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BULLETIN: Silver Mostly Sold Out; Gold Getting Tight

Gold and silver spot prices opened modestly higher this morning. The metals have stabilized for the moment, after getting hammered last Monday and the previous Friday.

Gold has recovered to over $1,400/oz since getting as low as $1,326 in overnight trading early last week. Silver has recovered $1/oz from last week's lows.

Nevertheless, concentrated selling pressure in the futures market could reemerge this week to drive prices lower still before a final capitulation takes place. Among traders, sentiment toward the metals is more negative than it's been in years. Extremely negative sentiment normally serves as a contrary (bullish) indicator, though it can sometimes persist awhile before an actual price bottom gets put in.

The story in the retail bullion markets is very, very different. Investors are buying whatever they can find, and inventories on many silver products have completely disappeared.

Silver Inventories Vanish and Gold Inventories Rapidly Depleting

Silver Bars

Last week's smash in silver spot prices sparked record demand for products like the silver American Eagle. Buyers overwhelmed the ability of the U.S. Mint to produce Eagles, sending premiums that had already been rising for weeks even higher.

Pre-1965 90% silver coin stocks are all but gone. Premiums have more than tripled on the little that can be found.

Some dealers, including Money Metals Exchange, stopped accepting new orders for many silver products including Eagles, Maple Leafs,1-oz silver rounds and 10-oz bars. Less prudent dealers have taken orders on silver items that they may not be able to fulfill for several months. Since our word is our honor, we have chosen not to make commitments we aren't certain we can keep.

Instead, Money Metals Specialists are encouraging customers to buy the silver products where supply is more reliable. As of this writing the products include 100-oz silver bars, 1-oz silver Austrian Philharmonic coins (for pricing on this product, please call 1-800-800-1865), kilo-size Australian Perth mint coins, and a small lot of pre-1965 90% silver coins.

It is important to note that investors who want to buy at these prices can still get silver in these easily tradable products.

Perth Mint 1 Kilo Silver Coin

The lack of available silver in many of the most popular products caused a shift in demand to gold. The most popular gold products now carry a lead time for delivery of 2 weeks. Many dealers, including Money Metals, have stopped taking orders for 1-oz gold Maple Leafs altogether.

For the short term, available supplies of the most popular bullion items appear set to get even tighter. Premiums will almost certainly continue rising, as Money Metals and other dealers raise the bid prices significantly to acquire more inventory.

To be clear, there does not currently appear to be a shortage in raw metal stock -- gold and silver grain and COMEX deliverable (large) bars. The bottleneck is in converting that stock to rounds and coins. We are confident the private mints will do what they can to increase production – adding shifts and working overtime to catch up.

However, there are some wild cards which could potentially cripple the longer term recovery of inventories. For starters, we don't know exactly what the U.S. Mint (or the Royal Canadian Mint) will do to meet record levels of demand. Unlike private mints, they may do nothing to ramp up production and choose to simply stop accepting orders for a period of time. They did just that for almost two weeks at the end of January.

Another wild card is the recent closure of Kennecott's Bingham Canyon mine in Utah. A landslide closed the mine nearly two weeks ago and it is likely to remain closed for at least a year. The mine, the second largest copper producer in the country, also produces approximately 15% of annual U.S. silver and 4% of U.S. gold. The closure is bound to impact markets and may specifically impact U.S. Mint products which, by mandate, must be produced from domestically mined ore.

A final question mark is ongoing investor demand. As opposed to the futures market where traders appear anxious to sell, in the retail bullion market investors are anxious to buy. The lowest prices in more than two years look like a buying opportunity, and the public is taking advantage of it in droves. If current demand persists, or even accelerates based on some type of black swan world event, we may see an already extraordinary situation in the coin market become truly unprecedented.

For current pricing and availability on any of our bullion products, talk to an Money Metals Specialist (1-800-800-1865).

Potential Market-Moving News This Week

This week's scheduled reports include housing, CPI, and manufacturing:

  • Tuesday, April 23rd – New Home Sales. The February report on new home sales disappointed. The Fed and leaders in Washington DC have pulled out all the stops on re-inflating real estate, so look for higher sales over time.
  • Wednesday, April 24th – Durable Goods Orders. This report has shown weakness in recent months. Without a recovery in the numbers of people who have jobs, any strength in this number will have to come from corporations and small businesses making investments.
  • Tuesday, April 26th – GDP. Investors will get a first look at the highly anticipated (and highly suspect) GDP estimate for the first quarter of 2013. Consensus calls for growth somewhere between 2.3% and 3.3%.

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