Last week the US Mint announced that they were suspending sales of silver eagles until August. There has also been increased demand for gold and silver globally and reports of silver shortages.
The UK Royal Mint reported that Greek customers bought twice as many sovereign gold bullion coins as usual. The buying frenzy began when the Greek government closed Greek banks.
So what is causing this increased demand?
Why are prices of gold and silver flat or falling?
Is there a gold and silver shortage?
Mike Maloney gives a good run down of the situation in the silver market and what has caused it in this video. We’ve summarised his main points below it.
Then be sure to read on further to get an update on the situation on silver demand and supply here in New Zealand from our perspective.
Via Mike Maloney
Mike Maloney gives a breakdown of the silver shortage and what might be coming next:
Major suppliers of all the different gold and silver products are starting to run out.
Gold coin sales were suspended in Greece to prevent a rush out of the Euro and into gold in Greece. This wasn’t widely reported.
The China stock market crash is also having an impact.
These events have caused a rush into gold and silver worldwide but the price of gold and silver have been dropping.
Why is this?
Well it has happened before.
Back in 2008 when the real estate bubble burst and stock markets crashed there was a massive rush for liquidity.
There were margin calls meaning stock holders had 24hrs to come up with the extra cash or all their stocks would be sold. This selling of stocks also caused selling in the gold and silver ETFs and gold and silver futures in the rush for cash to meet these margin calls. So this caused the spot price for gold and silver price to drop.
But at the same time there was a mad rush for safety and gold and silver shortages started to develop. The suppliers couldn’t keep up with demand and so started charging more, refiners started charging more too and so the physical price and the spot price started to diverge from each other.
In the US there were reports of 100 oz silver bars selling for 100% over the spot price. i.e. double the spot price of silver. On eBay silver eagles were selling for massive markups when silver was only $9 per oz.[Gold Survival Guide note: This occurred here in New Zealand in 2008 too. We recall 1kg silver bars selling for at least 30-40% above the spot price.]
So Silver Eagles will be running out in July. More supplies are expected in August.
But this all depends on whether things get “patched up”.
Maloney hopes that they do and that the crisis unfolds slowly as this will have a lessor impact on people.
It will happen slowly – until the day that it doesn’t. But he thinks things are starting to speed up a little.
We could some day see an overnight revaluation. However he doesn’t think that day is today. He also doesn’t think we will see the death of the US dollar today either.
Personally he feels pretty good because he took his positions a long time ago.
The root cause of all these problems is that the monetary system is fraudulent. And that fraud has been pushed a little bit too far and so when people want their cash, there isn’t any.
He has been taking out cash on a regular basis and has several months of living expenses in private vaults – not in bank vaults.
So what about in New Zealand? What’s our take on silver shortages in NZ?
In our weekly email newsletter last week (sign up here if you want to be kept up to date on New Zealand precious metals news) we said:
Silver Supply Shortages?
We had a question from a reader today asking if we had noticed any tightness in the silver market…
So what are we seeing in terms of supply and demand?
We’ve seen a bit of an uptick in purchases, but a definite sharp increase in subscribers to our newsletter. So probably care of Greece there is more interest in gold and silver in NZ too…
Reports from various Mints and suppliers throughout the US and Europe show they have had a more noticeable increase in buyers.
Perhaps not surprising as we are much further removed from the Greek troubles down here.
Just in is an email from an offshore supplier of ours:“Due to a world-wide run on world mint products and the U.S. Mint’s suspension of sales of American Silver Eagles, expect delays in shipment of products from all major mints. However, we are still taking orders for world mint products with an estimated shipping time between 2 to 4 weeks.”
So they are also expecting delays from the Royal Canadian Mint too.
However the thing to consider here is that these delays are likely to be due to fabrication issues not an actual shortage of physical silver itself.
That is in order to “mint” a coin, the Mints require “blanks” first. This is usually where the bottlenecks appear, in that the producers of the blanks can’t keep up with demand.
Evidence of this is that locally refined silver here in NZ is not under any significant delays currently.
But as the first article notes there are some strange goings on in the silver market at the moment. So this could well change in the future. But we don’t like to be all hypey and say “silver is running out!” Because at the moment at least – it isn’t.
Well, what a difference a few days make! The situation has changed here in New Zealand in the past week.
Yesterday one of our suppliers of locally refined NZ silver advised us they would be raising their prices for silver bullion as of this Monday.
Silver Demand Rises – So Do NZ Silver Prices on Monday 20 July
They advised that there’s been an increase in Silver demand globally and this has affected their own suppliers ability to supply Silver.
They are also witnessing increased demand with their own Silver Bullion fabrication delivery dates also creeping out further into the future. So silver demand has exceeded their fabrication capacity.
This increase in global demand has affected their suppliers and therefore they have raised the price for Silver. So the NZ refiner (our supplier) has also had to raise their silver price due to their increased costs and also to manage demand. They hope to lower the price again when conditions change.
Prices for 0-4 kgs are unchanged.
But the local price for 5kg or more of silver will be rising from spot + 7% + $13.80 ingot charge to spot + 9% + $13.80 ingot charge.
So only 3 days left for cheaper silver. [Click here if you’d like a quote.]
So What to Make of All This? Our Take…
As we said in our newsletter last week, we have seen an increased in precious metals purchases in the past 6 weeks or so. While there has been an increase in the number of transactions it hasn’t been as great as the increase in volume. That is, we aren’t seeing a huge increase in the number of people buying but we have seen a large increase in the amount overall being bought.
The fact that premiums above spot for silver are rising for locally refined silver is quite telling. We haven’t seen this since 2008. Even in the onslaught of buying that occurred in 2013, when the price of gold and silver plunged, we didn’t quite see premiums of local silver rise like we did for imported gold and silver coins and bars.
So it will be interesting to see how long these higher premiums persist. Our guess is Mike Maloney is right that this isn’t the end of the world – yet. This monetary crisis might be drawn out a while longer yet, so odds are premiums will return to normal again. As eventually either demand will fall or the refiners and fabricators will ramp up production to meet the demand.
So the “silver shortage” is probably still more of a fabrication bottleneck, than an actual shortage of silver.
The trouble is in knowing when the day of reckoning will come. You need to have your insurance in place before then.
Best not to wait too long if you’re thinking of buying. At least take a position and then consider keeping some up your sleeve for any possible dips in price to come.