The two icons of the churning world are David Phillips with his 12,000 pudding cups, and Brad Wilson with his $3,000,000.00 of dollar coins in 8 months. These seemingly pointless purchases all of course were done to earn credit points, with the latter procedure described as “Manufactured Spending” or MSing.
Brad Wilson bought three million $1 coins from the US Mint which were being sold without premium, and shipped free to his house. He would then use the float time to deposit the coins and pay off the credit card bill. This would produce spend on the card which earn points on his SPG card. It was of no risk to him as what he was buying was actual US currency. This whole procedure triggered nasty letters from the Treasury, but even in the end they had to admit what he was doing was not illegal. He was the Rick Barry of churning, widely unpopular in technique, but certainly got some good results. After getting his 4 million AA miles, the whole system got shut down. You can no longer buy the dollar coins with a credit card for the points.
I propose that we relook at the Wilson procedure again, but with gold or silver bullion coins. There currently three sites where you can buy gold bullion: APMEX, KITCO, and BGASC. I have only used APMEX which charges a premium, but they only take Visa and MasterCard. KITCO only takes checks and direct deposit, but a company I have not used is BGASC or the “Buy Gold And Silver Coin” store.
I just referred my wife to the AmEx Business Platinum I already got 25,000 for the referral, and if I can get my wife to spend a staggering $15,000 in 3 months then we will get another 100,000 MR points. I value the 125,000 MR points to be worth $2,500 when used to book United flights using the AmEx travel site.
Lets take a look at some options here, BGASC sells a monster box of 500 troy ounces (34.3 lbs) of silver American Eagle coins for $9,968.69 when using an AmEx card to pay. Right now silver spot is $16.51 an ounce:
This is pretty low for silver, so this box of 500 coins is worth $8,255 if melted down and sold at scrap. That right off the bat is a $1,713.69 premium loss. But remember we are doing this for the sweet $2,500 in travel, we are just barely ahead.
Instead of melting down the coins like an idiot and criminal, we leave the box sealed, and sell it back to BGASC for $9,195 for a check you can deposit and pay off the initial credit card bill. With the $773.69 premium we get our points, which is kind of expensive.
Now this is all assuming that silver stays at $16.51 a troy ounce which it will not. It could go up or down, so there is a huge risk involved in this scheme, but lets say there is an upside to silver. To break even we need to let silver get more expensive. Looking at the premium charged of $773.69 for $9,195= 8.4% premium when using a credit card. We can look at it by coin as well, we paid $9,968.69 for 500 coins at $19.94 per coin ($3.43 premium 0r 20% on spot). When we sell the coins we get $9,195 for 500 coins or $18.39 per coin. This buy price is only $1.88 over spot (11%) when selling back.
We bought the coins at $3.43 premium over spot and sell at $1.88 over spot for a difference of $1.55 or 9% of the spot price. Silver will need to hit $18 to even break even! Possible, but certainly not a slam dunk like Brad Wilson with his $1 coins.
Looking at this historic ups and downs of silver, in 1979, the price for silver jumped from about $6 per troy ounce to a record high of $49.45 per troy ounce (on January 18, 1980), which represents an increase of 724%. This was because two brothers Nelson Bunker Hunt & William Herbert Hunt attempted to corner the silver market using leverage. Our monster box would be worth $24,725 in spot value alone, and can be sold back at 11% over spot ($2,719.75). The conditions are no longer around for this to ever happen again, not looking good if I wanted to retire on this 34 pounds of silver coins.
Storage may be an issue so lets look at a more portable option of the 1 troy ounce Gold Eagle or Krugerrand:
Best case scenario is we do $10,000 organic spend and just need to MS the final $5k. Right now they are buying Gold Eagles at $20 over spot for $1,204 and Krugerrands at spot of $1184.38. We can look at the Kitco chart and see gold is in fact at $1,184.60:
$1,264.71 for the Krugerrand and $1,287.98 for the Eagle which is $80.11 and $103.38 over spot respectively. They will buy the Krugerrand at spot costing us 6.76% premium and for the eagle we get $20 on top of spot, which is a 8.5% premium. Both far less than the premiums for silver.
To break even we need to have an increase in gold prices by at least 6.76% for a spot price of $1,263.60 which is entirely possible. Gold prices reached a record high price of $1,917.90 on August 23, 2011. On April 15, 2013, the price of gold fell by a record $145 in a single day for a 9% loss. This possibly the most volatile way to churn, not to mention just five ounces of gold can be easily lost in the washing machine. with the rest of the pocket change.
MSing with coin is not dead, it’s just become very risky. Just a thought when you are so close in meeting you $15,000 spend on you AmEx Business Platnum Card. Unless it becomes a very generous holiday season.