The Silent Bull Market

The Silent Bull Market

The Silent Bull Market

Dear friends and valued contacts,

I generally don’t write commentary, however the recent volatility in the metal prices has inspired me. During such turbulent periods, I often find there is a great amount of misunderstanding and misinformation about what is actually happening behind the scenes. Although I cannot provide any greater insight as to what is causing the metal prices to soften or the USD to strengthen, I can share my knowledge with you surrounding the effects these recent price drops have had and will continue to have on the availability of physical product and their premiums.

Gold hit a five year low last week, dipping below $1080 USD an ounce on two occasions. The yellow metal’s recent woes made it front page news for the first time in a long time. The mainstream’s appetite for precious metals, which was already weak, is now almost non-existent.

But behind the scenes, on the lips of metal traders from Long Beach to Montreal, there is a different storyline. Record sales. Product shortages. Increased premiums.

  • US Silver Eagles and Canadian Silver Maple Leafs, two of the world’s most popular bullion products are on very tight allocation from the US and Royal Canadian Mint.
  • A major US wholesaler announced to its customers this week that they may discontinue selling gold Maple Leafs until the situation alleviates itself. They are also requiring retail dealers to pay up front for orders that will be delivered in October. Yes, October.
  • A major retail dealer reported to me that July has been their best month in over 2 years (since April 2013) and there is a still a week of sales left this month.
  • Dillon Gage stated to me in a phone call two weeks ago that they had just experienced their best trading day ever... and the company was founded in 1976. Sales volumes were reported to be 4 or 5 times higher than usual.

The Cause

Mainstream investors, who had already largely abandoned the shiny stuff, continue to flock to the strong US dollar and stock markets. But quietly, gold and silver bugs who had been patiently waiting on the side-lines for the last two years while the gold price hovered between $1200-$1300, have stepped into the market and purchased nearly all the available physical inventory within a matter of weeks.

Combined with lower production levels from the major mints due to lower demand over the past two years, regular physical allocations just can’t match strong investor demand. This doesn’t mean that there isn’t any gold or silver available, or that there is a shortage of metal being pulled out of the ground. It simply means that the mints, whose regular production schedules and allocations are based average demand, have fallen behind quickly and now need to ramp up production (and in a hurry). Based on the information that has been passed my way, we can expect continued product shortages thru August and well into September, perhaps as far out as October.

The Effect

The result will be two part. Part one; product premiums have risen and will continue to rise. The wholesale premium for American Silver Eagles has already gone from $2.10 to $2.80 to as high as $3.05. That represents a 45% premium increase in just over two weeks.

Part two; until the mints ramp up production to match demand, the shelves will be empty. Best selling products such as silver and gold Eagles and Maples are already sold out, or available only in dribbles. Next to go will be any recognized product, such as Johnson Matthey, Perth Mint and PAMP Suisse. Private mints like Sunshine and Scottsdale will plug the holes for a short time, but eventually buyers will be snatching up anything that is left on the shelf.

My Conclusion

I recall a similar time back in 2009 while I was working with Kitco. Demand for physical had been peaking for weeks and we only had two products left in stock after everything else had been sold; 1000 oz silver bars and 400 oz gold bars. Not exactly what I would call the ideal product selection. We’re not there yet, but there is a distinct possibility that these current product shortages could drag on for some time, especially if the US dollar continues to strengthen, further driving down metal prices. Or alternatively, if the US markets experience a severe correction and mainstream investors rush back into the metals in droves, well, then it will be nearly impossible to get your hands on physical product, possibly for as long as six months. You can roll the dice and wait until mint allocations increase (September) and product begins to flow back into the market, but the bet there is that metals prices won’t drop any further and/or the US markets won’t correct. Either way, if you’re able to lock in some physical product at a fair premium now, I recommend you do.


Mark Yaxley

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