Silver Bullion Supply Scarce, Premiums High Amid Wall Street Stockpiling

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The United States Mint said it was unable to meet the demand for gold and silver bullion coins in 2020. The supply squeeze persists through the beginning of 2021, according to a Reuters article published Tuesday. Sales of gold bullion coins increased by 258 percent and silver by 28 percent in 2020.

Demand has tracked major shifts in the commodities markets. Gold hit a low of $1451.43 per ounce in the March market crash when the SARS-CoV-2 novel coronavirus pandemic began, before quickly recovering and setting a new all-time high of $2075.28 in August. Gold’s previous all-time high was $1921.07 set in 2011. Silver hit a low of $11.64 per ounce in March, the lowest price the metal has traded at since 2009, before making a new seven-year high in August at $29.86. 

The Mint said that 220,500 gold American Eagle bullion coins were sold in January, a year-over-year increase of 290 percent from 56,500 last year. According to Kitco, 4.7 million ounces of silver American Eagles were sold in January compared to 3.8 million sold in 2020. 

While gold has traded relatively sleepily since August, silver by comparison set a new seven-year high when it briefly swept over US$30 during Monday’s London trading session

The Mint has said that it is redesigning its iconic “American Eagle” bullion coin design with an expected release this summer and noted it is currently facing a “limited number of suppliers of metals.”

National Register of Historic Places in San Francisco, California. Old U.S. Mint, 88 Fifth St., San Francisco, California, USA. Photographed March 1, 2008. (Image: via Wikimedia Commons / CC 4.0)

Metal demand driven by multiple factors

Kitco said Standard Chartered precious metal analyst Suki Cooper attributed the swell in gold buying to the change in guard in the U.S. political landscape: “Gold coin sales tend to be stronger during Democratic administrations rather than Republican.”

As an online retailer of precious metals and a self-described “leading commodities media organization,” Kitco’s global trading Director Peter Hug seemed to pander to the big media narrative, attributing the jump in silver price to Reddit’s WallStreetBets: “Basically, this intent to try to squeeze the [silver] market was… absolutely silly, has now backfired, and now there’s no retail product in the market, and the premiums are right at March levels of last year.”

Over the weekend, several posts on the social marketing platform’s new hottest sub-Reddit called for a pivot away from Gamestop toward silver. However, posts primarily targeted the exchange-traded fund SLV, a BlackRock iShares product.

Yet, according to bullion vendor JMBullion, silver’s price is primarily determined from futures contracts traded on big boy exchanges such as CME Group’s COMEX where minimum contract size is often in the range of 5,000 troy ounces, rather than the retail phone app Robinhood. 

The posited notion that Redditors, who had blown most of their available and very limited capital on Gamestop the trading week before, were responsible for the purchase of tens of millions of dollars in physical silver bullion over the weekend, should be taken with a grain of salt. 

A much more rational explanation for the surge in demand of physical coins is simply price action: silver is still far away from its previous all-time high of $49.82 set in 2011. With the metal trading no lower than $21.66 since the end of July and forming a relative “double bottom” pattern at $21.89 at the end of November, savvy investors are simply seeing a powder keg ready to blow as they hedge their hard-earned fiat gains from recent booms in the stock market in metals amid a very uncertain 2021 geopolitical landscape under the new Biden administration.

Silver supply leads to high premiums, institutional stockpiling

In Canada, bullion vendor CanadianPMX only has 10-ounce and 100-ounce self-branded silver bars for sale, with a premium of $8 CAD per ounce over spot price. They note a four to six week delivery time and are currently completely sold out of silver coins, as well as platinum coins and bars. 

Vendor SilverGoldBull has both Canadian Maple and American Eagle silver coins available for purchase with a 5 to 10 day wait time. However, the current premium over spot is $11 CAD for Canadian Maples and a staggering $12.50 CAD for American Eagles. 

Investing website SeekingAlpha speculates silver will see an explosive rise in price in the coming months, noting that gold is 73 times more expensive than silver despite being only 18.75 times rarer. 

Dane Klocke of West Hills Capital, another precious metals dealer, points out Wall Street behemoth JP Morgan has amassed over 600 million ounces of silver bullion at an average price of US$20 per ounce while suppressing the price of the metal through heavy naked short positions on the futures market. Klocke says the competing short sellers “appear to be mostly foreign banks according to CFTC data” and will be the ones to pay for JP Morgan’s profit once they decide to take the price of their $12 billion stockpile higher. 

Perhaps Bloomberg best explained the reason for a shortage in physical silver: the iShares Silver Trust inflowed $944 million in bullion to its London vault on Friday, Jan. 29 — approximately 35 million ounces at a weekly close of $26.99. 

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