Premium for Silver Coins Soars

Look what's happened to the premium for 90 percent silver coins at one coin dealer - from about a dollar under spot to three dollars over spot in just the last few months (click on chart to enlarge).
And these are their buy prices - their sell prices are a dollar or two an ounce higher.

[Note: Sell prices would be used in the chart above except for the fact that it's hard to make a nice graphic when you go to look up a price and, more often than not, you see "Out of Stock" instead of a dollar amount.]

This is all part of the rapidly growing disconnect between the "physical" and "paper" prices for precious metals - the "paper" price being set on futures markets and the "physical" price being set at coin shops.

Normally, there is a fairly steady relationship between the two but, over the last year (a period which has been anything but normal) that has all changed as coin dealers have recently begun raising prices relative to spot amid short supply of precious metals and heavy demand.

The chart above contains data from just one coin shop, California Numismatic Investments, and, while it doesn't necessarily reflect the pricing at other coin shops, CNI is one of the country's largest precious metals dealers and its prices certainly are representative of bullion prices in Southern California.

For many years now, I've owned both gold and silver bullion in various forms and have long encouraged others to do the same for a number of reasons.

Having looked at prices for each form of bullion on a weekly basis for many years now, it wasn't hard to see how the premiums for both silver bars and silver coins had risen sharply in recent months as shown to the right as of last Friday.

A few weeks ago, it was noted that spreads between spot silver, the iShares Silver Trust ETF (SLV), and 100 ounce silver bars at CNI had changed dramatically this year. The chart you see at the top of this post just adds 90 percent silver coins to the list, the star silver performer so far in 2008 - down just 14 percent versus 34 percent for the silver ETF.

Of course, even higher bullion prices can be seen at eBay and Bullion Seek.

They say that this is just a temporary supply disruption amid recently "unprecedented" demand from the public (which actually isn't unprecedented at all) during uncertain times where more and more individuals feel the need to add a little hard currency to their investment portfolio.

We will see where these growing spreads between "paper" and "physical" go from here - at some point they are sure to converge. Exactly where they converge is the interesting part.

Full Disclosure: Long gold and silver in various forms

Comments

[Greg Pinelli:]

As striking as the example above is it only tells part of the strange story..90% coin premiums are actually chump change compared to Silver Eagle..or even Silver Mapes..the reasons are as follows...
1. Holders of tradeable silver (recognizable coins..rounds) are NOT selling..Why? Because the spot price is a fabrication! A fiction.
2. The people holding and demanding these coins are NOT going to sell anytime soon...silver spot will need to rise BEYOND $25 before the hardcores let go..This isn't anything new..IT HAPPENS EVERY TIME SILVER IS UNDERPRICED.

The same for gold..when in anyone's lifetime have premiums on Gold coins been even half this high??? These are very powerful clues to the future.

2008 Oct 30 09:25 PM

[Terry Finn:]

Anyone have any ideas on how to buy Silver Eagles in Monster Boxes (500 coins) other than eBay?

2008 Oct 31 07:59 AM

[TrevTones:]

I just bought two more boxes of 500 at L.A. Coin Company on Ventura Blvd in Studio City, CA - a suburb of Los Angeles. Also bought a box from G&A Coins on Riverside Drive in Toluca Lake, CA. Silver Eagles are getting a 100% premium added right now (!!!) but if you look around you might only pay about 70%. Good luck.

2008 Oct 31 09:21 AM

[User 289705:]

Try tulving.com. Yesterday he had some 200 boxes. About $7 over spot.

2008 Nov 01 01:28 AM

[NOWHEREMAN:]

The Hunts tried to corner the silver market in the 70s. They failed because the public started selling their years of collected silverware. Supply increased and they lost millions.

I've been holding rolls of Silver coins for decades, as the recession takes hold and deepens, you will start to see silver coins start to appear as change and I will add to my collection.

If the coins are in Mint condition, thats an entirely different story. Then I'll have to pry them out of the acrylic they have been in for decades also, you know clocks with silver coins embedded as hour references.

There are more of these than you think, check with your parents and grandparents.

Once the price gets high enough to be publicized in the media, overlooked sources of silver coins will bubble to the surface.

2008 Nov 01 06:23 AM

[autofyrsto:]

Damm. Kitco is out of just about everything....

https://online.kitco.c...

2008 Nov 03 03:26 PM

[gordy kistler:]

why not buy 1,000 oz. bars melt them into 1 oz. rounds and sell them just like the big boys do. and you to can make a hefty profit.

2008 Nov 18 02:28 PM