Coin shops say they are swimming in so much silver and gold that they are having to limit purchases

Spot prices for silver and gold are stabilizing after a rocky stretch of record gains and losses.
Market volatility has caused headaches for local coin shops that typically buy precious metals.
“If you do it wrong, you’ll run out of capital very quickly,” one shopkeeper told Business Insider.

If January was a party in the precious metals market, February is the hangover.

The price per ounce of gold reached $5,300 and silver reached almost $120 in late January before falling sharply. The range of record gains and losses has since stabilized in the first days of February.

“These price movements have done a lot of damage across the board,” HSBC precious metals analyst James Steel told Business Insider.

One type of business that bears the brunt of volatility is local coin shops, where people often trade in gold and silver. High prices have led to a huge influx of people selling, but some stores tell Business Insider they’re running out of their usual spots to unload excess metals.

As the market was at its peak, Tim Heuer said his shop, University Coin & Jewelry in Madison, Wisconsin, was still doing deals.

Heuer said a customer came in to sell some silver when the spot price was $98 an ounce and it went down: “By the time I wrote his check, silver had already gone down $3.50 since he walked in the door.”

The recent volatility is putting those businesses in an uncomfortable position, beyond rapidly changing spot prices that erode profit margins.

Local coin shops play an essential role in the circulation of physical gold and silver by providing a reliable way for individuals to sell their bars, coins or scrap metal.

If someone bought a gold bar last year from Costco and wants to turn it back into cash, a local coin shop is one of the first places they can go.

And while these shops turn around and sell some of what they buy, most of the metal is sold to refineries to be melted down and worked into new bars or coins.

That flow has been interrupted in recent months as the run in gold and silver prices has encouraged more people to trade in their metals, leading to a backlog of raw materials at refineries.

Jarret Niesse, president of Precious Metal Refining Services in Chicago, said his company stopped buying scrap silver back in October, when the price topped $50 an ounce, sparking a frenzy of people trading in old silverware, plates, and other tchotchkes that were gathering dust.

And the market has gotten wilder since then.

“This whole crazy silver move that’s happened, we’ve been sitting on the sidelines,” he said.

Refineries like Niesse are one step in the process. Much of the melting product is further refined by other mints and exported to Asian markets, where the demand for bars and coins is higher. With so much gold and silver to process, those refineries also stopped buying, cutting off the liquidity of the local coin shops.

“When the guys at the top say they’re going to open the doors and start accepting more material, the guys in the middle, like me and my competitors, are going to send it,” Neisse said.

Because of their role in their local markets, reputable coin shops cannot simply stop buying altogether. They are finding ways to adjust, but it is a difficult balance.

“If you do it wrong, you run out of capital very quickly,” Spoerl said.

Not the kind of business where leveraging debt or credit from a bank makes real sense, either.

“You don’t want to hold the metal and finance it for any length of time,” HSBC Steel said.

Both Spoerl and Heuer stores recently began setting limits on how much they’ll buy from one person in a day, a move they say will allow them to serve more customers and get people the money they may need for expenses like annual tax payments or medical bills.

It’s anyone’s guess what prices will do in the coming days and weeks, but Spoerl and Heuer said they will continue to try to thread the needle between serving customers and not overloading their balance sheets.

“For us to stop buying now would be a little strange,” said Spoerl. “This is something we haven’t seen before, so it’s just kind of going with the flow and understanding what to do in the moment.”

Heuer, meanwhile, is thinking long-term: Gold is still up 76% and silver is up 147% from a year ago.

“If you look at a one-year, short-term investment, you’ve still almost tripled your money,” he said of silver. “The average cost ratio is still wonderful.”

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