From the Oct. 2 Numismatic News E-Newsletter:
Will delivery delays and shortages push up the price of silver bullion coins?
Here are some answers sent from our e-newsletter readers to Editor Dave Harper.
The shortages are definitely increasing prices. I’ve noticed all authorized purchasers are increasing their premiums from an average $3 to $5 over spot. It’s disturbing to see especially when the spot price is dropping.
It also seems like this shortage of blanks issue is becoming a regular thing with the U.S. Mint. It happens at least once a year.
It’s unfortunate that the dealers take advantage of investors and collectors by raising the premiums when the issue is temporary and once the mint catches up there will be plenty to support demand.
My biggest concern is prices will continue to drop and there will be a glut of silver Eagles in the market. I personally see this as the biggest long term negative effect on the prices.
It absolutely will! It already has. It’s the basic economic law of supply and demand.
When the supply shrinks, but the demand remains the same or increases with everything else equal, the prices move up.
One other outside factor and variable is the spot price. And what we are seeing is that even though the spot prices are declining the average price of American silver Eagle coins are staying the same that they were with higher spot prices, instead of declining, and that is because the supply is low and the demand is still very high, perhaps demand is even higher than it was in the beginning of the year, because whenever there is a shortage, folks are in a frenzy and demand rises.
It’s interesting to note on the flip side that no one is selling silver, particularly “junk silver.” It seems as if the large dealers are in short or no supply because they can’t find sellers to sell them Mercury dimes, Washington quarters, Franklin halves and Morgan rolls. With the spot prices down, people are hoarding their stack.
Delivery delays have already pushed up the price of silver bullion coins. The spread between what dealers are presently willing to pay the public for bullion coins and what they are asking for the coins is already near a record.
If most dealers have nothing to sell due to delivery delays, then dealers that still have product left will ask more for what they are still holding.
Delivery delays are a reflection of silver market dysfunction. When supply and demand are in balance, no delivery delays occur as the market place always has sufficient supply to meet demand at the current market price.
Short selling of “paper silver” has warped the market. The longer the market stays out of balance, the greater the correction will be when the hold of the manipulators is broken.
When the hold is broken, panic buying will set in, causing the silver price to over-correct in the upward direction, like a rock from a sling shot. Then, after the peak, the market will experience a downward correction.
The wild swings could result in a turbulent market for a long period of time.
Bruce R Frohman
I have been actively buying bullion consistently the last three months. Shortages have been a motivator.
I was initially surprised by the premiums being charged. It was a little lower three months ago.
What was surprising me was as the spot prices came down, the premiums went up. Then as the shortages were happening more often, the premiums started rising.
Then I saw the record number of issues being sold, and mints and suppliers worldwide experiencing supply shortages. This has caused an almost 50 percent increase in premiums.
I was surprised at the increase until I realized it was the demand that was causing price increases. Even though they were selling more than usual, they used the demand increase as a reason to raise premiums.
They are selling more, at higher premiums than they were selling three months ago. They have taken advantage of demand to increase their profits.
I hope supply increases to make up for demand. The psychological urgency of demand and low prices have increased the premiums. The vendors have taken advantage of this situation to increase their profits. Good times for them.
If premiums continue to rise, maybe demand will go down at some point soon. Supply will take time to catch up, if it can. If not, we are in for a ride.
Yes, it might, but not very high. I suggest less than $20.
San Antonio, Texas
This article was originally printed in Numismatic News Express.
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