What Caused the Collapse in Gold & Silver Prices & How Has This Affected the Coin Market?

If you keep close tabs on the gold and silver market, you’ve probably noticed that we’ve had a considerable pullback in prices over the past week. In fact, many people are referring to it as a collapse in the precious metals market, but that may be a bit overstated, as it appears as though prices have stabilized and are slowly on the way back up. The purpose of this article is to provide a brief explanation of what caused prices to decline and how that translates, specifically, to the gold and silver coin market.

The gold market experienced a “perfect storm” over the past week. Several factors came into play that resulted in a considerable pullback. First, and foremost, was Goldman Sachs’ “sell” recommendation and their 2013 end of year forecast of $1,350 per ounce. This was followed shortly thereafter by confidence that the Cyprus bailout was going to be larger than expected, which calmed the equity markets. However, since there was speculation that Cyprus would have to sell a portion of their gold holdings to partially fund the bailouts, there was concern that other indebted nations, namely Portugal, Spain, Ireland and Italy would also be forced to sell their gold as well. Front runners likely speculated that net selling by countries would result in a drop in price, and began selling ahead of the curve.

90% Silver Coins
90% Silver Coins

While there were certainly other factors at play, the above is a brief description of the fundamental factors that resulted in the pullback of gold. However, this is only half the story, as there were also a number of technical factors that resulted in a steep selloff in the price of gold and silver. Gold and silver typically trade within a certain range or band. When factors result in the trading band being breached, algorithms of highly sophisticated trading systems are triggered which results in automatic buying or selling. Since the trading range was broken on the downside, a number of shorts and margin calls were triggered, which resulted in a sharp sell-off. However, it should be noted that the spot price in the futures market isn’t always indicative of market fundamentals or the demand for physical bullion, which we’re currently seeing in the gold and silver coin market.

The premiums for silver coins, especially 90% silver coins minted in 1964 or earlier, are the highest they’ve been since 2008 – 2009. The market has dried up for these coins, and current demand far exceeds any available supply in the marketplace. We’re also seeing higher than normal premiums for American silver eagles, but at the moment, premiums for 90% junk silver coins are outpacing silver eagles for the first time in recent memory.

The gold coin market is also currently seeing higher than normal premiums. In fact, many coin dealers have reduced the number of gold coins that they’re willing to sell at current prices, or are only willing to sell to regular customers at current levels. In fact, at least one national coin dealer announced on Monday that they were temporarily suspending all gold coin sales. To our knowledge, they have since resumed their normal operations.

At the time of this article, gold and silver prices are on their way up, which means that we should begin seeing premiums normalize. Typically, higher prices help to loosen a tight market, resulting in new product being brought to market, but we expect that demand will continue to outstrip supply in the near term.

Tony Davis
Tony Davis