Metal demand drops

In the past few weeks, retail demand in the United States for physical precious metals has tapered off. There are several factors that could be contributing to this decline in demand.

• Since gold and silver prices dropped to multi-year lows during the summer, most of the buyers have already taken action.

• The higher premiums and long delivery delays for many silver products discouraged some buyers from placing orders.

• The jump in spot prices, temporarily peaking late last week, may have also discouraged some buyers who feel that they missed the boat by not purchasing at earlier lower levels.

This drop off in buying has had some predictable effects in the supply and premiums of various products, especially for silver. Once gold topped $1,150 and silver reached $16, there was a mini-surge of pent-up liquidation by some owners. This eased supply problems for dealers.

Among gold coins and bars now, almost everything other than the U.S. American Art Medallions (the U.S. Mint’s bullion issues from 1980-1984) is available for immediate or short-term delivery at or close to typical premium levels.

In silver coins and bars, most items are now available for immediate or short-delivery delays. About the longest waits are for 1-ounce rounds and rectangles, though even these should now be available for delivery within four weeks. The Royal Canadian Mint is still struggling to catch up on orders, but some dealers now have limited quantities of the silver Maple Leaf coins available for immediate delivery.

There are some temporary supply shortages developing where mints strike limited quantities each year, especially silver coins. The 2016 issues of the Australia Kangaroo, British Britannias, China Pandas, and Mexico Libertads are delayed anywhere from two weeks until early next year.

Silver premiums have come down significantly. Just one to two months ago, most dealers were either refusing orders for the U.S. silver Eagles or charging $6 over spot. Now that wholesalers have inventory live or for one-week delivery, it is again possible to purchase them in bulk for less than a $4 premium to silver value. Lower premiums have also come to circulated U.S. 90 percent silver coins. Not long ago, dealers who were willing to take orders were quoted more than 40 percent above the silver value for these coins. Now the coins are becoming available again for immediate or short-term delivery at premiums for bulk quantities below 25 percent. What that means, effectively, is that today you can purchase a number of silver products at or even below what they would have cost you during the summer, even though the spot price is higher now.

Look for premiums for many silver products to drop further, especially if the spot price remains well above its summer lows.

During the American Numismatic Association World’s Fair of Money in August the spot price of gold climbed back above $1,100. There was an immediate surge in demand for U.S. pre-1934 U.S. gold coins. Naturally, prices jumped. That means the prices increased on the buy side as well. Looking back, we can see that the higher buy prices encouraged more domestic and worldwide liquidation of these coins.

In the nine weeks since then, the price of gold climbed another $50. However, prices of U.S. pre-1934 gold coins peaked in early September. Today you can purchase most of these issues at lower prices, despite the higher gold spot. In some instances, prices are down 5-10 percent from last month’s peak.

In international markets, there continues to be a heightened risk of supply squeezes for physical gold and silver. Should supplies tighten much further, today’s prices and premiums to acquire physical coins and bars could prove to be real bargains.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).

More Collecting Resources

• Come on down to the Chicago International Coin Fair in Rosemont, Ill. on April 14 to 17, 2016 to see impressive world coins, meet new collectors and participate in Heritage Auction’s fantastic coin auction.
• Download The Metal Mania Seminar with David Harper to learn more about the metals market.