Regional Shortage of Small Silver Continues, Goes National
Don Tiberone
Regional Shortage of Small Silver Continues, Goes National
There is a good reason we have not seen negative money flow from the
silver ETF and that is because, as any coin and bullion shop dealer
can tell you, popular interest in owing silver has been strongly
rising and very large interests probably sense that we are nearing the
point where that popular interest could have an exponential affect on
silver prices.
Indeed, reports of a physical silver shortage in the U.S., especially
for small denomination rounds (such as prospectors and U.S. silver
eagles), 10-ounce and 100-ounce bars as well as other silver products
have become widespread over the past two months leading to the popular
notion that demand for physical silver is nearing first stage critical
mass.
"About $19 is where we start to see more silver product coming in the
door right now," said a very busy Sonny Toupard, who runs Royal Coin,
a 35-year rare coin and bullion firm in Houston. By that he means that
when silver is under $19 the supply from customers selling their
silver to Royal slows to a trickle.
"Deliverables are hard to find at these prices. We're paying over spot
to get product, if we can get it," Toupard said Wednesday 4/2 with
silver then in the $17.30s. "The current lack of supply is not
reflected by the spot price," he added.
The silver shortage situation has been enhanced because so many
dealers, both online and large regional's, had been in the habit of
making their own market spreads and booking sales with the idea of
filling those orders with OPP (other people's product). It is a very
common industry practice in the small, but highly efficient silver
dealer network. Apparently so-called "drop-ship-selling" was not much
of a problem with silver in the $20 range, but once the price fell
sharply to $16 and change supplies literally disappeared forcing
otherwise well connected dealers to scramble to find the metal they
had already sold.
Now that prices have fallen, which has usually been answered by a rush
of private sellers in the past (but not this time), dealers are being
overrun with new orders by bargain hunters. Orders the dealers simply
cannot fill without charging extremely high premiums, if they can get
silver at all to fill them.
Toupard works closely with large regional bullion dealers that are so
keen to find silver eagles to fill orders they are becoming desperate.
He reports that one such large dealer is so short of already sold U.S.
silver eagles that dealer is begging him to cold call old customers in
order to get them to come in to sell product, even if it means having
to pay large premiums for large quantities. (For example, a large
premium would be something like $2.00 over spot for each 1-ounce
silver eagle.)
The silver market is vastly different than the gold market. Because so
much of available silver is held in private hoards there is likely
plenty of physical silver out there to answer the current demand for
it, just not at the current, recently reduced price levels. The recent
spike in demand has depleted the chronically under-capitalized silver
market dealer's limited inventory stocks for many silver products and
the lower prices just won't liberate enough silver from enough private
hands to satisfy the strongly increasing demand.
A Warning Shot
Some of the demand is laid off in the silver ETF and in other physical
silver products, such as old 90% silver U.S. coins in cloth bags
(which still appear relatively plentiful, but have higher premiums
now), some foreign silver coins (such as Mexican Libertads and
Canadian Maples), and even in sterling scrap and silverware items.
But, if the current surge in demand were to continue or even
accelerate (very possible), then the still very tiny silver market
could explode higher and silver prices could undergo legendary
advances not seen since 1979-1980.
Private sellers (the largest source of small size silver inventory
after the U.S. mint) would be less inclined to sell the more popular
the idea becomes that there is a silver shortage and buyers would
become more aggressive if they thought that a modern popular run on
silver has begun. This report believes the current silver shortage is
a warning shot that a popular run on silver is probably not that far
off now. Any really strong dips should be eagerly bought by the
growing silver faithful and that should keep a rising floor under
silver for some time to come.
Like other actively traded commodities, the paper silver futures
markets can and often do operate in their own price world for limited
periods of time as the heat of battle rages on high. Profit taking,
leading to larger scale selling, leading to panic selling opens up
opportunities for bargain hunting, leading to position taking, leading
to panic buying and so on. While the very volatile paper markets are
getting out of kilter both ways physical metal dealers watch premiums
for physical silver making instant adjustments (from higher premiums
to discounts) which also offer opportunity for the nimble. Sooner or
later, however, the prices for silver on the street migrate their way
up the very efficient market chain and end up being reflected across
all markets as the global silver supply/demand/liquidity equilibrium
constantly asserts itself over and over again.
Unlike gold, there are few very large concentrated pools of silver
metal to borrow from in times of strongly increasing demand. Make no
mistake, there are large quantities of silver metal out there (in
private hands). Much larger quantities than many analysts factored in
their calculations just a few years ago, but about the only thing that
will bring that silver out of hiding and into available inventory is
higher prices. Especially now, when there is a legitimate whiff of a
popular silver run in the air for the first time since 1980.