Silver Coin Premiums Wane Even in the Midst of Declining Silver Prices: Now May Be the Time to Buy!

Silver Coins
90% Silver Coins

For those individuals that closely follow the silver coin and bullion market, you’re probably aware that silver coin premiums reached historically high levels at the end of April and into the beginning of May.  New supply was essentially non-existent, and coin dealers that received new inventory were asking ridiculous prices; oftentimes receiving them.  While all silver coins and bullion were in high demand, American silver eagles and pre-1965 90% U.S. silver coins, in particular, were the most sought after silver coins.

While silver prices have bounced back slightly since the sharp sell-off in early April, we’re still well off the levels that we were at in March.  Even though silver coins remain in very high demand, we’re beginning to see new inventory come to market, and subsequently, a slight reduction in premiums.  American silver eagles are now selling within $1 – $2 of their historic premium, while 90% silver coins are still 7% – 10% higher than what we’ve seen in the past.

It oftentimes takes time for the coin and bullion market to stabilize after a sharp correction and that appears to be what we’re seeing in this case.  Coin dealers are beginning to realize that we’re not likely going to see a surge in silver prices in the near future, and have adjusted their expectations appropriately.  Of course, since the coin and bullion industry is a free market, just like any other market, eventually supply and demand will align.

Since silver is a commodity, first and foremost, demand and subsequently price will ultimately be affected by the need for silver for industrial purposes.  While we’ve seen ever so slightly better economic news in the U.S. as of late, Japan appears to be in a recession, most of Southern Europe is in a recession, and China’s slowdown is much more substantial than originally believed.  Since we live in a global economy, it’s not surprising to see a reduction in the price of silver worldwide.

At the moment, central banks around the world are inflating their respective currencies in hopes of stimulating economic growth.  Typically an increase in the monetary base results in an increase in monetary supply, which leads to higher inflation rates.  However, at the moment, most banks are refusing to lend due to concerns about future economic prospects.  The reduced amount of lending has kept inflation at bay, but if lenders sense that we’re on our way to a sustained recovery, their confidence will increase, and higher levels of lending will begin once again, likely resulting in higher inflation rates.

Silver, and in particular, silver coins have historically been an excellent hedge against inflation and financial crises, which bodes well for the long term performance of silver.  If we continue with our recovery and banks respond accordingly with an increase in lending activity, we’ll likely see a strong performance in the price of silver due to higher inflation rates.  However, if the opposite occurs and we slip back into a recession, silver will still likely outperform stocks due to accommodative monetary policies and investors seeking a safe haven or flight to quality.

Typically silver coin and bullion premiums are less during periods of strong performance in the silver market, so we should begin to see premiums decrease as silver prices rise; however, this also means that you’ll be paying higher prices for silver coins in the future.  Now may be an excellent time to buy silver coins with prices at suppressed levels and premiums beginning to wane.  If you’ve been waiting for the right time to jump into the silver coin market, you may have a limited window of opportunity, so don’t miss out on the great opportunities that are available at the moment.

Tony Davis
Tony Davis