Hedging

Week 38.1 Hedging

When I sell 1 oz, I will try to buy back 1 oz from my supplier almost immediately. Most of the time, I will not try to speculate as I tried a few times before and most of the time the end result is not so nice. It is better to have some fixed income rather than gambling all the time.  If you are gambling all the time, over time you will be finished (Customer quote).

However hedging is only possible if you are buying in bulk of few hundred oz. It is impossible to get few hundred oz sales in one shot all the time, most of the time it may take up to 1-2 week to accumulate few hundred oz. Thus, as the seller he will have to make up the losses with a higher sales premium. There is no other way out. Hedging is only possible for big sellers where they can buy and sell in big volume. There is no such thing as exact hedging. One can only do estimated hedging.

How does a middle size seller deal? Well, it based on fine-tuning of their sales based on expected previous week sales. Let said last week sales is 200 oz, so this week you order 220oz so that you have enough for next week sales. If sales are good, order extra the following week. Vice-versa.

How does a small size seller deal? Well, the simplest will be buy at RM100 and sell at RM110. For those who are more experience, they will ask their supplier the replacement cost first before they sell. Once they have a confirm sales of 50 oz, they will lock the price from their supplier for 50oz. They will use their own stockpile for trading.

For minter, normally they will sell their orders in 1000 oz because 1000 oz silver bar is widely available. For example, you order 1000 x 1 oz of sunshine 1 oz bar from sunshine mint, the moment the order is placed, sunshine mint will place a replacement order of 1000oz silver bar from their supplier.  They will make the differences in minting charges.

E.g.  transaction.

Supplier : Well, the minimum order is 200 oz.

You:  If I buy from you, will you accept return for any left-over sales let said 60oz.

Supplier : Orh! The moment you order 200 oz, I placed a replacement order of 200 oz from someone else. You will return me the 60oz I will have to pay you back this will put me in cash tight position. So, the answer is no few years back. But now it’s yes as I can still accept return because I will order 60oz less on my next replacement order from another customer.

Internet Marketing

Week 37.1 Internet Marketing

How do you reach your customer in the quickest possible time?

Here is the order of speed from fastest to slowest.

Phone call, SMS, email, forum, popular website (mudah.my, ebay.com,lelong.com) and lastly  own website.

Once you have your stock arrived, send sms to a list of your potential customer. If the price is attractive, they will respond and the deal is on.

It‘s also depend on your customer set whether it is new customer or repeating customer.

OK you got stock and you want to dispose it depending on your disposal objective. Make the highest profit, make the least effort, make the quick sale and easy job. You won’t get all of them.

The first 3 approaches are mainly for sellers who you already has a customer databases of more than 100 customer.

Description	Suitable	Not Suitable
Phone Call	Only for attractive deal with people you deal with for quite sometimes. Normally after 2-3 SMS, just call that fellow and sort out the deal. Normally, e.g. spot price went down to USD26/oz, you call your good friend whether he want to share your order or not. Within 2 hours, spot may be USd28/oz. So get it done quick.	May be offensive to others. Difficult for them to said no.
SMS	It’s the quickest form of email. Can send to lot more customers. Once you have something to offer, just sms to 10- 20 close/recent customers of yours. After a few sms reply, call them up and get the deal done.
Email	People will read their email everyday, so it will reach them latest 2-3 days because some of them don’t read their email during the week ends.	Too many email, may cause your email id to be listed as a spammer.

If you have some stock for sales but not enough to cover the whole market, then just start off with SMS first with your close and most recent customers. First come first serve. They should get back to you within 2-4 hours. If there is still some left-over stock within 4 hours, then it is time to do some masses emailing. Masses emailing you should expect respond within 1 day.

If there are still some left over stock, it is now open to all new customers. You have fulfilled your responsibility to existing customer. Then now, you can go and make the announcement in online forum and facebook and see whether there is any respond. If there are still got left-over stock then list them in ebay or mudah and wait for the customer respond.

