Precious Metals

Demand for bullion products forces retailers to suspend some silver sales

The spike in market demand for silver at the close of January is related, according to some market observers, to retail traders in the Reddit forum Wall Street Bets, although some users deny the claims.

Image courtesy of InvestorCrate.com.

The explosion in the market demand for silver at the close of January, purportedly tied to a recent frenzy in retail trading in heavily shorted stocks like GameStop over the Reddit forum WallStreetBets, forced some major retailers in the precious metal to suspend sales amid concerns they would be unable to fill orders. However, CNN Business reports that users on WallStreetBets say they’re not behind the rally in silver.

The closing London PM spot price per troy ounce of silver ended Jan. 29 at $27.42, closing nearly 8% higher Feb. 1 at $29.59, before ending Feb. 2 at $27.33. Many buyers switched to selling, triggering a decline in the metal’s price.

APMEX, one of the world’s largest online retailers of precious metals and an authorized purchaser of U.S. Mint bullion products, informed customers about its sales suspension for silver products via email Jan. 31.

“Any precious metal dealer will take a long position in the futures market to protect against spot price exposure when the markets open,” APMEX CEO Ken Lewis said in his email notice. “We do this because it is our goal not to take a speculative position on metal. The weekends are unique as we are not able to real-time hedge our position. We took an aggressive position this weekend, but clearly could not have predicted the volumes that were seen.

“We have partnerships around the world that allowed us to cover these long positions, but only to a point. Once we exceeded our comfort levels, we had little choice but to stop the sale of Silver on our website. This was a difficult decision to make and unprecedented in our history.”

Lewis explained the silver market surge and how it affected APMEX.

“In the last week, we have seen a dramatic shift in Silver demand from our customers,” Lewis said. “For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week.

“Once markets closed on Friday, we saw demand hit as much as six times a typical business day and more than 12 times a normal weekend day.

“Combined with the extremely high demand levels, we are also seeing a surge in new customers. On Saturday alone, we added as many new customers as we usually add in a week.”

Lewis says it’s difficult to predict where the market is going in the coming weeks.

“APMEX is highly capitalized and has more than $150 million in inventory to support demand.” Lewis says. “We have made strategic decisions to procure additional metal, locking up any metal we can find in the market place.

“We suspect premiums will rise and rise quickly, as we are seeing significant increases in our costs, when we can even locate the metal. It is also highly likely that we will need an additional day or two to fill orders based on current order counts.

“The one guarantee we can make to our customers is that you will only be sold metal that is on-site, or we have procured the metal with a firm commitment date from our partners. In markets like this, we feel this is the best approach a retailer can take, as no one can predict product availability.”

Precious metals market watchers indicate there is no shortage of silver in the U.S., only silver that has been made into investment products, such as 1-ounce silver rounds, coins and bars, and 5- and 10-ounce bars.

World mints that produce silver investment bullion coins are being challenged to meet the demand with securing metal for processing into the necessary planchets for production.

The U.S. Mint, which produces its American Eagle silver bullion coins primarily at the West Point Mint, is that production with 2021 coins also being produced at the Philadelphia and San Francisco Mints, none Mint marked.

Secondary market retailers of silver bullion investment products are reporting delivery delays of 10 days to two weeks or more after orders are processed, and some are reporting difficulty in securing needed inventory.

Premiums increasing

Donald Herres, a secondary market retailer in precious metals products from Dollartowne in Bellbrook, Ohio, says he’s been challenged to secure and deliver the silver bullion products his customers are seeking.

Herres told Coin World Feb. 2 he was still awaiting delivery of American Eagle silver bullion coins ordered from a supplier earlier in January.

Herres said orders were being placed for thousands of ounces in silver coins, rounds and bars starting Jan. 29 and escalating over the weekend. He said one customer placed an order late Jan. 31 for 100 100-ounce .999 fine silver bars, for a total order of 10,000 ounces.

When the U.S. Mint sells its coins to its authorized purchasers approved to buy the American Eagle silver bullion coins, the minimum orders are usually 1,000 ounces, supplied in “monster” boxes of 500-coins housed in 25 20-coin tubes. The acquisition cost is the closing London P.M. spot price per troy ounce on a given day plus a premium of $2.25 per coin.

The coins are then resold to other dealers, collectors and investors, with small premiums added at each sales level, depending on demand.

Herres said Feb. 2 that the dealer to dealer premium on the 500-coin monster boxes was $4,000 or $8 per coin over spot.

For silver rounds, premiums were running $4 over spot, and for 100-ounce bars, from $3 to $4 an ounce above the spot price.

Silver supply and demand

The Silver Institute, working in conjunction with the precious metals consultancy, Metals Focus, reports that total silver supply in 2020 reached 978.1 million troy ounces, down 4% from 2019.

Total 2020 demand dropped 3% to 963.4 million ounces, with net physical investment increasing 16% to 2,015.8 million ounces.

Total net investment in exchange-traded silver products climbed 47% in 2020 to 120 million ounces.

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