The COVID-19 pandemic had a profound impact on global supply chains, creating a myriad of problems and challenges for mining and minerals companies, refineries and mints.
Many mines and refineries around the world were shut down or operated at reduced capacities due to lockdowns, quarantine measures, and worker illness. This led to reduced output and shortages of silver, gold and platinum, not only for investors, but especially in industries where precious metals are consumed.
The supply chain disruptions and lockdowns led to wholesale premiums on precious metals to increase quickly as demand from investors was driven by uncertainty and supply concerns.
The premiums on US Mint Silver Eagles were impacted more than others. Most of the high premiums were caused by a combination of things that included a variety of repeated shutdowns, issues with blank planchets from suppliers and other problems related to the production of coins. At their peak, the dealer premiums on Silver Eagles were in excess of 50% more than the silver spot price.
In today’s market, bullion buyers are able to find deals on 10 oz silver bars from various online dealers with premiums below $2.00 per ounce over the prevailing silver spot price. For investors looking for larger silver bars, such as silver kilos and 100 oz bars, dealer premiums can be the range as low as $1.25 to $1.50 per troy ounce above spot silver.
Silver premiums have not been this low in several years making this a great opportunity to back up the truck and load it up.
Although the Federal Reserve has paused interest rate hikes for the time being, many analysts are speculating that the results of the policy hikes aren’t likely to be felt for twenty-four months or longer. The Fed began the string of rate hikes in March 2022 as a following two years of consistently high inflation impacting prices.
If analysts predictions are correct, the CPI, which includes consumer prices of essential everyday goods, including housing, gasoline and food, isn’t likely to show meaningful decreases until the first quarter of 2024 or beyond.
Stagflation is an economic term used to describe a situation in which an economy experiences stagnant growth, high unemployment, and high inflation simultaneously. This combination is particularly troubling for policymakers because the usual tools to combat inflation, like raising interest rates or reducing government spending, can exacerbate unemployment and further hinder economic growth. While measures to boost the economy, like lowering interest rates or increasing government spending, can worsen inflation.
In 2022, the demand for silver reached an all time high, with more than 1.242 billion ounces, according to a recent survey conducted by the Silver Institute. While registered mining output for the year totals only 835,900,000 1 billion ounces, leaving a deficit of at least 406 million ounces removed from custodial vaults, such as COMEX for the year.
While investor demand for silver bullion continues to rise at a steady pace, total global demand for the shiny metal rose more than 38% as the globally economy begins to recover from the pandemic.
The US Mint continues to struggle during periods of high demand due to ongoing supply chain issues plaguing domestic planchet suppliers.
Investor demand continues to drive up prices for physical silver bullion. Supply chain disruptions at the start of the pandemic led to depletions of wholesale and retail bullion inventories resulting in the prices of physical bullion become far removed from following the paper price.
Overall, the bullion market for investors is likely to see further divergence between the price of physical metal and the paper futures price if the supply chain issues persist.
For now, the absolute lowest prices for 1 oz silver rounds can often be found in random year and secondary market listings. Random 10 oz silver bars continue to be the best value and be an investor favorite for those looking to stack with bulk purchases.
Premiums on gold coins and bars offer the lowest premiums for precious metals buyers. Poured gold kilos can be found with premiums below 1%. A few online retailers are offering low premium vintage gold coins such as the Austria 4 Ducat restrikes and 20 francs gold coins being popular amongst fractional gold stackers.
Over the last week, APMEX, JM Bullion, SD Bullion and Money Metals Exchange have announced either increases in minimum order amounts or have added a few days to their shipping policies.
Gold has been trading steadily above $2,008 per troy ounce and silver closed the week at $25.07.
The demand for Silver Eagles have quickly increased because they are seen a trusted store of value over keeping cash with record inflation. Currently, the cheapest Silver Eagles have a premium of over 50% above spot price.
Other sovereign government coins with a lower premium are also reliable alternative for investors looking for a lower premiums.
Britannia, Philharmonic and Kangaroo have become the go to silver 1 oz coins that make an excellent store of wealth and are easy to stack and store at home.
According to inventory tracking of APMEX stock, it’s been reported that APMEX sales of silver on Thursday April 6 reach over 135,000 troy ounces, slightly higher than the Thursday following the collapse of SVB bank and the start of the current banking crisis.
Yesterday, estimated sales of #silver at APMEX were the highest I've ever recorded for a Thursday.
Sales were 135,405 ounces, 124% above an average Thursday, just barely passing March 16, the Thursday after Silicon Valley Bank collapsed. #silversqueezepic.twitter.com/AKCaL81Rq3
— Michael 🏳️🌈 #silversqueeze (@mikesay98) April 7, 2023
Precious metals coins have been found by archaeologists and historians that date back thousands of years.
Historians and archaeologists from around the world have unearthed precious metal coins from cultures that vanished long ago. Many notable examples from China, India, Ancient Greece and Egypt are on display in museums.
Silver, Gold and other precious metals are found in natural deposits throughout the world. Coins minted from silver and gold have been valued, exchanged as the purest form of money since ancient civilizations.
The earliest known was the Lydians, an ancient Mediterranean civilization that has been discovered in part of modern day Turkey.
The Lydians are the first known culture to create coins from gold and silver. The earliest coins discovered were minted of an alloy similar to electrum. Electrum is a naturally occurring alloy containing gold and silver that also contains trace amounts of copper and other metals.
The Lydian stater coins have often been reported to be struck from this naturally-occurring alloy. However, modern analysis has shown that many were actually made from a specific and rather consistent alloy. A mixture of approximately 55% gold, 45% silver, and a small balance of copper.
