There will be many people who look at gold and silver prices and assume lots of gold bugs are selling. They couldn’t be more wrong.
The disconnect between paper prices for precious metals and demand in the bullion markets has never been clearer. Nervous investors are frantically buying coins, rounds, and bars. Dealer shelves quickly emptied of more popular products and delays are now being quoted on many products – especially in silver.
The U.S. Mint stopped accepting orders temporarily for the silver American Eagle, Investors have coped with bottlenecks at the U.S. Mint before, but it has been a few years. The truth is that the production capacity for fabricated silver and gold products has always been too small to cope with massive demand surges.
Buying demand for physical gold and silver during the past week was unprecedented, and it is becoming almost unmanageable.
Dealer shelves are suddenly looking a lot like the bottled water section at Costco.
In a sense, we are seeing a perfect storm of events driving demand:
- Silver spot prices dropped over $4.00 per ounce in recent days, and gold lost about $175/oz. The largest drops came during the last three trading days. Bargain hunters have been out in droves.
- Many bullion investors focused on making preparations for the coronavirus and added to their metal stacks.
- The turmoil in equity markets is driving massive interest in physical metal as a safe haven.
- The Federal Reserve announced a multi-trillion dollar repo and bond purchasing program – and slashed short-term rates to zero. Plenty of metal investors wonder if the wheels are finally coming off as the Fed quintuples down on what is a failed policy; print oceans of money and hand it out to Wall Street banks.
- To cap it off, news of the U.S. Mint suspending sales of the silver American Eagle spread through the market Friday. Lots of people rushed to get their hands on available stocks.
Demand for silver has been particularly heated. The gold/silver ratio, the gold price divided by the silver price, has surged to an all-time high of 115 to 1.
Like all preparations, buying physical gold and silver is best done when markets are quiet and prices are low. The past few years were characterized by low premiums and plentiful inventory. Mints and refiners had excess capacity and some – including Elemetal and Republic Metals – are now gone.
Last week, that all changed. Premiums, both bid and ask, spiked on silver products and gold is likely not to be too far behind. Investors trying to take advantage of the low silver prices may find they are instead paying a price similar, or even higher, for Silver Eagles than they would have a week ago, despite the $3.00 decline in the underlying spot price.
Order volume on Friday and through to today has been well more than five times our typical activity – something we have not seen before. Mints and refiners will not be able to keep up with anywhere near that level of demand. However, Money Metals’ relationships with suppliers are among the strongest in the industry.
Money Metals Exchange has all hands on deck to fulfill customer orders. We do our very best to inform customers of what they can expect for delivery before their order is placed. That said, we do expect more surprises from the manufacturers struggling to meet demand. Ramping production requires people and equipment – neither of which can be procured at a moment’s notice.
If you are thinking about a bullion purchase, consider gold which offers better availability and is behind silver in terms of premium increases. Moreover, most silver items now come with some additional delay.
About the Author:
Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.