short-term loan. Thankfully, eBay’s buyer protection program makes it hard for buyers to really get ripped off, but sellers who “lose the item”—either from their inventory or in shipping—and gladly offer to refund the buyer (after a week or two of using his money, interest-free) rarely face any consequences. After all, their deception is difficult to prove.


In the marketplace, parties engage in mutually beneficial transactions—we know that the transactions are beneficial to both parties, because otherwise, they wouldn’t engage in them. There’s nothing “dirty” about turning a profit—but there is something dirty about some of these tactics. And, even in the case of the non-dirty ones, knowing these secret tactics can do nothing but make you a more informed investor. Good luck!