Thursday, April 11, 2013

Dip in Silver Prices Means Higher Premiums for U.S. Silver Coins

Update 1:  Corrects premium data. 

HOUSTON -- There are few better barometers to gauge demand for bullion products on the street than the dealer to dealer premiums on those products. For old U.S. silver coins in moldy canvas bags premiums are on the rise as the price of silver has been doing the opposite.

Premiums are the amount over the current spot or cash price paid or collected in a bullion transaction.  The opposite is, predictably, called a discount. 

Witness then, in the chart just below, the reported premium over the spot or cash price which has developed for “90% silver bags” (circulated pre-1965 U.S. dimes, quarters and half dollars in cloth bags of $1,000 face value, each containing about 715 ounces of pure silver).*

(Data courtesy of Coin Dealer Newsletter or CDN, compiled by GGR staff) (More…) 

For much of the past decade “90%” has traded at “par” or at a small discount to spot silver.  Over the past three months, as silver has corrected from the $31.50 level to the $27s, CDN reports that dealers have been willing to up what they pay in dealer-to-dealer arm’s length transactions from a tiny discount of $0.08 per ounce in January to a $1.28** per ounce premium over spot the first week of April. 

Obviously retail customers would pay slightly more than the dealer prices on average for a straight up trade. 

Clearly as silver prices have fallen demand for some silver products has increased, not decreased in the very efficient public market for physical silver metal. 

The last time we witnessed premiums of this size for “junk silver,” as it is inappropriately called in the trade, was during the 2008-2009 crash in silver prices.  During the height of the panic then, as silver collapsed from roughly $18 to about $9, premiums spiked briefly as high as $4 over spot. 

The recent rise in premiums absolutely reflects the fact that with silver under $30 fewer owners are willing to part with the popular silver product at the same time as investors want to purchase more of it.

Independent dealers locally report that “90%” is available, at a price, but they also report very steady, even robust demand for all legacy U.S. gold and silver coinage at the moment. 

As long time members know "90%" is our favored way of owning silver metal.

*Legacy U.S. silver coins contain 90% silver and 10% copper.  The coins are traded based on just the silver content.  The market assumes no value for the copper, but the copper is assumed to partially defray refining costs in the event the coins were to be melted and reprocessed into bullion.  The vast majority of legacy U.S. silver coins are not actually melted, however, although the terminology in the bullion trade often refers to "melt" as another reference for the spot price of silver.

** Edit Apl 11 20:15  to correct a typo from $1.08 to $1.28.  April 5 CDN data showed bid at $20,375 with silver then $27.22.  Incidentally that is a premium on the bid of 4.7% dealer to dealer, or rather was the last week of March.   

Gene Arensberg for Got Gold Report    


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Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

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