Are Silver Refiners Building Up A Backlog?

With the highest silver prices in 14 years this week, the surge of Americans liquidating silver items—jewelry, flatware, hollowware, coins, ingots, and other pieces—continues to grow. Many of these items are being shipped to refiners to melt down, purify, and cast into pure 1,000-ounce bars that can be delivered and accepted into COMEX vaults.

One bullion wholesaler this week posted a message apologizing to customers.  So much silver is being shipped to refiners that at least some are growing a backlog of batches to process.  Consequently, the wholesaler warned that it may take a week longer now to get results on melt-and-assay silver batches than just a few months ago.

This wouldn’t be the first time that refiners have experienced a backlog in processing silver.

The most extreme backlog in refining silver peaked in January 1980 when the silver spot price reached $50.00 for the first time.  So much silver was being sent to refiners that they had up to a six-month product backlog.

What did this do to the price of silver?

The only forms of silver worth the commodity futures market spot price were the 1,000-ounce bars already in the vaults of the COMEX or London Bullion Market Association that could be delivered to contracts maturing this month.  Where the refiners couldn’t process new 1,000 bars up to six months later, this product was not available to deliver against current maturing futures contracts called for delivery.  Consequently, futures contracts on the COMEX traded as much as a 25% discount to the “spot” price.

Similar discounts to spot price were applied to coins and bars already held by the public. At one point, the store I patronized and later owned was selling $1,000 face-value bags of US 90% silver coins to retail customers for about 70% of “melt.”  It was better to sell the product for immediate payment at a discount than to wait up to half a year for the refiner to process such coins and make a settlement.

In decades past, there have also been times when existing physical silver traded at sizeable premiums to the spot price.  There was a huge rush to purchase bullion-priced silver when it dropped from about $18.00 per ounce in March 2008 to about $10.00 per ounce in November 2008. 

Available supplies could not satisfy demand, and fabricators extended as far out as four months after payment was received to strike bars and rounds for customer orders.  That made US 90% silver coins, which were already in existence, worth a premium.  At one point $1,000 bags of 90% silver coins for immediate delivery were selling retail for as much as 35% above the spot price.  We helped some customers who swapped their 90% coins into silver bars to end up owning a greater number of ounces of silver without having to spend any funds.

As I write this column, I see that there appears to be a supply squeeze in the COMEX silver market.  As a result, the COMEX silver spot price is running about 20 cents higher than the physical over-the-counter market.  Anyone contemplating a purchase or sale of bullion-priced physical silver right now should be especially careful about the “spot price” used to calculate the transaction.

Last time I asked—Why did George Washington choose Ephraim Brasher to overstrike what are now called the Brasher Doubloons?  Brasher was a silversmith of high repute.  He also served as an assayer.  He fought against the British in the Revolutionary War.  But he also lived next door to his friend George Washington in New York City after the Revolutionary War.  Washington’s address for a time was 3 Cherry Street, while Brasher lived first at 1 Cherry Street and then at 5 Cherry Street.  When Brasher created what are now called the Brasher Doubloons, he served New York City as its sanitary commissioner.

Here is this week’s question. Which US coin depicts a mythological hippocampus?  Come back next week for the answer.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, the 2017 Exemplary Service Award, the 2012 Harry Forman National Dealer of the Year Award, and the 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild, Professional Numismatists Guild, National Coin & Bullion Association, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan, and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries, "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 archives posted at www.1320wils.com).

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