It's a mistake to pay huge premiums on retail physical right now

[Bimetallic]

Hi all – I'm seeing people rationalize paying exorbitant premiums with kooky theories. There's no reason to light your money on fire by paying the current premiums for retail physical silver.

If you pay $27.00 for a new American Silver Eagle, for example, that's an 80% premium over spot at the moment. You'll need the spot price to climb out of the deep hole you dug in order to ever break even on such a purchase, and it might never climb enough. In this scenario, you'd need spot to climb to $24 - $25 to sell that silver to a private party for $27, and probably $26 - $27 to sell it to a dealer at the price you paid. In the meantime, you're going to watch those premiums shrink and shrink, such that new ASEs will cost something like $22 even though spot is higher than it was when you paid $27 for ASE (normally, for an ASE price of $22 at the better dealers, like SD Bullion or Silver.com, spot will be around $18.50 or $19).

The explosion in demand because of the virus caused retail physical silver premiums to explode in turn. I see people saying that the spot price and physical have "decoupled", as though this is some sort of permanent situation. That's nonsense. It's important to not be gullible when people are trying to sell you something.

It would be smarter to wait for premiums to return to normal as demand normalizes. There's nothing permanent about these premiums, though they might be larger than normal for a few months given the fact that supply is going to be constrained due to mint shutdowns (e.g. the RCM is shut down for two weeks).

The founder and CEO of JM Bullion was on the Silverbugs subreddit the other day explaining that they're always fully hedged re: silver spot price fluctuations, and that an explosion in demand is why premiums are out of whack (it's not due to them having to sell inventory that they paid much higher spot prices for – they're hedged).

There are people in the silver stacking community who are always rationalizing paying a hefty premium, or really any price at all, based on kooky theories like that silver is going to explode any day now, and now this "decoupling" business. There's always a rationalization for everything that happens. When silver spot falls – or is stagnant – it's because of manipulation or some other conspiracy. The truth is usually simpler, and more mundane. In any case, it's not a good time to waste your money, on overpriced bullion or anything else – you might need it... If you think you need physical silver in-hand, that's one thing, but if you're buying silver as an investment or hedge, I would wait until premiums are normal so you don't dig yourself a huge hole.

If you think silver is going to keep climbing, as it has for the last couple of days, you won't make any money off it by buying retail physical right now, because of the temporary premiums (unless silver punches well past its normal levels, to over $26 or so). I would just buy ETFs – they're pure profit as silver climbs, much more profitable than retail physical. If silver climbs to $20, for example, you've made no money if you bought retail physical right now, since you're paying so much that it was like spot was already $20 or more. Whereas you'd make a lot of profit on that rise if you were in an ETF, or even vaulted physical like BullionVault or Perth Mint. For example, BullionVault charges 0.48% per year to store silver, and 0.50% commission on transactions. Compare that to the 80% premium on ASE at APMEX...

If you want to buy physical at some point, I recommend low priced dealers like Silver.com and SD Bullion (in North America, at least). For example, at APMEX preorders on 2020 ASE were $26.84 a minute ago, whereas at Silver.com in-stock 2019 ASE were $23.17. Much smaller hole at Silver.com. A 2020 ASE is only worth a few cents more than a 2019, not $3.67 more... But it's smart to wait.

You can see what typical premiums were before the panic in my comprehensive spreadsheet. The figures are mostly from a month ago. I recorded spot in every case. Relative premiums are fairly stable across dealers – i.e. Silver.com and SD Bullion are usually the cheapest, no matter the day.

[AgCoyote]

Monument Metals has reasonable premiums. When the Perth Mint 2020 Dragon rectangle coins went on sale,he had them at 16.42 per ounce. He's got the 2 oz Crocodile at 37.

But yeah APMEX has gone insane with premiums.

[Melon]

Who's paying 80% premiums? Point them out for me 😄 

The decoupling thing isn't unreasonable mind. It's not a conspiracy theory, it's just how the market operates. If nobody can purchase silver at spot (or near spot), then clearly spot doesn't reflect the price of silver - seems pretty clear cut to me. But paying 80% premium on bullion is silly. 

