Temporary Shortage in Physical Silver Supply Emerges

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Silver prices are crashing down to levels we have not seen since the tail end of 2008 during the last financial crisis. See this chart from goldprice.org.

Silver Price Crash

At the same time, my local coin shops are completely sold out of silver. After about 15 phone calls to different shops yesterday, I found a total of 2 silver Eagles and 2 generic rounds for an average price of $17 each, when the spot price for silver was quoted as $12.48. Shops were taking orders for silver coins and rounds, with steep markups. Eagles were going for $23 each, over a $10 premium to the spot price with an expected delivery of 4-6 weeks. Rounds were going for about $18 with the same delivery time frame. I asked several shop owners where they sourced their silver from, and it was from several of the same large national distribution outlets that most coin dealers will use.

Large nation wide dealers have shortages of immediately available silver. For example, APMEX is sold out of regular American Eagles and also reporting any fillable order will take a minimum of 3 extra days to process. The same situation exists for Canadian Maple Leafs.

Canadian Maple Leafs

 

Spreads are widening on physical silver available from large national dealers. SDBullion is taking pre-orders on new American Eagles at around $23 each, which is a full $11 [or 92%] markup from current silver spot prices.

SD Bullion American Silver Eagles

SDBullion is selling its own line of silver rounds for $17.19 for a small order, with discounts down to $15.99 for orders of 1500 or more. Generic rounds are priced from $16 to $18, with the former price discount available only for large orders of 1500 or more. Those are substantial markups from spot, and reflect rapid changes in both demand and supply. SD Bullion is reporting delays in shipping of 5-10 days based upon unusually large order volumes.

Gold is Money of Kings, Silver the Money of Gentleman

The market scare brought on by the Coronavirus pandemic is causing people to flee to precious metals, and it doesn’t take much demand in this small market to move prices quickly. While the rich can afford gold, the average American will buy silver in times of crisis. Some of this is speculative buying by those expecting silver’s price to rise. However, nobody is selling their silver at today’s unusually low spot prices because they would all lose money, meaning demand has risen though the market price for physical has essentially not changed since the COVID-19 scare.

This highlights what we have been saying about silver for the last several years – it is a safe haven metal for everyday Americans that cannot afford that much gold. Even though spot precious metals prices are falling for reasons we documented in our earlier article this week, I fully expect them to rebound as the large institutional investors stop dumping SLV and other passive silver products, and start buying them instead.

Why Gold Price is Cratering Along with Stocks

Revisiting the Financial Crisis

The silver price chart posted above shows that silver crashed during the last financial crisis. However, the cost to mine silver 12 years ago was substantially lower. Right now it costs primary miners about $16.50 to get an ounce out of the ground, and the secondary silver mine supplies are managed more by the base metals they accompany, such as copper, lead and zinc. That means that silver will never get cheaper to produce than it is now, especially in a deflationary cycle where base metal demand falls and secondary silver supplies are taken out of the market.

Base metal mines don’t increase production when a byproduct of silver price rises because it does not contribute significantly enough to their bottom line. In fact, when base metals prices are falling, they will cut production of those metals which will slow production of their silver byproduct, regardless of the silver price.

The point I am getting to is that silver supplies will fall due to manufacturing crash caused by the coronavirus scare, at precisely the time when investor safe haven demand has returned to the sector. And low silver spot prices are encouraging accumulation of the metal below the cash cost to get new supplies out of the ground, putting pressure on primary silver miners to survive the economic downturn. These factors are EXTREMELY bullish for the silver price over the next two years, even more so than in the 2008-09 time frame when precious metals prices declined before spiking upward.

Starting in 2009 and ending in 2011, silver prices quintupled from $10 to $50. What will they do this time? I expect prices to blow through $50 and eventually to $100 an ounce silver. The Fed has run out of bullets before the real financial melt-down which has not occurred yet. We are in early stages of the next crash where demand and supply are both falling [economic deflation, debt and monetary inflation], but large banks have not defaulted just yet. With interest rates at zero, what can the central bank do to stop the crash in the banking system now?

Massive Financial Unwind Begins

They are funding the discount window, removing reserve requirements for thousands of banks, announcing the bailout of the commercial paper market, and increasing repo market injections. They have also announced the scheme to use stocks as collateral for more loans. Yep, this is the same stock market pumped up by free flowing Fed money and low interest rates will serve as collateral for even more money printing. The Fed is now eating its own tail in this comical game. The world’s central bankers are playing musical chairs without any chairs, and when the music stops, all of them will fall flat on their face.

Precious metals are your best refuge, and shortages are forming everywhere for the most affordable and undervalued one. You may be running out of time to get yours. We have reached now or never time.

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