Silver $20 on way to $100

In intraday trading on the Shanghai Gold Exchange on Monday, July 4, the spot price of silver reached $21.13 per ounce, up about 53 percent since the end of 2015.

In the June 1, 2016, issue of my “Liberty’s Outlook,” the headline read “Will Gold Reach $1,450 And Silver $20 by Labor Day?” In the issue, I gave a 2/3rds probability of those events occurring by that deadline. On June 1, the New York COMEX closes for gold and silver were $1,212 and $15.90, respectively.

By July 4, the price of gold was 48 percent of the way from its June 1 price to $1,450 and silver had already surpassed the forecast target. Since my prediction at the beginning of last month, numerous so-called precious metals “experts” have revised their previous gold price forecasts for 2016 to increase them to levels close to or above my June 1 prognostication.

As was almost certain to occur, the price of silver fell below $20 before the COMEX resumed trading on the morning of July 5. I suspect that there are a number of short-seller stop loss orders that are poised to close out positions should silver top $20 on the COMEX, which would put further pressure for even higher prices. In my judgment, this mini-dip is temporary. By the time you read this column, the price may already have gone back above $20.

As I write this Tuesday afternoon, pretty much all bullion-priced silver coins and ingots are available for immediate or short-term delivery. Premiums of silver products are declining, mostly from the increase in the spot price. For example, a product that sells at $2 above the spot price is selling for a 13.3 percent premium at $15 spot but only a 10.0 percent premium at $20 spot silver.

However, premiums on products out of production, especially for the U.S. 90 percent silver coins struck up to 1964, have declined by even greater amounts than would be explained only by rising spot prices. What that indicates is that people who own such coins are more willing to liquidate them at the recent higher spot prices than previously at lower spot levels.

If you deal with the more competitive coin dealers, you can acquire U.S. 90 percent silver coins now at premiums not much more than you would pay to purchase the privately manufactured 1- and 10-ounce pure silver ingots and rounds.

One warning, however. I did an extensive review of the delivered retail selling prices for $1,000 face-value bag quantities of 90 percent silver coin quoted by national coin dealers on July 1. There were a handful of companies offering these coins at about $1.50 per ounce above their silver value. Yet, most such companies were quoting premiums ranging from $1.99 to $2.99 per ounce above the spot price.

I suspect that one of the reasons so many dealers were not dropping their 90 percent silver coin premiums as much is that these coins are out of production. Since these coins went out of production more than 50 years ago, the only source for dealers and wholesalers to acquire them is from someone who already owns them.

Over the past few decades, strong demand for U.S. 90 percent silver coins has pushed up retail premiums to as high as around 50 percent over metal value (such as mid-1982 and late 2008).

As the silver spot price mostly declined from the end of April 2011 to the end of 2015, supplies of this product tightened. When owners proved to be relatively reluctant to part with their holdings at lower silver prices, premiums rose to help balance supply and demand. There have been times over the past few years where dealers had difficulty obtaining sufficient supplies to meet demand. Rather than risk temporary supply shortages, some dealers may be quoting higher premiums for 90 percent silver coins today to discourage demand for such products.

In comparison, current bullion-priced coins and privately manufactured ingots and rounds are theoretically available in huge quantities, needing only the time to fabricate the products. Because supply could expand to meet demand, the premiums for products in current production can only increase to a limited degree.

Now that silver has topped $20, where do I think it will move in the short term? My crystal ball is a bit cloudy for the next few months. Further out, I fully expect silver’s price to surpass $50 by mid-2018. Even farther into the future, I think the price of silver will reach triple digits – assuming the U.S. dollar doesn’t collapse before then.

There has been growing private demand in China to own silver both for an investment and as an alternative form of money. With the Chinese government regularly decreasing the value of its yuan paper currency, I anticipate that demand for physical silver in that country will be even stronger in the future.

When markets are in a bull phase, generally the major part of the price increases occur within the final 10 percent of time before the peak. So, don’t think today that you missed the boat because you didn’t buy physical silver when the spot price was $14, $15, or $16. Instead, realize that a silver price in the low $20s is still a bargain compared to where it could be not many years from now.

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).

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