U.S. Silver Coin Market: How Big or Small is it from an Insider’s Perspective
The gold and silver markets are somewhat accustomed to large trades, but a recent purchase of $50 million made both insiders and the general public take notice of just how small the U.S. silver coin market really is.
If you haven’t heard about it, you’ll want to read more.
The deal was brokered by Miles Franklin, who is a well-known gold and silver coin & bullion dealer in the industry. We’ll share with you some of the order details, the appetite of the investor for future deals, and the current available inventory in the coin and bullion marketplace to handle such large transactions.
The purchase was made by who is believed to be a Wal-Mart heiress. The timing of the trade appeared to be strategic, as it was before a long holiday weekend. Historically, bank holidays, stock market closures, currency resets, etc. have taken place over a holiday weekend, so clearly, this individual was concerned about protecting her assets from any of these potential scenarios.
The initial order was supposed to be for American silver eagles, which are the most popular 1 oz silver coins in the industry. However, the broker was only able to secure 650,000 silver eagles. While this sounds like a lot, and from a volume perspective, it’s quite substantial, it was less than half of the customer’s order. Keep in mind, that this was the extent of silver eagles that Miles Franklin was able to secure through the wholesale market.
Considering that this likely only accounted for roughly $20 million of the $50 million order, it needed to be supplemented by other items. Another +/- $7 million in junk silver half dollars and silver dollars (presumably Morgan and Peace dollars) were secured as well as $4 million of pre-1933 U.S. gold coins.
Again, this only accounted for $31 million of the $50 million order. Word has it that Franklin has locked up the next $19 million in silver eagles from the U.S. Mint, which will bring this order to a close.
What does this mean for you or the average investor?
While this order is impressive, it isn’t a one-time shake-up of the industry. It’s rumored this is the first of several orders the customer is considering. Not only that, but future orders may be even larger. Plus, she is only interested in U.S. coins, which she perceives as the best option.
So, if she remains committed to only purchasing U.S. coins, she’ll likely run into the same issues experienced with this order, if not worse.
Size of U.S. Silver Coin Market
Granted, other U.S. silver coins are available, such as 90% silver dimes and quarters, as well as additional Morgan and Peace silver dollars, which are light numismatic coins, but it’s incredibly telling that a single $50 million purchase could have such a dramatic impact on the physical silver coin market nationwide.
We acknowledge that not all U.S. silver coins available in the market were acquired to fill this order and that it was limited to the largest wholesalers in the market.
However, they do account for a substantial portion of the physical silver market. It’s difficult to put a number on it, but it’s reasonable to assume that they account for at least 25% of the physical U.S. silver coin holdings in the U.S. Considering the size of the order, likely only wholesalers that were able to fill an order of $1 million or more were involved in the transaction.
Let’s assume that if Miles Franklin reached out to the entire U.S. market, they could have acquired another $75 million in silver eagles and 90% half dollars. Obviously, this would have taken them months to do. We don’t know exactly what percentage of the total purchase the customer limited to semi-numismatic coins, such as Morgan and Peace silver dollars. Nor do we know the exact amount of 90% silver dimes and quarters available in the market, but let’s use a conservative figure and assume that the entire U.S. silver coin market (not including numismatics) is $250 – $300 million.
Again, this might be a bit on the high side. Yet, when put into perspective and considering the total value of other industries, this is a relatively small amount.
Our guess is that the next order placed by this wealthy customer will take an even bigger toll on the U.S. silver coin market, causing a supply shortage and drastically pushing up premiums.
We’re already seeing higher bid prices firsthand in the wholesale market from companies that are trying to restock after selling a considerable amount of their inventory to fill this order. If we see a similar or even larger order placed in the future, we could see premiums double. We’re not suggesting that you should immediately buy everything you can get your hands on but beginning/continuing to invest in silver is something that you should consider sooner than later.
Total Size of the Silver Coin & Bullion Market
It’s important to understand that this order didn’t completely deplete the physical silver market, as it didn’t include foreign silver coins, commonly referred to as “foreign sovereigns” or silver bullion, which is privately produced silver in the form of bars and rounds.
Bill Holter, a precious metals broker, who works with Miles Franklin and who was involved in the placement of the order, believes the value of the entire silver market in the U.S. is approximately $1 billion.
Again, $1 billion is a substantial amount of money, but when you compare the size of the physical silver market to the market cap of stocks, bonds, and cryptocurrencies, it’s a drop in the bucket.
The crazy thing about all of this is when you consider the above info, it really would be quite easy for a billionaire to corner the physical silver market, much like the Hunt Brothers did in 1980. Some speculate the price of silver increased from $5 an ounce to $50 an ounce during this time as a result. Though the actual catalyst for the sudden spike is debated still to this day, what we do know for certain is that many investors benefited.
