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Silver Premiums Sound Alarm in U.S.
One of the larger stories swirling around the precious metals industry this past week came out of Miles Franklin Precious Metals as their CEO, Andy Schectman, reported that a billionaire client had put through a $50 million dollar order for American 1oz Silver Eagles; the largest of his 30-year career dealing precious metals. Of which he was able to fill 900,000 1oz eagles cleaning out his known suppliers. This client exclusively told Andy they would be purchasing more in the future; leading to a frenzy within the industry about what this meant for supply.
One thing we can say for sure is that premiums on the most popular coin out of the U.S. has been acting as a canary in the coal mine for future price increases as dealers REFUSE to bring eagles down to premiums the market is more accustomed to. Looking at the chart below compiled using information gathered from various sources – you can see that American Silver Eagle premiums have reached a staggering 84% on average, almost pushing the purchase of 1oz of physical silver to double its paper price.
One thing we can be certain of is that playing the “time the bottom” game with any asset class when it comes to price is a dangerous one, this being exacerbated due to the supply of physical metals being severely limited unlike other financial assets these days that are tied to a digital system and can be created at will in the form of another ETF. With industry whales swimming around ready to drop multiple millions of dollars at a time (because the rich need to protect their wealth too) you do not know when the option to buy will dry up. Those who are waiting for the best possible price may end up with far less ounces stored away than they had anticipated when they set their stack goal. For those that may think a shortage of silver is out of the question, the U.S. Mint has already began pulling back in various coinage programs to help meet demand – one being cut on the silver side was the 2022 Morgan & Peace Dollars that saw production postposed on March 14th, 2022. The U.S. Mint put out a statement saying, “The United States Mint (Mint) today announced it will forgo the production and sales of Morgan and Peace Silver Dollars in 2022. This calculated pause is directly related to the global pandemic’s impact upon the availability of silver blanks from the Mint’s suppliers. The suspension will give the Mint time to evaluate the best way to allocate our limited supply of silver to ensure the best customer experience we can.” The highlighted portions of the quote show that even the U.S. Mint is worried about meeting demand throughout the year. Not only have pandemic supply chain squeezes caused major supply issues but also the rapid increase in economic turmoil across the world has seen demand for the physical metals spike in many countries.
Another major canary in the coal mine when predicting future silver prices is the current premiums being placed on junk or constitutional silver around the industry. Due to junk silver being 80% silver in Canada and 90% silver in the U.S. – these coins are not given the same value as three 9s fine or four 9s fine bullion coins that are nearly 100% pure. However, the premiums on junk silver coins often act as a great indicator of future price action due to the premiums being a major measurement of seller sentiment. Before moving on, take a look at the price chart below that has tracked junk silver premiums in the U.S. since 2008-09.
As you can see, there has only been two other times since 2008-09 that the premiums placed on junk silver actually exceeded where they are today. The main reason being that during these periods it was assumed the paper price to be FAR lower than what the true value of the physical metal should be. This caused dealers to begin treating junk silver as if it were fine bullion, subsequently raising premiums on those pieces. This is what you are beginning to see again now. With that said, let us take a look at how well these dealers predicted a future rise in price by hiking junk silver premiums:
Between 2008-2011, which is the amount of time it took for junk silver premiums to return to their more widely accepted premium between 0-10%, silver went from $9.73 USD to $48.60 USD per ounce – a 400% increase in price after a junk premium price hike.
Between 2020-21, again, which is the amount of time it took silver premiums to return to the norm, silver moved from $14.16 USD at its low to $28.56 USD at its peak – a 101.7% increase in price.
What this clearly shows is that the last two times junk silver premiums spiked to over 30% — this was followed with an over 100% increase in spot price as the market returned to a value closer to what the industry would expect based off historical trends.
If you are looking to continue to work toward your stack goal at a great premium this week – here at AU Bullion, we have ensured to stay competitive and avoid gouging our clients with egregious premiums. This week, check out our silver & gold Canadian 1oz Maples, which it is important to note again, that they have the highest security features out of ANY bullion coin in the world. Follow the links below and secure your Canadian Maples today!
