I receive a few e-mails a day asking a question I have pondered for a few weeks now: “How do I buy gold or silver on eBay?”

Most people see eBay as a place to purchase goods for a reasonable price, but they repeatedly warn people to watch for the shipping and handling charges that might be greatly inflated. I’ve seen grams of gold selling for well under spot, but once the final price is calculated, the cost is 20-30% over the spot price of gold.

For myself, I am a negotiator and I try to get the best deal possible, but I also have a good concept of what my time is worth. I’ve been looking at eBay and even making some transactions myself, and in recent weeks I have not been so concerned about the actual spot price of gold or silver as I’ve started to see how paying a little more online might mean significant savings for me versus buying in real life.

In any financial transaction you make, there is the burden of the time you spent making the transaction. Is it worth it to negotiate with a seller for an hour only to save US$5? Not for me. My time is worth significantly more than that, so the only gain I might make is from the ego gain one gets from “sealing the deal.” While I don’t recommend heading into any purchase without setting a cap on the price you’ll pay, I also believe that buying bullion does not necessarily mean we have to be focused solely on paying close to spot price.

For me, the number one most important thing to do is to convert my paper money into hard money, which is a great place to save wealth without the risk of having something that is easily spent. The heavier my jars of silver get, the more I realize I’ve taken the right steps to not blowing my cash on something that loses value very quickly. I believe the actual price of silver is still depressed from years of silent money supply inflation, so what I pay per ounce is irrelevant if I believe the price still has much room to grow versus the dollar.

In any transaction, it is important to realize that great demand for a product will push the cost up, especially in a reduced supply. With gold and silver being so greatly desired by buyers all over the world, it is not unusual to see gold and silver selling significantly over spot, in small amounts. This cost overhead is nothing to be worried about, though, especially on a site such as eBay. If you’re worried that the transaction costs will be a net loss to you when you sell, you have to realize that the process of selling will allow you to pass on the same transaction costs to the next buyer.

The worst buy/sell scenario is buying at retail (from a local gold dealer or from eBay) and selling at wholesale (back to a dealer). You’ll be paying the overhead and transaction costs on the buy side, but you’ll also be paying the overhead and transaction costs on the sell side. Even if the price of gold or silver went up, you’ll be paying those fees twice!

I generally prefer to buy and sell my bullion from other local gold bugs — we generally buy and sell from each other at spot. We only do this to form a community, and I have looked into started a bullion forum specifically dedicated to matching local buyers and sellers together (with feedback). If this is something you’d like to see, feel free to let me know in an e-mail or forum reply. Seeing how high the demand is for gold and silver on eBay leads me to believe that the future should only allow the seller to keep the transaction cost fairly consistent — if you pay 10% over spot in transaction costs in buying, you should expect to be able to keep that same margin when you sell to another buyer on eBay. This means that the net price you’re paying for the bullion should be surprisingly close to spot, after you’ve converted back to paper money.

Locally, I have no problem paying over spot for a high demand product. I understand the dealer needs to cover their overhead and rent, and I don’t mind paying a little more just to keep them around. Yet one cost is missing from buying locally — your time and your gas. Driving to a coin shop might be a half hour to an hour round-trip, and you might be accumulating 30-40 miles of driving. 2 gallons of gas at US$3 per gallon is US$6 right there, not including your time! How many times have you bought an ounce of silver for US$0.50 under spot, thinking you’ve gotten a great deal, and forgotten to include this overhead?

In the long run, I don’t think paying 10-20% over spot for anything is a problem, especially given the opportunity to recoup this overhead if you should sell on eBay. I believe having a forum online with feedback (different numbers for buying and selling so that we can see if members are just buying and never selling back, in order to take advantage) would be the best option, but until that day comes, I would rather see you “lose” 10% today rather than 100% spending your paper money on expensive coffee, muffins and items you don’t need. Remember that the day might come that you’ll want to convert your bullion back to paper money, and you’ll have the same opportunity as the seller to earn a little over spot to cover your time and the transaction fee you paid initially.

