The (paper) price of silver has been getting clobbered on Coronavirus fears. But physical demand is through the roof. In fact, many major bullion dealers have been completely wiped out of inventory. Even the US Mint has sold out of Silver American Eagles the last few days.
So the question remains, if demand is exploding right now how can the price be dropping? It’s actually quite simple. The “paper silver” market (where the price is derived from) and the physical silver market are not connected. I know that sounds odd, so let me explain.
Silver contracts (paper silver) are traded on the OTC “Over The Counter” silver spot market in London and the COMEX futures market in New York. This allows institutional investors to gain price exposure to silver for speculative purposes without having to own the physical metal.
It’s basically traders placing bets on where they believe the silver price is heading in the future. That’s it. No physical metal is involved. This same mechanism is what allows silver to be manipulated by the big players.
So while the “paper silver” market sets the price, the physical silver market inherits that price.
And we’re seeing unprecedented demand for physical silver. The US Mint’s sales are up over 300% from February. While some of our largest suppliers have seen a 5 fold increase in sales in just the last week.
Does this look like an environment where the silver price should be plummeting? Not in a million years.
Now eventually, the “paper silver” and physical silver markets will have to decouple. If they don’t, there won’t be any physical gold or silver available to buy, anywhere, because no one will be willing to sell at such artificially low prices. But until then the free market will have to make up for the inefficiencies.
Let’s take a look at how that’s happening. Below is pricing from a few major bullion dealers. As you can see, premiums on silver eagles are astronomical. Anywhere from 80 to 100% above today’s spot price of $11.98. And these are reputable firms we’re talking about. But people are more than happy to pay it because major bullion exchanges are running out of silver, at any cost.
Below is another major well known bullion dealer, and as you can see their premiums are sky high as well. And in fairness, it’s not their fault. The (paper) spot price of silver is $11.98 as of right now and it does not represent the extreme demand we’re seeing in the physical market.
Now look at this next major dealer, they’re sold out of everything. And this isn’t specific to just them, this is an industry wide phenomenon right now.
So in closing, please keep in mind that we’re only a few weeks into this economic mayhem which is surely to get a lot worse. When it’s all said and done you might be lucky to pick up an ounce of silver for $50, who knows. But keep in mind that regardless of what the spot (paper) price is, the demand that we’re seeing right now for physical silver is unlike anything I’ve ever seen. And that includes the run ups after 2000 and 2008.
So stay safe and take care of your families first and foremost. These challenging times too shall pass. And pick up some gold and silver (if there’s any available) because I have a hunch that we’ll see them shoot for the stars as this economic turmoil continues to hammer an already oh so fragile economic system.