Worldwide Silver Shortage Pushes Premiums On Silver Eagle Coins to 40%Commodities / Gold and Silver 2013 Apr 24, 2013 - 03:46 PM GMT
COMEX silver prices once again dipped below $23 today. My previous article entitled Ignore COMEX Pricing – Silver Eagles Sold Out at Dealers, $33 on Ebay detailed just how divorced from reality the COMEX price has become. So with another dip today, I decided to try to get my hands on some more silver coins. I realized before I picked up the phone that it would be difficult, but I have a few dealers in Colorado and California that have consistently been able to find supply at reasonable premiums.
Not anymore. The first phone call that I made was to one of the largest bullion dealers in Southern California, where I have bought a good deal of my physical gold and silver over the past decade. In fact, I had just bought several rolls of silver eagle coins from them last month at around $2.65 over spot price per ounce. I also purchased some for a family member back in January and paid the same premium.
In the past when some analysts were talking about a supply shortage and rising premiums, I was always able to find supply from this particular shop with a reasonable premium that was never more than 10% over the spot price. But today I was told that I could only order for future delivery at some point in late May or June and that the premium was $5 over the spot price.
In just the past few weeks the premium has nearly DOUBLED, despite the silver price dropping sharply and investor sentiment supposedly at multi-year lows. The manager of the shop told me the silver shortage was worldwide and it was more difficult than ever to secure supply and keep up with demand.
Not one to give up so easily, I proceeded to call a friend and colleague that runs Cornerstone Bullion out of Denver, Colorado. I have purchased bullion from Chad in person several times and have recommended his services to my readers. He has always been able to find supply for me and while the premiums have fluctuated, they have consistently remained within a few percentage points of the lowest-priced online dealers. This was his reply:
Most everything is shipping early June from the Mint. Premiums are $4.99-5.50 right now, depending on quantity. It’s pretty crazy out there right now. Junk silver is $5-6 over spot!
I then went online to Tulving.com to see if they had replenished stocks, but all of their popular silver bullion products remain ‘Sold Out’ including silver eagles. APMEX appears to have inventory, but they are asking around $31 per silver eagle or roughly $8 over spot price. That is a premium of 36% to the spot price.
Ebay prices are even higher at around $32 per ounce for silver eagles or $9 over spot price. This is a premium of roughly 40%! Silver eagles from a few years back are selling for $700 or more per roll of 20, which is $12 over the spot price and a premium of more than 50%.
While those trading derivative paper contracts of silver might want you to believe that the price has dropped to $23 per ounce, the real world pricing is quite a different story. If someone has the funds and ability to take delivery from the COMEX anywhere near the current price levels, wouldn’t they be doing it?
Not exactly. Several wealthy investors have been reporting that they have been unable to take delivery and are being forced to settle in cash. This action has led many to believe that the physical gold and silver may no longer be in the warehouses.
Whatever the truth may be, the disconnect between paper prices and free-market real-world prices has never been greater. There is definitely something strange happening in order to create an environment where increasing demand and supply shortages somehow results in lower prices. This breaks the most fundamental economic law of supply and demand, supporting claims by GATA and others that gold and silver prices are being manipulated.
One way to purchase gold and silver at the artificially low prices is to purchase shares of the Central Fund of Canada (CEF). The fund has been around since 1961 and holds 95% or more of their assets in unencumbered, segregated and insured, passive long-term holdings of gold and silver bullion. Bullion holdings and bank vault security are inspected twice annually by directors and/or officers of Central Fund. On every occasion, inspections are required to be performed in the presence of both Central Fund’s external auditors and bank personnel. Central Fund’s chief executive comments:
“Our bullion is stored in separate cages, with the name of the owner printed on the cage, and on top of each pallet of bullion it states Central Fund or Central Gold-Trust. This disables the bank from using the asset for any of their purposes. We also pay Lloyds of London for coverage of any possible loss.”
The Central Fund of Canada almost always trades at a premium to their net asset value, sometimes as high as 20% over. But shares are currently trading at a discount. This is a rare occurrence for CEF and allows individuals to invest in physical precious metals at or near COMEX pricing. If history repeats, CEF will be bouncing back to a hefty premium in the near future as precious metals rebound. While it is not the same as having the metals in your possession, I view it as the next best thing and think the recent sell off is providing an excellent opportunity to establish or add to positions.
This growing divide between the paper silver price and real-world price will have to narrow at some point soon. The more big-money investors realize the huge price gap and act on it, the faster the gap will close or soon COMEX will default or go broke from offering hefty cash incentives to investors to dissuade them from taking delivery. In the meantime, if anyone can find me some silver eagles anywhere near the COMEX price, I have a boatload of fiat notes to trade. Keep stacking (if you can find any).
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By Jason Hamlin
Jason Hamlin is the founder of Gold Stock Bull and publishes a monthly contrarian newsletter that contains in-depth research into the markets with a focus on finding undervalued gold and silver mining companies. The Premium Membership includes the newsletter, real-time access to the model portfolio and email trade alerts whenever Jason is buying or selling. You can try it for just $35/month by clicking here.
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