Discuss this article at the gold investment forum.

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In our discussion forum, regular comment contributer Ed posted a new thread titled My frustrating experience buying junk silver today, in which he says Sure enough, I was right and he seemed suprised that it was so far over spot (which he calculated as 9.95/$). He was firm on his price, which is his perogative, and he said that it was a fair price and besides, he could get that from his wholesaler so he’s not going lower.

Ed went to buy junk/melt silver coins and bars, which is my preferred way to purchase silver as a form of savings. Almost every bullion dealer has these coins around, and for most they are a pain to carry. The most profitable items for a bullion dealer are the numismatic or collectible coins — coins that sell well over the price of the metal(s) they contain. Why would a dealer want to sell a worn and dinged 1 ounce silver coin for a 50 cent profit when he can sell a collectible silver coin for 30-50% profit in the selling price?

For most dealers, a bull market where the price of bullion is going up is a profit for them in junk metal. They’ll buy it from walk-in customers at a price well below spot, and then they’ll sell it as the price goes up. Just because they’re selling the metal for “only” 5% over the value of the metal contained therein does not mean that is what they’re profiting — for all you know they bought the coin when the metal was 20 or 40% cheaper. Yet that doesn’t mean they don’t have the right to charge whatever it is they want, just as you can walk away from the deal at any time.

I like to buy as much as I can below the current spot price, and I regularly get those deals. The dealer Ed visited said he could sell the junk metal to his wholesaler for spot price, so why would he want to take a “loss” and sell it cheaper to a walk-in? I can understand the dealer’s reasoning, but I also know how I approach dealers who have given me the same reason — I show the dealer that I can still give them a profit that isn’t necessarily financial: I’ll save them the time and hassle of sending their junk metal to a melter or a wholesaler.

I build my local bullion dealer relationships by showing my face regularly — at least twice a month. I try to work with the same employee, preferably an owner or manager, and I repeatedly let them know that I’ll buy their junk whenever they have more than they want. Some dealers tend not to buy walk-in bullion, so they don’t have a lot to sell. Others have bags and bags, pounds and pounds of silver or gold that they’re ready to sell in order to make a small profit and recoup some paper cash so they can buy more collectibles. Most dealers with a large amount of junk bullion have it because they’re offering a service to their other customers — people wanting to sell their junk in order to buy collectibles. The collectible dealer isn’t in business to buy and sell junk, they’re there to get people to buy collectible products at a higher profit. The side market of junk metal is a service to entice customers to spend more money on numismatic coins, so any dealer who isn’t willing to negotiate on the price of junk is putting themselves at a disadvantage to other dealers nearby who will.

My first recommendation is to not write off that dealer. If you can invest the time, make it a regular place to visit, at least every 2 weeks. Ask them what silver they’re sitting on, wasting space and keeping them from buying more profitable product, and see if they’ll sell it to you at spot. Spot + 5% is still a good deal, but I always ask for spot. If they say none, tell them thanks and that you’ll be back in 2 weeks. Over time, I’ve seen most dealers change their tune because they eventually realize that I am offering them a productive service. Some weeks I only spend US$50 to US$100 on buying junk silver to save, but for a dealer that can mean thousands a year I’m taking off their hands.

My second recommendation is to try other dealers in your area. Don’t play one against the other, but do let them know that you’re thinking of being a regular junk buyer, and that other dealers haven’t wanted your business since they don’t seem to have much junk available. Don’t criticize or put down any dealer to another — they’re all friends and they love to talk about the jerk cheapskate customers they deal with. Remember, you’re not trying to rob anyone, you’re offering a service.

If you don’t have any luck with your local dealers, I’m putting together a website this week called Buy Below Spot, where I will offer the readers of this and other sites the ability to buy silver and gold at an amazing price. Come and help review your dealer at the local gold dealer directory, and share your knowledge of which dealers are willing to negotiate with the tens of thousands of people also looking for a deal.

Discuss this article at the gold investment forum.