In the past, articles about silver shortages were published mostly by precious metals’ websites. However, today’s news that U.S. Silver Eagles are sold out at the U.S. Mint was covered by CNBC and Reuters.
I had just written to subscribers this morning about watching for premiums to rocket higher and supply disruptions to start taking place. This happens when the paper price becomes divorced from free market pricing driven by supply and demand. Silver at $15 is down over 30% in the past year, while other base metals are down only single digits or even up in the case of Zinc (+22%). The waterfall decline over the past week looks like capitulation to me and a possible sign of a bottom.
ZeroHedge ran an article this morning further exposing the manipulation in the gold and silver markets. Someone has been dumping $1.5 Billion in gold futures at precisely 00:30ET for the last three days in a row. Call it what you want, but no investor seeking the best price sells so much in a single moment during thinly-traded hours. This is clearly someone seeking to manipulate the price, not to get the best price for their trade. If someone continues dumping $1.5 Billion in gold futures contracts each day during thinly-traded hours, we could see more selling.
But at some point physical demand will increase to such a point that we see huge divergences between COMEX pricing and free market pricing. This point appears to be fast approach, as Silver Eagles sales were up 87% in October and are on track for a record year in 2014. Clearly investors are taking advantage of this buying opportunity.
Investors should watch for rising premiums at bullion dealers and huge premiums at places like Ebay for signs that the paper market is detaching from reality. This could also signal a bottom for the current correction.
It will be interesting to see how prices on the new Shanghai Gold Exchange compare to prices on the CRIMEX going forward. Will we see a huge divergence at some point and how will the market react? How will arbitrage between the exchanges impact the paper manipulation?
Here is the story from Reuters:
The U.S. Mint said on Wednesday it has temporarily sold out of its American Eagle silver bullion coins following “tremendous” demand in the past several weeks.
In a statement sent to its biggest U.S. coin wholesalers, the U.S. Mint says it will continue to produce 2014-dated coins. The Mint will advise when additional inventory will become available for sale without providing further details.
The announcement has not been made available to the public, but a U.S. Mint spokesman confirmed that it has sent the statement to its authorized participants.
A sharp break in gold prices to their lowest in more than four years last week has unleashed a surge in demand for silver and gold coins in North America and Europe.