There has been much discussion lately in the silver investing community about tight supplies of bullion coins, mint rationing and exploding premiums. So, I decided to take a look at some popular places to buy Silver Eagles online to determine just how high the premiums have actually climbed. For consistency sake, I will use a roll of 20 Silver Eagles to measure the premium versus the current silver spot price of $14.55.
Several sellers have Silver Eagles for sale on Ebay with most rolls of 20 going for around $410 to $420. At $415, will pay around $20.75 per ounce of silver on Ebay, equating to a premium of $6.20 per coin or 42.6%.
If you buy directly on the APMEX website, you will pay $20.62 per ounce when paying with wire transfer or check. If you pay via credit card or Paypal, the price jumps to $21.44 per ounce. Those prices represent premiums to the spot price of 42% and 47%, respectively.
Silver Eagles at JM Bullion are fetching $20.21 if you pay by check and $21.03 via credit card. You will pay a premium to spot price of 39% and 45%, respectively.
Silver Premiums Are Highly Elevated
The average premium for American Silver Eagle coins is currently around 44%. It shot up dramatically in late August from the 20%-30% premium range where Silver Eagles had spent most of 2015. So, the premiums have nearly doubled from the start of August to late September. Something is clearly happening behind the scenes in the silver market.
Buying a monster box of Silver Eagles (500 coins), reduces the premium that you will pay by about 10 points to 35%. But whether you are buying a single coin, 20-coin roll or mint box of 500, current premiums are significantly higher than historic norms. Throughout most of the past decade, Eagles could be acquired at a premium closer to 10% above spot price. I remember seeing premiums around 20% and thinking it was insane at the time.
Some will interpret this to mean there is a shortage, imminent price spike, breakdown of paper pricing or a variety of different meanings. The widening spread between paper prices and real-world prices certainly highlights the conviction of physical buyers via their willingness to ignore COMEX pricing and pay whatever the market commands. It also shows that sellers are unwilling to part with their silver anywhere near the ‘official’ paper prices.
Skyrocketing premiums on silver also highlight the declining relevance of price discovery in those highly leveraged and manipulated bankster paper markets. It may or may not be reflective of an immediate shortage in silver, but low prices have certainly reduced supply over the past few years. We can expect a continuation of this trend of reduced supply as long as silver remains below $20 per ounce.
Shortage or not, the markets appear to be wising up to the phony paper prices that are becoming increasingly detached from reality. We are getting a glimpse of free markets, through the haze of manipulation.
What is Next for Silver?
I view rising premiums as a bullish indicator for the silver market. I also believe that declining supplies will be supportive of the silver price, as an increasing number of mining companies suspend unprofitable operations at current prices. And while some of the mines will be able to re-start quickly, the lack of cash flows in silver miners means that very little exploration is taking place at the current time. So, it will take a few years of sustained silver prices above $20 before supplies can return to previous levels.
With the gold-to-silver ratio at the highest levels since the financial crisis, either gold is overvalued relative to silver or silver is undervalued relative to gold. Either way, I expect silver to outperform by a wide margin as price start to rise again or hold up much better than gold, if prices continue to slide.
I buy Silver Eagles and recommend investors pay more attention to the buy/sell spread at bullion dealers than the higher premium charged for Eagles. Silver Eagles are more likely to appreciate over time and will be more recognizable and desirable in any barter/crisis type of situation.
Now, good luck finding Silver Eagles anywhere near $15!
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