• Gold Au $1879.80 $0.00
  • Silver Ag $23.69 $0.00
  • Platinum Pt $851.00 $0.00
  • Palladium Pd $2225.70 $0.00
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Market Loss Policy and Hedging

What it is and how it works.

Our market loss policy, which is replicated below can be found on our Terms & Conditions page. If you buy from SPMX, you must agree to our terms and conditions in order to complete the purchase.

Market Loss Policy

Upon issuance of an order number following a purchase from SPMX, LLC, the price is guaranteed and you may not cancel the transaction. The transaction may only be offset at SPMX, LLC’s current buy price. If your item is cancelled, you are responsible for any deficit between the price at which SPMX, LLC sold the item to you and the offsetting buy price. As set forth in our Terms & Conditions, all cancellations are subject to our market loss policy, in addition to a $45.00 (USD) administrative fee. Market gains on cancellations or returns shall remain the property of SPMX, LLC.

Without limiting any other legal or equitable rights and remedies that may be available to SPMX, LLC, SPMX, LLC may elect to apply any and all of your funds in its possession to satisfy your monetary obligations and/or may offset any obligations that SPMX, LLC may have to you. SPMX, LLC also reserves the right, in its sole and absolute discretion, to apply any/all funds in its possession toward the satisfaction of your obligations to SPMX, LLC.

Hedging

The term "hedging" refers to a financial transaction where an entity (in this case, SPMX) can eliminate or significantly reduce the risk of price movements of assets. In our case, the the assets where we are trying to eliminate the price risk is gold, silver, platinum, and palladium bullion and coins.

Many clients think that we get the benefit of the price of gold going up (or conversely, the loss associated with the price of gold going down). This is not the case. If we did not hedge, we would make extra profits when the price of gold went higher (as we price our bullion and coins relative to the prevailing spot price at the time of sale). Of course the opposite is also true. If we did not hedge our inventory, if the price of gold declined, we would likely sell our products for less than we bought them. Our business is not about taking that risk. If we wanted that risk, we wouldn't need to be in the business of buying and selling gold. We would simply take all our money and buy gold, silver, platinum or palladium for our own investment and take that price risk. In fact, given that we would not have to invest in property, equipment, insurance, supplies, or people, we would have a lot more money to buy more ounces of our favorite precious metals if we just wanted to bet on the price of gold.

So how does one hedge their exposure to gold?

We eliminate the price risk of our inventory by selling an equivalent amount (in ounces) of gold on the commodity exchanges. We do this by using futures contracts or other equivalent financial instruments.

An Example

So for example, let say we have 100 ounces of gold in our inventory. We don't want to take the price risk on that 100 ounces. So we "sell" 100 oz of gold futures on the exchange and hold that "short position" with the exchange so long as we continue to have 100oz of gold in our inventory.

Lets say for the purposes of this example that once SPMX has sold 100oz of futures on the commodity exchange, the price of gold goes up by $20 / oz. Our inventory will have increased in value by: (100oz x $20) = $2000, However, the value of our futures contract on the commodity exchange will have declined by and exact equivalent amount. In order to buy back that "short" futures contract, we would have to buy it on the exchange with gold being $20 higher. So our futures contract would lose us $2000. We could reverse the price movement of gold by saying what happened if it went down by $20. You can probably see that although our inventory would decline in value by $2000, our futures contract would now cost us $2000 less to buy back, thereby providing us a profit of $2000 and offsetting our inventory loss. You can find a more detailed description on short selling here and on hedging here.

How is hedging directly related to our Market Loss Policy?

So when an individual or other dealer puts in an order to buy gold (or other precious metal) from us, we adjust our hedging position to reflect the new total of inventory. For example, if we have 100oz of gold in inventory and someone buys 20oz online or in person from us, we now only have exposure to 80oz. Even if the purchaser has not picked up their gold physically from us, this is our exposure because as soon as they buy it, they own it. As such, we reduce our hedging position on the commodity exchange to reflect the fact that we now only own 80 oz of gold.

If a customer then walks away from the transaction before paying (which might be tempting if the price of gold subsequently fell dramatically), SPMX would have to absorb the loss associated with the 20oz of inventory that was not hedged. Clearly, this is a recipe for going out of business in the long term. The typical margin on an ounce of gold is 1-2% so any loss we incur on the price movement of gold has a dramatic effect on our profitability. As such, this is why we require a guarantee with a credit card on each transaction to protect ourselves from unscrupulous buyers who do not fulfill their purchase obligations. If the price of gold declines and we do not receive the payment in full, we can charge your credit card or bill you for any loss we incur, plus the admin fees described in our Terms and Conditions. Feel free to reach out to us anytime for further clarification of our Market Loss Policy.