Silver Shortage – Reality or Hype?

Silver shortage

Mike Maloney just released a very short video looking at the current shortages of many silver products being encountered currently.

We’ve summarised the content of the video below. But make sure you also check out our on views on his comments below the video and the latest on what we are seeing here in New Zealand as far as silver shortages go…

He discusses:

  • How suppliers are very back ordered especially on silver eagles.
  • How authorised purchasers (from the US Mint) are only getting limited supplies.
  • How the mints themselves are very backed up and have 8 week delays for anyone wanting to mint coins.
  • He then says: “The reason the Mints are delayed is because there are periods of times where they just can’t find any silver”.
  • He talked about this a month or so ago and since then the price spreads on silver eagles have doubled over spot. Suppliers are getting a windfall but at the expenses of dealers and the public.
  • How the price of silver is falling but not the price of silver eagles. Other silver products are getting very scarce as well.
  • He expects it to get a lot worse before it gets better.

Our Thoughts on the Silver Shortage

What are we experiencing here in New Zealand?

Well we wrote back in July that premiums had risen here in NZ on locally refined silver too. Then in early August we also reported that another NZ refiner had also raised premiums above spot price on their silver too.

Since then we’ve seen premiums on the likes of Canadian Silver Maples rise even further. Also the delivery of this has been pushed out even further to something around 5 weeks and appears to be getting longer every day now. Delivery time of locally refined silver 1kg bars have also increased markedly from the week or so that they were a few months ago.

What is the Cause of the Silver Shortage?

So what about Maloney’s comment that

“The reason the Mints are delayed is because there are periods of times where they just can’t find any silver”?

We don’t agree with this statement or at least we think he is missing a word from it.

To us it seems that it’s not that the mints can’t find any silver, but rather they can’t find silver in the form they need. That is the silver blanks that get minted into coins. The US mint who produces the Silver Eagle coin outsourced its supply of silver blanks many years ago. And there are limited sources of these silver blanks available. So when demand increases as it has undoubtedly globally in recent months, this is when bottlenecks occur.

On top of this they have limits on just how many coins can be minted too.

If the Mints couldn’t find any silver then 1000 oz bars of silver would also be unavailable or at the very least the premiums on them would have also increased significantly.

This is not the case as we know 1000 oz bars are in stock and can be purchased currently. Although we understand that 1000 oz bars from the likes of the Perth Mint have a 4 week delay. But again that may well be due to fabrication bottlenecks at the Perth Mint as opposed to a shortage in the wholesale market.

The premiums on the 1000 oz bars that are available are not much changed on what they were previously. But they are up slightly from what we recall. That is a few cents an ounce.

This is in line with what the head of Sunshine Minting in the US recently stated in an interview with Silver Doctors. He said:

  • “We act as a conduit for the US Mint for acquisition of silver on the market. We go out on a weekly basis and puts bids out for the supply of the 1000-ounce bars – the raw materials – that we use for the US Mint”

  • “we have seen a push on premiums … subtle changes … little push on premiums”

  • “as soon as we start to see the physical shortage on the supply side for 1,000 ounce bars because the refining output is down then that’s when I normally would believe that’s when the price would start to escalate again and we just quite haven’t hit that point yet”

  • [some suppliers] “seem to be digging deep into the vaults and pulling out a lot of old stock that has been sitting there for a while … you can always tell when the market starts to get a little tight”

So he mostly mentions subtle changes and small rises in premiums on wholesale 1000 oz bars. He doesn’t appear to be saying that there is a shortage in the wholesale supply side – yet.

So the shortage seems to still be in the retail market, with limited stock available or with long wait times. The time to get really concerned will be when we see premiums rising significantly in wholesale 1 kg gold bars and 1000 oz silver bars. We don’t seem to be there yet.

This article by Koos Jansen (titled It’s virtually impossible to get physical gold in London) refers to shortages in the wholesale and retail markets. But it has a quote from BullionStar CEO Torgny Persson that says:

Big squeeze with shortages starting now both on the wholesale/retail level and at the bulk level… Unless the paper price is reverting up, it may not subside this time around and then the paper fiat mess (including paper prices of gold and silver) is in trouble. If it goes to the point of shortages at the bulk level like 1kg gold bars and 1000 oz silver bars, the emperor will stand without clothes.

So he is also saying there is not a shortage of the wholesale 1000 oz bars. Well not yet at least anyway.

We have seen the argument put forward that the government mints are purposefully limiting the amount of coins they are producing, but of course there is no way to back this up.

It will be interesting to see if refiners and producers of gold and silver can now ramp up production enough to get premiums back down again in the retail market. Or will we see premiums continue to rise if demand remains high or increases?

We wonder if silver does begin to rise again whether this will attract even more buyers. So our guess is that the situation might get worse before it gets better.

Perhaps it will take higher prices to rectify the situation, just as it did back in 2008.

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