Monday, July 20, 2015

Silver is Down - Don't Buy Silver?

Not me.  Not now. 

I believe in dollar cost averaging and just getting a set dollar amount on a regular schedule.  But not tonight.  I went to the usual dealers I go to.  The spot price for silver as I write this is $14.70.  The price at Apmex right now for their cheapest 90% silver, also called junk silver, coins is $5.86/oz over spot, a 39.7% markup.  Most of the other grades are $6.34/oz over spot, a 43.1% markup.  Silver eagles from the US mint are in the range of $4.45/oz over spot in small quantities; in large quantities, they're $3.33/oz. over. 

A divergence between the price of physical metal and the paper price we get from those spot price numbers (like the one just to the right of this column) usually indicates a disconnect between the amount of metal actually available and demand.  Good luck getting it for any price closer to the normal.  The companies that hold the coins figure the price will be higher in a few weeks or so, and they can sell the coins then.  For now, if you want to pay a 43% markup, they'll take your money.  I personally don't see any sense in buying at a 43% markup, even though I pay the same amount of Federal Reserve Notes at some time in the future and get the same ounce of silver only with a smaller markup.  I fully admit that may not be rational!

There's always some difference between the spot price and the physical metal price.  You could say that spot is a theoretical number based on pure metal with no processing involved, but in reality it's the price of hypothetical silver in a paper trade.  It's a regular occurrence that more paper is traded on a given day than all the silver in the world.  If anyone called the bets on those days, there wouldn't be enough silver to back the paper. 

Do I think it's all unraveling?  Most likely not, although a serious disconnect between the spot price and the hold-it-in-your-hand price is often thought of as a warning sign.  There's a famous saying that "markets can remain irrational longer than you can remain solvent" and that seems to me to be what's going on.


  1. In your opinion, who has the best prices?

    The place I usually buy from has rolls of 20 silver Eagles for $430, and rolls of Franklin halves for $199.

  2. I'm by no means an expert, but Gainesville Coins is usually pretty good, and a little better than Apmex, who is a little better than Kitco.

    Right now, a tube of 20 Silver Eagles, the kind you get in a treasury direct box, is $372.20, or $384.11 if you pay with a credit card.

  3. Wow....that's quite a bit better than who I've been buying from.

    Thanks, I'll check them out!

  4. I've had good experience with Gainesville and Apmex.
    I was thinking about buying more from Apmex lest week, but I did the same calculation as you did. If you have a local coin shop who carries bullion, it is worth checking - my local shop has a roll of silver dines for $75 and if you ask nicely you can get it for less.
    I find it interesting to note that premiums of fractional gold are much less, and in some cases platinum and palladium have tiny premiums; I've been thinking about getting some of them and saw premiums of 1 to 2%. I haven't gotten any yet because of their rarity and less recognized nature.

  5. I've had good luck - so far - with Westminster Mint. They are currently selling for $1.09 over spot for silver rounds ($0.99 in quantities greater than 20).


  7. Sorry, I missed Graybeard quoting Silver Eagles. They are about $3.85 over spot at Westminster:

  8. Thanks for all the tips, everybody!

    Looks like I'll be able to "shop smarter" from now on!