In Ancient Greece, the silver drachma was the standard used for hundreds of years even into the early Roman Empire. Each drachma was minted with 4.3 grams of silver. the largest know, the Decadrachm contained 43 grams of silver.
Colonial times and long ocean voyages to the new world helped to establish a new routes for international trade. The economies of the Europe were funded by exploits gained through colonial expansion. Ships returning to Europe brought goods like sugar, corn and tobacco. The New World was also filled with treasures made from gold and silver.
Locally struck coins dating to as early as 1497 have been discovered at early settlements in the Caribbean.
The Spanish were the first to establish a mint in the New World in what is today in Mexico City. La Casa de Moneda was built by Spanish Colonial settlers in 1536 by order of King Charles I of Spain.
La Casa de Moneda has operated continuously as the oldest operating mint in North America. The flagship bullion coin is the Mexican Libertad Silver Coins which are minted on an annual basis.
Silver coins were also struck in mints established throughout the British colonies. The US Mint was established in Philadelphia in 1792 following the American Revolution.
Everyday Americans carried and used silver coins in everyday life for more than 173 years. Coins minted from alloys of silver were in circulation up until the 1960s.
Congress passed the Coinage Act of 1965. The passage of this act led to further debasement and ushered in the transitioned the dollar away from a gold-standard.
Prior to 1965, all dimes, quarters, half-dollar and dollar coins were 90% silver. Half dollar coins were debased to 40% silver in 1965. The final 40% silver coins intended for circulation were minted in 1970.
The debasement of the dollar and removal from the gold standard continued during Nixon’s first term as president.
Today, these old circulated silver coins are referred to as Junk Silver. They are bought, sold, traded by investors, stackers, preppers, collectors. Having a few rolls or stacks of old silver coins provides some additional financial security. It’s easy to buy
The price of silver was driven up to over $50 per ounce on January 18, 1980. At the time the Hunt Brothers were reported to have been holding over 100 million physical ounces at the time.
In response, COMEX created a new trading rule called the “Silver Rule 7”. The new rule suddenly forced the brothers into covering debt borrowed to finance futures contracts. The abrupt change of rules caused the price of silver to drop bymore than 50% in just four days.
The law established that the first coins were to be released the following year meeting specifications for composition. The US Mint debuted the 1986 American Eagle, minted from .999 fine silver with a design that remained for 35 years.
In 2021, the US Mint updated the reverse with a new design that was introduced part-way into year. There are two distinct reverse designs for the 2021 American Silver Eagle.
During the first part of the year, the coins continued to be minted using the existing design. The coins featuring the new reverse that shows an eagle grasping an olive branch with both talons.
Type 2 – Silver Eagle Design
Today, American Silver Eagle investment coins are considered to be the most widely trusted and recognized silver bullion coin worldwide.
The number of coins manufactured each year varies on demand from investors. The coins are minted based on sales. This helps the US Mint to implement a business model that allows for flexibility in scaling capacity.
Silver bullion coins are sold only to Authorized Purchasers who are approved US Mint. The wholesalers acquire freshly minted silver eagle coins from the mint at a fixed premium over spot price. The premium from the mint to wholesalers is $2.35 over theLMBA silver spot price.
The list of Authorized Purchasers includes investment banks and online bullion dealers APMEX and A-Mark. A-Mark is the parent company of well-known online bullion dealers including JM Bullion, Silver.com, Provident Metals and BGASC.
This year, it has been widely reported that the US Mint has been unable to keep up with investor demand. This is the first time in the 36 year history of minting bullion coins. High premiums at retail have led to some investors to buy generic silver bullion.
Manufacturing delays of planchets from private refineries forced the mint to cancel several eagerly anticipated releases.
The American Silver Eagle coin is only available in a one troy ounce denomination which has a $1 USD face value legal tender designation.
Spot price is the paper trading price for a COMEX futures contract of 5,000 troy ounces of silver.
One way to think about it is like barrels of oil. A barrel of crude oil contains 42 US gallons and is trading at around $65 per barrel, or roughly $1.57 per gallon.
So why is the price of gas at my local gas station higher than $1.57 per gallon?
There is a markup that comes at each step in the supply chain before it reaches the consumer.
Let’s say that a private mint like Scottsdale Mint buys a 5,000 ozt contract from COMEX and takes delivery.
There are costs to take delivery of the raw product, including transportation, security, settlement costs, etc.
The delivery will most likely consist of five 1,000 ozt bars.
The next step is to cut up a 1,000 ozt into pieces that can be melted down or to feed into an extrusion line.
Labor costs, cost to operate the furnace, equipment costs, etc.
Once the bar is in liquid form it can then be poured into molds to form bars. Or if the mint is using extrusion, into sheets or extruded bars, etc.
After that it needs to be weighed and stamped or pressed then packaged up to be sent to wholesalers or retailers.
The wholesaler will need to pay the mint for the manufacturing costs plus their profit and the cost of transportation from the mint to the wholesalers warehouse or depository.
The wholesaler then incurs costs to warehouse the metal, employ people to take orders, and pack and ship to retailers.
The retailer will pay for the metal plus the profit margins the wholesaler needs, the transportation costs from the wholesaler to their warehouse, depository or retail store.
Then the retailer has overhead costs. Rent, employees, utilities, etc.
They also need to make a profit if they are going to stay in business.
Each step along the supply chain adds additional cost.
These costs are all factored into the premium, which is why it costs more than spot price to buy silver.
The temporary sell out is likely due to the recent drop in silver spot price.
It’s unclear whether it’s consumers driving the sales demand of the Silver Eagle coins or if it’s dealers trying to lock in long-term stock at lower prices.
Silver spot price typically dips in the summer months to annual lows. Silver prices often through the fall and into winter as manufacturers and industry begin sorting out their supply for 2019 production.
