Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Investors Pay High Silver Premiums?

Commodities / Gold & Silver Dec 03, 2008 - 06:07 AM GMT

By: Roland_Watson

Commodities Best Financial Markets Analysis ArticleI was checking out a new facility by Eric LeMaire which lists the latest eBay prices for gold and silver as well as some common numismaticals from decades past. You can see the statistics at this link . What struck me were the huge premiums that silver investors are prepared to pay for one ounce coins right up to 100 oz bars. At a glance I could see an average premium of 124% for American Silver Eagles, 164% for Kookaburras and 105% for Maples. More sane premiums can be seen on the 100 oz at 35% which is nevertheless still a hefty premium compared to how much one may pay for other asset classes.


Now of course some of these buyers will be just coin collectors who don't give priority to the metal price but the savvier silver buyer can avoid all of this by purchasing in bulk. For example, at one dealer you can buy a box of 500 Silver Eagles for a better premium of 52% over the spot price but that means stumping up over $7000. No doubt some can quote better deals to me. The main point is this though, the higher the premium the higher you have to wait to break even.

A 124% premium on eBay silver eagles mean you don't break even until silver hits $21.57 which is above the 20 year high set in March! If you buy in bulk as mentioned above, you break even at about $15 an ounce. The bottom line is no investor should be buying silver bullion at double the spot price. Even 52% smacks of inefficiency and a waste of investment capital.

Consider this, you pay a 52% premium and break even is $15. You set your price objective for selling out (this should be done before buying). Clearly it has to be something well above $15 to be worth your while. There are some things to consider when setting that price objective. What will be the hit when selling? Will premiums have narrowed by the time silver is over $20? I see some dealers are paying a dollar or more over spot just now. Will that last when buyers become sellers? If you go the eBay route you may preserve some of the original premium but the eBay and Paypal fees kick in thereafter.

Furthermore, you are not likely to time the top to perfection so you can knock another dollar or two off your final price - at best.

Then there are the tax considerations, capital gains tax kicks in and you lose some more of that upside profit. So it may be that you buy silver when its spot price is below $10 but you can't even make a profit at $20 once every middleman gets their slice of your pie.

So why don't people buy the silver ETFs instead and get their silver near to spot? Well they are and in bulk - over 1,500 tonnes has been added to the SLV stockpile since silver peaked in March to a new level of about 6,700 tonnes. That's the equivalent of over 48 million Silver Eagles! You may have your doubts about "paper" silver but those who used the Barclays ETF at its inception and rode it up to $21 would have had no qualms.

Or you could take delivery on the COMEX of 5,000 ounces of silver which will set you back over $50,000 at the current spot price plus fees. Then there are silver mining stocks which if liquid enough deliver a bid-ask spread far better than 52%! In other words, there are better ways to invest in silver than frittering away a lot of your hard earned cash on high premiums.

But you may object that the Banking system is in crisis and one needs to hold physical metal for the worst case scenario. That worst case scenario is a deflationary depression. The last time we had one in the 1930s silver crashed from $1.34 to its millennial low of 25 cents. When money is destroyed, assets prices collapse. Silver is a hedge against inflation - not deflation!

You may also point to the huge demand for retail silver bullion and say that this is proof that the silver is geared up for $50 by next year. Fifty dollars - Yes. Next year - No. An ounce of silver costs up to $21 on eBay but is available on the futures market at $10. What gives?

The answer is the retail silver price doesn't reflect the true spot price of silver - not the other way round. The market for retail silver is squeezed because refiners are not upping production of these relatively unimportant rounds or bars. When customers like the Barclays ETF adds the equivalent of 48 million silver eagles in 8 months I think you get the picture. It's as simple as that and I can prove it. Why exactly would the international market price of silver be less than the retail price? The market price is the price based on 1000oz bars and you can buy them for 59 cents over spot at one reputable dealer. I will repeat that - 1000 oz bars are 5% over spot and Silver Eagles are 50% or more over spot.

Why is there no high premium on 1000 oz bars? The answer is because there is plenty of them to be had - the more common the item, the lower the premium. The scarcity of small investor silver is not a shortage of silver, it is a shortage of small pieces of silver pressed and stamped into pretty pictures.

If you cannot afford the COMEX price or bulk retail purchases then I think you should not purchase silver at all, just buy gold because after subtracting those hefty premiums your silver may well underperform the same investment in gold bullion.

Finally, silver is heading for a substantial rally soon. It will be profitable but it won't go as high as you think it will. Furthermore it will last a matter of months and not years. It is a narrow opportunity and one must invest efficiently to make the most of it. So keep your premiums low and good luck.

By Roland Watson
http://silveranalyst.blogspot.com

Further analysis of the SLI indicator and more can be obtained by going to our silver blog at http://silveranalyst.blogspot.com where readers can obtain the first issue of The Silver Analyst free and learn about subscription details. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk .

Roland Watson Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

John Sharp
20 Dec 08, 05:48
Using your 52% example

Using your 52% example quoted above, let's be very simple and basic in our approach as to what that means: that you must have a return on your investment of over 52% first, for someone else, before you've made a dime for yourself.

Now, that seems like a poor investing strategy.

John Shrp


Post Comment

Only logged in users are allowed to post comments. Register/ Log in