In fact, we have a customer who cashed out his silver while the price was at the top of the market. In doing so, he received enough money to buy a house in New York and an engagement ring for his soon-to-be wife! This was all accomplished by making a very modest investment of $1 a week in silver coins beginning in 1965 till the drastic spike in 1980. Now that’s a nice return on your investment.
Ever hear of COMEX or Commodity Exchange Inc? It is the primary futures and options market that serves as the main exchange for silver and gold futures. Those futures are then traded on the stock market via paper contracts. According to CME Group, the group that manages all derivative contracts, has stated that there are more than 400,000 futures and options contracts executed on COMEX daily making it the most liquid metals exchange in the world.
You might be wondering why the COMEX market appears to be so large if only $1 billion of physical silver is available in the U.S.?
It’s because of the speculative nature of these contracts (also known as derivatives) or leverage. This simply means that there’s not enough physical silver on hand to satisfy all silver futures contracts should they all be “cashed in” at once. In fact, all it would take would be for a few large holders of silver futures contracts to request settlement in the form of physical silver versus dollars and the entire market would implode. Something like this would certainly cause a significant price increase very quickly, also known as a parabolic move, in the price of silver.
This simply re-emphasizes how little physical silver is readily accessible even now.
Mining Costs & Availability of Silver
Something else to consider when talking about silver availability is the All-in Sustaining Cost or AISC.
The AISC takes into account all the varying costs incurred in gold or silver production over the mine’s life cycle. A recent article from Seeking Alpha reveals that the AISC of the top 15 silver miners that comprise the Global X Silver Miners ETF (ticker: SIL) was $15.08 during the first quarter of 2022.
This means it is costing miners $15.08 per ounce simply to mine the silver from the ground. Now, taking this into consideration, this price is not too far off from the current spot price of silver.
Plus, their costs to mine the silver is likely to increase because of the current reported inflation rate of more than 9%. This will likely continue to put pressure on the overall cost of mining, which includes land acquisition costs, permits, labor, fuel, and equipment, just to name a few. If we assume that inflation will affect the mining industry the same way it has affected other industries, we may be looking at an AISC approaching $17 an ounce by this time next year.
Some individuals believe the price of silver will fall to as low as $7.
Now that we know what it costs to pull the silver from the ground, this is not only unrealistic but unlikely to ever happen. Here’s why.
First, if silver miners can’t mine at a profit, they will stop mining and will close their mines, at least temporarily.
Thirdly, even if investor demand wanes, the use of silver for industrial uses is widespread and will likely continue. Lastly, governments around the world are pushing a renewable energy agenda, including the current administration in the U.S., which means that we’ll likely see an increase in the use and production of solar panels, which rely heavily on silver.
Factoring all the above with the limited amount of physical silver available, it makes sense to begin acquiring silver, if you’ve yet to do so or add to your current holdings until you feel comfortable with your total investment. If you’re waiting for the price of silver to plunge before making an investment, you might be surprised to find that there isn’t any physical silver available to purchase.
We’ve seen this scenario play out several times over the years. In nearly all the cases, we were completely out of stock of silver coins and bullion and couldn’t acquire more at any price, as there was none to be had in the industry.
Circling back to our original story, the investor we mentioned earlier is expected to make at least one more large U.S. silver coin purchase this year. Once again, it’s likely the timing will be as strategic the next round as it was with her first purchase and will take place prior to a holiday weekend. Such transactions can be seen as big billboard signs that a change is coming and that even the top 1% are moving their investments around.
There is a multitude of reasons, including concerns about a bank bail-in, as we saw in Cyprus a few years back, or the conversion of holdings to a central bank digital currency (CBDC). In fact, many of our customers are concerned with the latter. They’re concerned with limitations as to where and how they may be able to spend their money, including potential spending limits. With that said, having some money outside of the system, even in physical cash, is probably not a bad idea in addition to precious metals.
Instead of wrapping this up with our standard summary, we thought it would be more helpful to leave you with actionable steps you can take to secure your own investment in physical silver.
Any type of silver is fine be it actual coins or bullion, as long as they are outside derivative investments such as ETFs and/or mutual funds. The important thing is that you purchase physical silver that you also have quick and easy access to.
If you live in the United States and plan on staying here, investing in U.S. silver coins makes sense. These are the most liquid and most traded coins in the industry. The more popular U.S. silver coins are the 1 oz American silver eagles, 90% silver dimes, quarters, and half dollars issued in 1964 and earlier and U.S. silver dollars issued in 1935 and earlier. However, other silver coin and bullion options, such as Canadian silver maples, Austrian silver philharmonics, and silver bullion from well-known and recognized manufacturers like Johnson Matthey, are also a good choice.
While we don’t have $50 million of silver available in inventory, we do have a decent stock of various U.S., foreign, and privately produced silver coins and bullion.
As a leading silver coin and bullion dealer, we have the knowledge and expertise to discuss your various options and help you determine what may be best suited for your unique situation.
We look forward to hearing from you and earning your business.
Happy Treasure Hunting!