Description	Suitable	Not Suitable
Forum	Depending on which type of forum, some active forum you can get a lot of sales. But the problem is your price must be among the lowest.	Inactive forum is useless. Choose your forum properly. Activation period may be 2-3 days, after that it gone as advertisement is too deep inside the forum. People cannot see.
Facebook	Lot of traffic.	Your advertisement may only valid for 1 hour, after that it is gone for good. All your friends now know U sell something, you may not want them to know at the first place. Your competitor can get hold of your customer as well.
Popular website	For getting new customer. The problem is timing, it can be 1-2 days, it can takes weeks, you really won’t know	Your price must be the lowest in that website
Own Website	Mainly for own customer and some new customer who suddenly bump to your website	Very low traffic

Today, people are also smart enough to search on facebook, forum, ebay, mudah, lelong etc. So if your prices are compatible then you can get some sales lah. In the end it’s all about price as silver is just a product with little variation, if you get from Mr A or Mr B, it is almost guarantee it is the same thing.

Unless you have plenty of stock, you don’t fire all at one shot, sms, email, forum, facebook, popular website, own website. You will end up disappointing lot of people. You also cannot fire too many times otherwise people will immune to it. Different variation of firing will enable you to understand your customer better.

Customer A is in forum XXX, email everyday, which website.

Customer B only see ebay.com. Etc.

Malays customer mainly from mudah.my

It is best to try different thing at different time and after some time you know what is the best way to advertise.

Good Luck.

CIMB called.

Week 36.2 CIMB called.

During the Sept24-26 fire sales, I need to restock back my silver for later sales. So my bank account activity is increasing up to a trigger point. Then, I received a call from CIMB bank officer. Hello “Gold Chan”, what is your account got so much deposit-in one? For what purposes arh?

Aiyah, got to explain already. Later I send them a business registration form to them and the case was closed for a while. As a beginner I don’t know what law I had violated, only time will tell. I need to register a business account fast, but there are quite a bit of restriction on business account. For example, for maybank, you must do all the transaction in the branch where the account is opened.  CIMB is much better. Someone told me if you do any bank transaction above RM50,000/- per day, your name go straight to Bank Negara, you will get a surprise call lah. For you guys, better beware lah. For those reseller, you all take care huh. Chap San.

However, there are some issues I need to address before I will proceed with the business account. A personal account is the best in terms of portability and flexibility. That’s why I stick to it for so long.

To change is to improve, To be prefect is to change often.

Last Week Nightmare

Week 36.1 Last Week Nightmare

Silver dropped from USD40/- all the way to USD26/- per oz. It was a nightmare for me. All though, this time I’m not as heavy loaded as last time in May 2011. I ‘m still greatly affected by this price movement.  Few of my resellers are greatly affected by this rapid price movement.  One of them promised to buy 80 oz at RM146/oz, then the price drop about RM20+ /oz. Yet he still committed to buy at that price. However, I hedged a few hundred oz more myself at that price (big loss for me lah). Brought some at USD39/oz, if I waited later, probably I would have brought at USD36/oz. Anyway, in summary regardless what you do, you still be wrong lah because the price is manipulated.

Well, as an appreciation to his commitment, I gave away most of my stock to him for resell to ensure that he covers back his expenses. Towards that weekend, I think both of us did not sleep well and try to sell as much as we can to average out our cost. In the end, this two weeks we end up working for nothing even though the sales was good, it just mainly average out our cost.

On top of that, I managed to lease some silver bar from my ex-customer for resell. On and off, I managed to source some silver from all my ex-customer. It’s just a tiring process, getting it from their home etc later got to distribute to a few customer. After deducting the lease charges and time spent, it‘s not that profitable after all.

One of my customers told me about CME margin call and Shanghai margin call has resulted in price dropping to USD26/oz. I was the one who told him about margin call in May 2011, yet now I completely forgotten about it since late August, I was busy with price drop and how to sell. Nevertheless, now is the time for me to reflect on how to do better in the future.

As part of the post mortem, comments from few of my customer, it’s big commercial Short are using this opportunity to reduce their short position by doing 1 short, 2 long on every single price drop.  For more details, you may read the URL below

http://www.gotgoldreport.com/2011/09/stunning-plunge-in-comex-commercial-silver-net-short-positions.html

Once again, it may be an opportunity of your life-time to accumulate silver at low prices. RSI-14 daily chart now is at 27 now based on 30^th Sept 2011. Time to buy now.