Feedback on High Silver Premiums

[webmaster]

Subject:Feedback on High Silver Premiums
By: Roland Watson, The Silver Analyst

Overview: This article is intended as a follow up to the large number of emails I received after my article on high premiums on retail bullion silver. Needless to say, not everyone was in agreement with me and that was the majority!

Link: http://news.silverseek.com/SilverSeek/1229617843.php

[silvermaybe]

I'm confused Can someone re-explain that premium versus silver spot chart?

[Richard]

I'm confused Can someone re-explain that premium versus silver spot chart?

He's basically saying that the idea that the premiums would hold in a major price up-swing wouldn't hold. This, I think he was saying, is because at the higher prices the fabrication cost factor diminishes/vanishes and so more of the small silver is available.

Which sounds sensible, to me.

[skovaka]

No doubt that there have been silver manias in the past that temporarily pumped up silver premiums on popular products. 90% US coins got a big boost in the runup to y2k, for example, only to fall back below spot as people came back to unload their y2k coins when the event did not materialize.

Many skeptical people put today's high premiums in the same category. Time will tell. I think the big question is, will investor interest in silver continue to grow this time, or will it be another flash in the pan, as the cynics believe? If more and more people decide they need to own some silver, then fabrication of small caliber silver bullion products will continue to lag the growing demand, draining the stockpiles of 1,000 oz. bars, keeping premiums high, and ultimately bringing in new fabrication capacity to meet the demand (this is already beginning to happen, as witness Jason Hommel). This is an important premise of a long-term silver bull market. Investment demand will make or break it.

But, what would it take to make retail buyers lose interest in silver again? The big price collapse was seen as only a juicy buying opportunity. Another big price collapse is unlikely at this point, in my opinion (but I did not foresee this one either :sad: ). Is the economy going to be "fixed" soon, so that people can forget about silver? If not, then we may have a strong trend back INTO gold and silver, reversing the long bear market from 1980 to 1999. A whole generation was trained to buy only stocks, bonds and real estate, as the PMs were systematically trashed. Maybe a new generation is going to get a long, painful education in the value of silver and gold as the value of their stocks, bonds and real estate is slowly ground down.

[Richard]

But, what would it take to make retail buyers lose interest in silver again?

Death, for this buyer.


No doubt that there have been silver manias in the past that temporarily pumped up silver premiums on popular products. 90% US coins got a big boost in the runup to y2k, for example, only to fall back below spot as people came back to unload their y2k coins when the event did not materialize.

Many skeptical people put today's high premiums in the same category. Time will tell. I think the big question is, will investor interest in silver continue to grow this time, or will it be another flash in the pan, as the cynics believe? If more and more people decide they need to own some silver, then fabrication of small caliber silver bullion products will continue to lag the growing demand, draining the stockpiles of 1,000 oz. bars, keeping premiums high, and ultimately bringing in new fabrication capacity to meet the demand (this is already beginning to happen, as witness Jason Hommel). This is an important premise of a long-term silver bull market. Investment demand will make or break it.

But, what would it take to make retail buyers lose interest in silver again? The big price collapse was seen as only a juicy buying opportunity. Another big price collapse is unlikely at this point, in my opinion (but I did not foresee this one either :sad: ). Is the economy going to be "fixed" soon, so that people can forget about silver? If not, then we may have a strong trend back INTO gold and silver, reversing the long bear market from 1980 to 1999. A whole generation was trained to buy only stocks, bonds and real estate, as the PMs were systematically trashed. Maybe a new generation is going to get a long, painful education in the value of silver and gold as the value of their stocks, bonds and real estate is slowly ground down.

Here's what I know... When I first bought into silver at around $17.30last March I paid about $1.35 premium per round I bought. As the price has gone down to the bottom, premiums on rounds have been 2-4 dollars each, that I've seen.

So from my experience thus far, the chart is proving correct.

But you're right... IF more people will want silver it is very much conceivable that we'll see the premiums remain, and perhaps get higher.

But... if the price rises high enough, it could just as well overwhelm them as added capacity to mint smaller silver comes about.

Of course, in the entire equation you have to figure in trust in the currency paying for it, too...

So there's a lot of factors and ifs ands or buts to consider.

[prahudka]

Quote:
But, what would it take to make retail buyers lose interest in silver again?
Death, for this buyer.



Death, for this buyer.



If the Princess ponies from Rainbow land could make all that new Fed bailout dollars into real money, yeah, that would do it.

[Argentum]

IMHO premiums decrease as a % of overall cost as spot price increases. It is there for my policy to buy silver (in any form) with the lowest premium.

When I select to buy minted coins, I select the ASE, CML, or APE which has the least premium. When junk silver is available at spot, I snag it. And when I have to purchase CMX bars, again, I'll buy the bar with the least premium.

Premiums: I never count on as recoverable. I just plug in the overall cost and then divide by the number of oz and that gives me my "spot".

[Richard]

If the Princess ponies from Rainbow land could make all that new Fed bailout dollars into real money, yeah, that would do it.

I must be having another dense moment (visions of 1/2 billion ounces dancing in my head), but you mean to say it would kill me?!

I guess I'll just have to keep my eye out for that Princess, then :shock:

[Richard]

Premiums: I never count on as recoverable. I just plug in the overall cost and then divide by the number of oz and that gives me my "spot".

Ditto! And why cry over a few "misinvested" FRN's anyway?

[valerb@bellsouth.net]

IMHO premiums decrease as a % of overall cost as spot price increases. It is there for my policy to buy silver (in any form) with the lowest premium.

When I select to buy minted coins, I select the ASE, CML, or APE which has the least premium. When junk silver is available at spot, I snag it. And when I have to purchase CMX bars, again, I'll buy the bar with the least premium.

Premiums: I never count on as recoverable. I just plug in the overall cost and then divide by the number of oz and that gives me my "spot".

Argentum, are you not also saddled with a hefty EURO tax. I know you are not on the EURO paper system, but are you not subject to the same tax on silver, like everything else? If so, how hard do they hit you there in England?

[daman4455]

Mr. Roland Watson has explained it so well. I have been saying this at this forum that these high premiums are a result of logistic problems at retail level due to sudden spurt in demand. I have also been narrating my experience as one of the high volume silver importer that ample supplies are available and I am able to import huge quantities at lower prices in the form of LBMA approved bars. In India where silver is an established business, coins are available at every nook and corner on demand and there is no frenzied demand as dealer here has good business all through the year and is able to meet the cost of his overheads and establishment due to good sales round the year. The western world is realising the importance of owning physical silver and I have no doubt that once market is well established many retail players will set up their shops and investors will be able to get their supplies on demand.

There are many who want to hear what they believe strongly and I know reason will not make them amend their views.