Scarce silver to get even tougher to find in 4th quarter

04-Oct ( — The void left by government mints in North America is shaking up the silver market, creating a major opening for competitors to supply the growing ranks of “silver stackers” and capture market share.

Shortages of fabricated silver bullion products continue across the board. Mints and refiners have fallen progressively further behind in recent weeks – caught flat-footed by a spike in demand starting at the end of June.

…The sovereign mints – particularly in the U.S. and Canada – aren’t likely to pull their weight in the 4th quarter. Almost all of the remaining production of 2015 dated silver American Eagles and Maple Leafs has now been sold. That means many buyers may soon find themselves in a queue for delivery of 2016 dated coins sometime after the new year, or paying even bigger premiums for coins from stock.

The problem is the pipeline of new coins, which is already insufficient. It will completely shut off towards year end. The U.S. Mint, whose bureaucratic incompetence historically makes it the most incapable of keeping up during demand spikes, will stop all production sometime in early to December to change over to the 2016 dies. The production halt generally lasts a month, and deliveries of new coins resume in early to mid January. (Switching out coin dies at private mints only takes a few minutes, but for some reason the process takes several weeks at the U.S. Mint.)


PG View: Several words of caution:

1. Beware of brokers selling Eagles at below market premiums with the promise of delivery in December (or even January). They (and you) are betting on the U.S. Mint fulfilling their production expectations and that is hardly a sure thing with the Mint on allocation since July and the above report that “almost all of the remaining production of 2015 dated silver American Eagles and Maple Leafs has now been sold.” The U.S. Mint sold out of silver Eagles in early-November last year, and I wouldn’t be surprised if that happens even earlier this year. At that point they may just shut down for the remainder of the year to retool for 2016 strikes.

2. Private mint rounds become popular only when sovereign mint coins can’t be had. When the U.S. Mint and RCM get caught up and Eagles and Maples are readily available again, rounds become very illiquid and difficult to sell.

3. Consider gold as a viable alternative to silver at this juncture. Most investors see silver as undervalued relative to gold with the ratio above 70. While that may be true, when premiums are factored in, the ratio is actually in the mid-50s. The value proposition is not nearly as great in “real” terms.

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