Today, the popular 1-ounce silver Eagles, Maple Leafs, and other .999 coins can be bought, for
the first time in seven weeks, at reasonable mark-ups. Which means that silver, which traded
for more than $40 per ounce for several months during 2011, can now be had for less than half
of its April 28, 2011 peak price of $48.70.
Silver bullion 1-ounce products are now widely available for immediate delivery, and at lower
premiums, than at any time since silver prices first fell into the $22 range in mid-April. Premiums
on silver Eagles had been in the $5 - $7 range a few weeks ago (quite a mark-up from the US Mint’s
$2 charge), but supply has now almost completely caught up with demand.
Sketchy availability and high prices had caused us to suspend sale of silver products over the past few
weeks. The Royal Canadian Mint had an enormous backlog on silver Maples starting early in April, a situation
which has now cleared up. Our US Mint, which has had silver Eagles on ‘allocation’ since January, found
themselves behind the demand curve once again as buyers clamored for product in April and May.
For instance, the US Mint produced some 3.35 million silver Eagles in March, at time when demand was
moderate and that number was plenty to fill retail orders. In April, when silver prices plunged and demand
shot through the roof, our Mint managed to strike only 4.08 million coins. No doubt exhausted from that
effort, silver Eagles production in May fell back to 3.45 million coins. But supplies are now better,
and we once again have silver Eagles in stock.
Over on the gold side, sentiment against the yellow metal is strong. With the US stock market hitting
new highs last week, and gold down nearly $500 in price from its August 2011 highs, gold has been portrayed
by the popular and financial press as the new investment joke. This sort of negativity is always present
during any serious correction in gold prices. This time, the unfortunate result is that many people who
bought gold at $1600, $1700, and $1800 have become hesitant to buy gold with spot prices in the $1300s.
There's no denying that the experience of holding precious metals over the past few months has been brutal.
Considering today's market levels, if you sold gold in 2011 at over $1800, congratulations are in order.
Actually, if you sold gold anytime over the past 20 months when it traded above $1,500, you are currently
looking pretty smart. Even if you finally threw in the towel early last week, and sold gold for a bit
over $1400 per ounce - you're looking pretty smart, with gold now in the $1300s. Of course, not quite
as smart as the geniuses who unloaded silver at over $40 an ounce in 2011, now that the not-as-precious
white metal is trading at less than half of that year’s peak level.
But last month's steep correction in metals prices brought out a huge number of buyers, who knew a bargain
when they saw it. On Monday, April 15th, gold prices dropped some $145, and we (and no doubt other gold
dealers) sold more gold that day than we had in the previous three weeks. In response, during April the
US Mint sold some 187,500 1-ounce gold Eagles, about triple their average monthly output. Also, during
April the Royal Canadian Mint racked up huge sales in the US of 1-ounce gold Maple Leafs, due in part
to their new competitive pricing which allows buyers to save about $25 per ounce versus the US gold Eagles’
But the surge in US retail gold demand only lasted a few days. In May, only 61,500 1-ounce US gold Eagles
were sold, as retail gold demand in the US virtually collapsed after the novelty of prices in the $1300-$1400
range wore off.
So, despite rumors and Internet musings about a supposed disconnect between ‘paper gold’ and physical
gold, the truth is that popular gold bullion products continue to be widely available at prices which
absolutely track paper and electronic trading levels. Not to say that some parties holding unallocated
gold haven’t run into problems of 'counterparty risk' when they tried to take physical delivery of gold
that they thought was theirs. And overall, it is probably true that the statistics that are commonly
accepted about gold supplies, tend to exaggerate the amount of unpledged and unencumbered physical gold
that's actually available in the world. But, happily for now, private buyers can still take personal
possession of physical gold bullion for reasonable commissions, without having to worry about how some
bank or depository halfway across the world is performing.
Long range, no one knows where precious metals prices are likely to go. The bigger question of whether
there is enough physical gold to satisfy the world’s demand, no person can answer. Only a free market
in gold can provide that answer. Our bet is that the gold market will do what all markets do: should
any significant future shortages occur (and many say they will), prices will then rise to some ‘clearing
price’ that will satisfy both buyers and sellers, therefore curing the shortage.
The World Gold Council, in their report on first quarter 2013 demand trends, says that coin and bar demand
surged, but was more than matched by offloading of positions by the gold-based ETFs. Jewelry demand is
up worldwide, led by India and China. Reflecting the first quarter’s more positive consumer sentiment,
American shoppers bought more gold jewelry, WGC noted that it found “US…consumers generating
the first year-on-year rise in demand for more than seven years.”
We present here the World Gold Council’s Executive Summary of First Quarter 2013 Gold Statistics:
“Q1 saw a strong resurgence in demand for gold jewelry, bars and coin; however, overall demand was down
13%. Outflows from ETFs account for the bulk of this decline; excluding these outflows overall demand
grew year-on-year. Indian and China propelled growth in both jewellery and bar and coin demand once again,
with both markets growing by at least 20%. Central bank demand exceeded 100 tonnes for the seventh consecutive
quarter, slightly below the exceptional pace of purchases throughout 2012. Technology demand contracted
on further losses in bonding wire and continued erosion of dental demand. “
Meanwhile, our source in Washington tells us that it's 'allocation season' in the House of Representatives.
This means that Congress is currently engaged in figuring out how to spend money, and will not likely
address the Internet sales tax bill until July, if it does so at all before the August break.