SILVER 101/SCROUNGING AND SCUFFLING
by Al Doyle for CoinWeek ……
The recent plunge in silver spot prices motivated a large number of buyers to search for physical product. There has been one glaring problem: Supplies were on the thin side even before spot dropped, and why would silver owners sell the metal at $23 spot when they had absolutely no desire to do so at $30 to $48 an ounce since 2011?
Here’s another not so minor problem. If supplies of the real thing (not paper contracts) are scarce enough to make the words “out of stock” the rule at the retail level, then what does that do to premiums? It’s safe to say that the real cost to obtain silver in hand isn’t much less than it was when the metal was in the $28 to $29 range.
Countless shoppers who have sought silver at coin dealers and on web sites have been given given a single option: future delivery. In other words, place an order now and hope it gets filled at some point down the road. That might not be a big deal for those who already have an ample supply of silver and were just looking for a little extra, but it’s a different story for those with little or no metal in hand. Typically, these newcomers are offered silver Eagles or one-ounce rounds and bars from private mints. All they can do is hope and pray that their orders will be filled.
On the positive side, new rounds are bars are being struck, adding to the total physical supply. It’s a totally different situation with pre-1965 dimes, quarters and half dollars. At one time in the recent past, these circulated coins were scorned as “junk silver”. Dealer buy prices reflected that lack of respect, as 90 percent (a more appropriate nickname based on the .900 fine planchets) often traded below melt at the wholesale level, and just a few percent higher at retail.
Not only aren’t they making any more silver dimes, quarters and halves, but a significant number of those old coins have been melted since 1979. The supply is pretty much fixed, and demand is soaring. The result? Big premiums.
Even a dimwitted seller should be able to get $3 an ounce over melt for his 90 percent, and some firms are paying as much as $3.50 over spot. If you don’t like the offer for your silver, ask for more or shop it around. One market maker was selling 90 percent at 20.8 times face value, which works out to $29.12 an ounce with spot at $23. That’s a 26.6 percent premium over the increasingly fictitious spot price. If that seems steep, there are two factors to consider.
Too many people have been conditioned to look at spot as some kind of mandatory, all-reliable guide to precious metals prices. Spot can be an indicator and starting point, but the more speculators play games with gold and silver they don’t have, the less relevant spot becomes. Buyers need to consider the cost of “unobtainium”. It may be possible to purchase silver for a lower price down the road, but what if current supply/demand imbalance lingers for some weeks or months? Just take a look at the U.S. retail ammo market since December 2012 to see how that works.
EBay is the one place where silver is available on demand. While the average eBay buyer may not be as numismatically sophisticated as the typical coin person, they generally have some idea of what constitutes a reasonable price. Since tens of thousands of silver trades take place each week on eBay, it’s fair to call the on-line auction site a reliable indicator of retail prices. Here are some prices (postage included) for popular silver products on April 23 and early April 24.
- Single silver Eagles: $33.01, $33.49, $34, $34.06, $34.51 for an average price of $33.81.
- Multiple silver Eagles: Two for $64.25 and $66.83, three for $103.49, four for $130.02 and $132.50. The average price per coin was $33.14.
- 20-piece roll of 2013 Eagles, $635, or $31.75 per coin.
- Single Canadian Maple Leafs: $33, $33.58, $34.30, $37.21. Average price, $34.52.
- Austrian Philharmonics: $33.99, two for $65.59 for an average price of $33.19.
- APMEX one-ounce bars: $36 and $36.26 (average $36.13).
- 90 percent lots: $1 face Roosevelt dimes, $24.24 and $27, $5 face $121.21. Average price $172.45, or 24.64 times face ($34.50 an ounce).
- $5 face Washington quarters, $115.57, 23.11 times face or $32.36/ounce.
- Silvertowne one-ounce rounds and bars were selling in the $31 to $33 range.
What should a person do? Buy whatever bits and pieces are available, or wait for awhile? Those who have little or no silver should keep in mind that buying precious metals isn’t an all or nothing game. A middle of the road approach could mean spending 20 or 30 percent of your funds in this admittedly turbulent market and waiting to see what shakes out in the future. Happy and successful hunting to all who are trying to add to their silver holdings.