We wrote here two weeks ago about the declining availability of 1-ounce silver coins such
as silver Eagles, Maple Leafs, and generic 1-ounce rounds. At that time there were delays
due to the fact that there is only so much capacity at the various government and private
mints to turn out these labor-intensive bullion coins.
When silver broke through the $23 spot level on Monday 4/15, demand increased incredibly,
with orders coming in at a rate about 10 times higher than what had been normal in the past
few months. Product was still available for delivery in the near future, and premiums had
started to creep up a bit - then, things started to get out of hand.
When we ordered silver Maple Leafs on Tuesday, we were told the wait would be about five
weeks. By Thursday, the news was even worse. By then, the US Mint got so behind in silver
Eagles that dealers and distributors were asking as much as $6 over spot for ready-to-ship
product, and in excess of $4 over spot for delivery of silver Eagles weeks in the future.
Many distributors stopped taking orders, as they had already pre-sold all the allotments of
coins that they would likely receive for the next several weeks.
Other retail-friendly forms of silver became similarly effected. 100-ounce silver bars are
now wholesaling (when you can find them) for around $1.00 per ounce over spot, as opposed
to the former levels of 35c to 50c. 10-ounce silver bars cannot be found anywhere. Circulated
pre-1965 US silver coins are now trading at 15% to 18% over spot on a whole sale basis.
So at this time, we are halting sales of silver. Rather than asking our clients to pay some
ridiculous premium for silver products that they would not even receive until many weeks from
now, we have stopped taking new orders. When product becomes available in a timely fashion,
and premiums return to something near normal, we will once again be in the silver business.
Silver is now trading at about half of what it was in April of 2011, at prices lower than
they have been since October of 2010. The latest downturn in the silver price has attracted
a lot of interest among the silver faithful, who are finding the current shortages and higher
premiums to be highly irritating.
So, for those of you who want to acquire silver at today's market prices, without suffering
today's high premiums and delays, we have three suggestions.
The first and easiest path is to buy units in the iShares Silver Trust Exchange Traded Fund
(ETF), which goes by the symbol SLV, in a quantity equal to the amount of silver that you
are looking for. At some point, in a few weeks or a few months, the mints will finally catch
up with demand, and premiums on silver Eagles, silver Maples, .999 silver rounds, and other
silver bullion will come down to earth. When that finally happens, you can sell your SLV position,
and buy physical silver at regular premiums.
For large positions, you can buy silver futures contracts on the CME. This is a way to buy
silver in 5,000 ounce contracts, without necessarily taking delivery. To allow enough time
for 1-ounce silver product premiums to settle down, we might suggest the December 2013 contract.
When premiums are more reasonable, you then sell those contract(s) and buy silver coins.
Or, if you want to purchase actual physical silver outright, there is no shortage of available
bullion. In fact, US depositories and bonded warehouses are holding near-record amounts of
thousand-ounce delivery bars of .999 silver. We recommend that you buy them from a supplier
who has them in storage. (call us if you want a recommendation). When you do this, you will
get a list of the serial numbers and actual weights of each bar that you purchase. You can
always take delivery of these 70-pound bars yourself, but we don’t recommend it. Shipping
is dreadfully expensive on these behemoth bars, and once the bars are removed from certified
storage, they are tough to sell for a decent price. It’s best just to leave them in your account
at the bonded warehouse. Again, if in the future you want to make the switch and take possession
of more convenient forms of silver (Eagles, Maple Leafs, etc), you can simultaneously sell
your thousand-ounce bars and buy the products that you want.
As we wrote the other week, producing silver coins is a time- and labor-intensive process,
and ramping up production can only go so far when demand increases something like 1,000%.
Thus, today's shortages.
For gold, the story is different. The US Mint as of today has sold 148,500 1-ounce gold
Eagles in April, compared with their sales for the entire month of March of only 54,000 coins.
So far, our national mint has responded pretty well to increased gold demand.
Silver, not so good. In March, the Mint sold 3,356,500 silver Eagles. This month, with demand
screaming through the roof, so far they have only sold 2,387,000 coins. They are now allocating
silver Eagles to their distributors on a quota system.
This allocation scheme sets up a perfect demonstration of how a free market works. It goes
like this: Mint distributors are each entitled to a proportional shares of whatever amount
of Eagles that the Mint releases each week. In the current climate of intense demand, distributors
are finding it easy to raise premiums on these (temporarily) scarce items. Market-wise, these
Mint-authorized distributors are doing the only right and logical thing when blessed with
supplies of an item that is in short supply - they are making out like bandits.
-Richard Smith, April 20, 2013