[Bimetallic]

12 hours ago, Melon said:

Who's paying 80% premiums? Point them out for me 😄 

The decoupling thing isn't unreasonable mind. It's not a conspiracy theory, it's just how the market operates. If nobody can purchase silver at spot (or near spot), then clearly spot doesn't reflect the price of silver - seems pretty clear cut to me. But paying 80% premium on bullion is silly. 

It was APMEX.

[Melon]

3 hours ago, Bimetallic said:

It was APMEX.

Ah but asking is not the same as getting! I 100% agree with you that paying those prices would be very silly, but in terms of premiums in the 20-30% range, I think those were palatable when Silver was at it's low point. 

[Russell]

Ummm I am buying like crazy and paying hefty premiums if I have to.  I am transferring a lot of cash to silver to afford some protection against the FED printing a baseless currency that has no value to infinity.  You may say the health problem is temporary but the FED are never going to turn the clock back after catapulting Americas debt to the moon and beyond.  There will be a hell of a reckoning for the insane printing of this FIAT currency.  Once they stop shorting and manipulating the markets and close their short positions on paper silver combined with the rise of gold ...  I also think there will be a new monetary system where they have to return to the gold standard which was abandoned by that idiot Nixon.  The biggest disparity between Gold and silver in history?  Seems to me like Silver is a good bet.  Hey if I am wrong I can always lay all my silver out on my oak dining table and just look at it 🙂  Nice and shiny.

[Altitudes]

I agree to some extent but please be aware that you have to pay 28% tax on profits when you sell the etf. I wouldn't pay excessive premiums but once you factor in the tax on paper silver it makes sense to pick up physical now and then as well. Each has their benefits.

[KevinG]

It is not only apmex though Coininvcest as well. They can stick their 36 euro silver maple where the sun does not shine.Kettner edelmetalle for example has closed their shop till market prices have stabilized.  While others are not selling or out of stock.

[SilverPirate007]

I’m going to wait before buying any new silver. The current prices are crazy! 

[Zhorro]

2 hours ago, SilverPirate007 said:

I’m going to wait before buying any new silver. The current prices are crazy! 

I thought people wanted the price of silver to go up!

[Russell]

5 minutes ago, Zhorro said:

I thought people wanted the price of silver to go up!

The danger is you wait and stand at the station while the train pulls out 😉  Silver is at a low false price on the markets but physical silver has high premiums for a reason and I don't believe they are going down.  When the spot price goes up the physical price is likely to as well and then there is a big supply problem that is here for at least a year.

[SilverPirate007]

1 hour ago, Zhorro said:

I thought people wanted the price of silver to go up!

Indeed, but the price hasn’t really gone up, just the premium.

[Zhorro]

1 hour ago, SilverPirate007 said:

Indeed, but the price hasn’t really gone up, just the premium.

So, would you be willing to sell your silver at the current spot price?  Or would you want as much as you could get for it?

[SilverPirate007]

I don’t sell my silver 

[Safestacker]

Spoil sport. 

[erv]

On ‎25‎/‎03‎/‎2020 at 13:22, Bimetallic said:

In the meantime, you're going to watch those premiums shrink and shrink, such that new ASEs will cost something like $22 even though spot is higher than it was when you paid $27 for ASE (normally, for an ASE price of $22 at the better dealers, like SD Bullion or Silver.com, spot will be around $18.50 or $19).

I tend to agree.  The spot price can increase by 50% and one can buy AE cheaper than what they are being sold now.  This assumes the premium will drop to the normal $2.50 over spot, which I think it will in a couple of months.

[Michal]

9 hours ago, SilverPirate007 said:

I’m going to wait before buying any new silver. The current prices are crazy! 

I said the same about gold, was going to buy 1oz, been offered for 1008 pounds and decide i will wait until it fell under 1000/oz, guess what... it didn't