The latest on silver premiums...

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Premiums Rise for Silver Coins

Patrick Heller

March 12, 2013

Lower silver spot prices since the start of 2013 have sparked a tremendous demand for bullion-priced physical silver coins and ingots.

I reported on supply shortages and increased premiums in previous columns along with a prediction that the delivery delays and premium increases would continue. Well, they certainly have.

In the United States, retail customers, coin dealers and wholesalers are scrambling to find physical product. It is sometimes possible to acquire small quantities of ingots or U.S. 90 percent silver coins for quick delivery, but almost every dealer is now quoting 4-6 weeks delivery after payment for orders of any size.

The silver American Eagles are still relatively available at or near to normal premiums, but this could change quickly if the Mint has to resume rationing supplies. Through the end of February, the U.S. Mint had already sold more than 10 million silver Eagles.

Silver Maple Leaves are in worse straits. Most wholesalers are now quoting shipments about two weeks out, which means about a three-week delivery delay to a retail customer. As with silver Eagles, the Canadian silver coins are trading at normal premiums at the moment. However, the premium spiked when the Royal Canadian Mint could not keep up with demand a few weeks ago. There is a continuing risk that, without notice, the RCM could again suspend or ration sales.

In several cities in the Far East, physical silver is selling for $2-$4 per ounce above the spot price. Last week, photos circulated on the Internet showing European dealers’ displays quoting sell prices for physical silver at 32-33 euros per ounce. At that price, buyers are paying more than U.S. $40 per ounce silver.

One thing to keep in mind is that some European nations charge Value Added Tax (VAT) on the purchase of precious metals, which boosts the price of physical metals significantly. However, these high selling prices were also found in countries that did not charge VAT on the purchase of physical precious metals.

Late last week, several coin dealers were offering to pay a 7 percent premium or even higher to obtain live supplies of U.S. 90 percent silver coins. It happens that my company has live 90 percent silver coins available as I write this column. The ultimate capital of my company is kept in the form of U.S. 90 percent silver coins rather than in Federal Reserve Notes, which means that our inventory of them is far higher than needed for day-to-day trading purposes. This business practice enabled my company to continue selling U.S. 90 percent coin for immediate delivery for all but one 24-hour period during the bullion buying frenzy at the end of 2008.

Unfortunately, most retail coin dealers are not as inventory-rich as my company. Further, my company’s capital is specifically in U.S. 90 percent silver coin because its traditional premium levels are well below those for ingots, rounds and current government mint silver issues. As a consequence, my company is having some of the same problems stocking bars, rounds, silver Eagles, and silver Maple Leaves as are other dealers.

I anticipate that delivery delays will continue to stretch out into the future and that premiums in the coming weeks will continue rising. I don’t expect the huge imbalance between supply and demand for physical silver to end until the spot price is much higher. At the most optimistic, we could see some turnaround once the spot price reaches $32. By the time silver tops $35, I think we will definitely see some evening out of supply and demand.