What does spot price really mean?

[Steve C]

In another thread, someone mentioned a refiner that buys silver at 88% of the spot price-- basically a buyer of last resort for your ugly silver. But this got me thinking, if refiners will only pay 88% of spot price, then what does spot price really mean?

Pretty much by definition, the price is what people are willing to pay for it. So if I can only sell my silver for 88% of spot, then I should consider that number to be its true price and value, and 100% of spot to be some artificial number.

By analogy, when people quote prices for commodities like oil or corn or something, I think (?) those are the prices you can actually buy and sell at, minus a small commission. So if oil is $72 a barrel and corn is $8.20 a bushel, I should actually be able to go out into the market and sell a barrel of oil and a bushel of corn for very close to those prices.

I can only conclude that the 88% of spot refiner is a total ripoff, or that the quoted spot price for silver represents some artificial premium over the "real" price.

[LikeGreen]

If everyone in the supply chain is obligated to pay spot, how does anyone make money? What if refineries paid spot? Then they would...sell it for spot, too? That doesn't make any sense.

Spot is the current cash price. Basically a 'retail' price. Prices for refineries is not the same. There is a 'spread' at every step of the way. See APMEX Buy/Sell prices. Miners don't sell to refiners for spot. Refiners don't sell to wholesalers for the same price they paid, either. Eagles are sold for premium to spot, etc.

Spot is pretty much the current retail bullion cash price. To be more exact, it's the retail bullion price for COMEX or London Good Delivery bars. Everywhere else it's not strange to find prices on one side or the other of 'spot.'

But, you know, I might be wrong.


LG :cool2:

[markam]

They were talking about sterling silver, which is only 92.5% silver. It must be refined to make into new silver, which means you will not be able to sell for as much. 999 silver would sell much closer to spot.

[IM_O.K.]

The 88% figure was for Sterling Silver IE: .925 pure. Like flatware, candle sticks, jewelry etc. This silver takes more to refine to pure thus the lower buy price. For .999 they pay 92%. For 90% coins they pay 90%. This refinery also does not charge any assay fees or handling fees. So I think that their buy numbers are pretty good. This is from Midwest Refineries.

[Steve C]

I didn't realize the 88% was for sterling. 92% for .999 silver sounds a little more reasonable.

LikeGreen, I certainly realize that nobody can buy/sell exactly at spot, or the dealers wouldn't make any money to stay in business. Of course there's going to be a small commission or spread. But I'm surprised it's so large at the refiner level-- even 92% seems poor. By comparison, APMEX buys 100-ounce brand name bars for $1176, sells them for $1216, so difference between buy and sell price is about 3%.

Think of it another way-- the only reason that a 100 ounce silver bar is even worth anything at all is that it has the potential to be melted down and turned into other things that people want, like jewelry, tooth fillings, film, etc. The only way to realize that potential is to melt the bar. But if spot price is $10/ounce and the refiner will only pay you $9.20/ounce, then why do you think your bar is worth $1000? And why should anyone else pay you more than $920 for it?

Just thinking out loud here...

[LikeGreen]

I hear you SteveC. Prices are funny things. I agree, 88% seems a bit low, but I didn't know it was for sterling, either. I have never had anything melted down before, so I don't know a whole lot about those prices. JoeJewler can tell us a lot more about that.

Hey, there's always eBay. Throw it up there and get who knows how much over spot!

LG :cool2:

[SilverHare]

PMs are incredibly liquid compared to other portable weath, like, say, diamonds. Unless you're in a tiny group of wholesalers, your spread on gems is probably 50% at best.
At least with PMs there is real competition and you can shop around.

[didgmike]

i think you would be crazy to sell .999 or 90% or whatever to midwest. THey do however take the stuff and give 90 or 92 percent cash money for it(on par with selling to a local dealer in small quantities).
you can get way better prices when it comes time to sell (now anyway......might be different scenario down the road). Just look at ebay for christ's sake.

midwest is GREAT for selling sterling scrap to. I average my scrap buys at about 4-7 dollars an ounce for my sterling purchases, so the 88% figure is quite the bargain, especially factoring in their quick turnaround, no fees, etc.

I've got ants in my pants waiting for a local antique dealer to call me with a huuuuuuuuge box of bent up forks, knives,plates,etc. Should be 40-60 lbs. of the stuff for a daaaaaamn good price. They only have to go through 5,000 other boxes to find it.:eek: but when they do... jackpot.