Silver bullion in demand in many forms worldwide
- Published: Nov 13, 2015, 3 AM
When collectors search for their silver lining, a multitude of product choices awaits them, as well as a variety of sources and ways to hold their investment.
Silver bullion is marketed in many widely differing sizes, from wafers measured in grams to investment bars measuring 1,000 troy ounces. Most commonly found are those in a 1-ounce size, be they government-issued bullion coins or privately issued rounds or bars.
Getting finished collector- and investment-quality silver products to consumers who demand them is no easy task.
Mining and refining
The metal is extracted in mining operations. It may be sent to a refinery like Johnson Matthey (which has facilities in the United Kingdom and the United States) for initial or final processing. Or in some cases, ore may be refined onsite, usually rendered into bar form, then shipped to customers who convert the silver bar into a different finished product.
The silver may come in the form of a doré bar.
A doré bar is composed of a semi-pure alloy of gold and silver and is usually created at the site of a mine. Doré bars are usually transported to another refinery for further purification. Proportions of silver and gold can vary widely among doré bars, and the bars can weigh as much as 25 kilograms.
Refined silver bars may make some intermediary stops along the way before their content is offered to consumers; many are converted into planchets for striking into coins, rounds or smaller bars.
Many government and private mints have their own planchet-production operations: the Perth Mint in Australia, Royal Canadian Mint, Royal Mint in Great Britain and the Muenze Oesterreich (Austrian Mint) are examples.
The United States Mint, however, does not, and so must rely on contracted vendors to supply the planchets necessary for producing the world’s most popular silver bullion coin — the 1-ounce American Eagle.
Selling the product
Selling the product into the market is a multi-tiered process. The United States Mint, like most world mints that offer a silver bullion coin, operates a one-way market, selling to a 12-firm cadre of approved buyers, including APMEX in Oklahoma and Dillon Gage in Texas, that are called authorized purchasers. These firms buy the coins directly from the Mint (paying a small premium above the daily market price of the metal) for resale to collectors and other dealers.
The U.S. Mint’s authorized purchasers must place minimum orders of 25,000 American Eagle silver bullion coins. The price they pay is the closing London PM spot price per troy ounce on a given day plus a premium of $2 per coin.
“The premium is developed by determining the full cost of the program and setting a premium that covers those costs,” according to Mint spokesman Michael White. “The premium is looked at annually and adjusted when needed to ensure costs are covered.”
Dealers who buy from an authorized purchasers may then resell the product to their customers.
A premium is tacked on at each level of sales transaction to enable the firms involved to profit; an investors should not expect to be able to pay $15 for a 1-ounce coin when the price of silver is $15 an ounce, as at each level of sales, the seller has added a premium.
The secondary market premiums also change based on demand and availability of product.
Authorized purchasers offer something most mints cannot — a two-way market in the silver bullion issues. These purchasers have the financial capacity to allow them to buy back a coin they sold to you earlier, though at a market price that, again, will allow them to profit.
A few government mints, like The Perth Mint, RCM and Royal Mint, also offer a two-way market, allowing customers to both buy the bullion products directly from the mint and sell them back at a future date, albeit likely at a different price level.
Some private entities, such as Sunshine Minting in Idaho and SilverTowne in Indiana, are involved in the silver bullion arena in more than one capacity. Sunshine Minting is not only the primary supplier to the U.S. Mint of finished silver planchets for American Eagles, but the firm also produces and markets silver bullion products under its own hallmark, and it sells other bullion-related products in silver and other precious metals.
SilverTowne buys and sells silver bullion products of most world mints in addition to producing its own hallmarked silver bullion products at its own minting facilities. It also produces and sells other bullion pieces in a variety of metals.
Silver At the U.S. Mint
The U.S. Mint sold a record 44,006,000 American Eagle silver bullion coins in calendar year 2014. So far in 2015, through Nov. 9, the Mint recorded sales of 41,938,500 of these coins.
The U.S. Mint purchases silver on the open market through a number of qualified vendors, according to White.
“For the American Eagle bullion coin program, the United States Mint purchases silver on the open market and then immediately hedges it,” White said.
Silver purchased by the U.S. Mint, according to White, must conform to the following specifications to qualify as “good delivery”:
??Delivery form shall be bar or plate.
??The weight permitted is 1,000 troy ounces plus or minus 50 troy ounces.
??The purity shall be at least 99.9 percent fine silver.
??Each bar must bear the following: 1) the producer’s recognized mark; 2) the letters AG or SILVER with a stamp indicating the purity; 3) an individual number or mark; 4) the weight in gross troy ounces.
??Chemical content is in accordance with specific international industry-recognized standards or better.
“The silver is delivered directly to the fabricator for processing into blanks to be returned to the Mint for striking into coins,” according to White.
Market organizations in other countries also help determine acceptable composition and quality standards. For example, according to the London Bullion Market Association, “Only refiners whose bars have been accredited by the LBMA as meeting the minimum standards for trading on the London market appear in the Good Delivery List.”
Both Dillon Gage and APMEX, in addition to being authorized purchasers for U.S. Mint silver bullion products, also trade extensively in bullion products of many other world mints and private manufacturers.
According to Terry Hanlon, president of Dillon Gage Metals and immediate past president of the Professional Numismatists Guild, Dillon Gage is a distributor for all the major sovereign mints.
“We make markets in over 2,000 different gold, silver, platinum and palladium bullion coins and/or bars from these mints and other world mints,” Hanlon says. “We maintain inventory in over 30 locations around the world. We are wholesale dealers so we make markets to dealers. Pricing is based upon the cost from the mints, the handling, shipping and carrying cost and finally on availability of product.
“Dealers must submit applications to qualify as such before we do business with them. They are then vetted and trading lines are established after they are verified and checked out.
“As you know, we do have 2 depositories, a refinery and we deal in diamonds and Swiss watches.
“We also deal in numismatic coins as in rare coins, primarily U.S. gold, silver dollars, U.S. rare coins, etc. as well as modern day numismatics.”
APMEX, an online marketer of precious metals bullion products, offers a two-way market in the products it sells.
The firm’s silver products include APMEX-hallmarked pieces in addition to bullion coins issued by the United States, Great Britain, Australia, and Austria, among others.
Buy more, spend less
As is the case with many wholesale and retail transactions, purchasing more units of an individual product results in a lower per unit cost.
APMEX offers different levels of volume pricing — say, in the case of silver American Eagles, 1 to 19 coins; 20 to 99 coins; 100 to 499 coins; and 500 or more coins.
Payment by bank check or wire transfer will elicit a lower purchase cost than if paying by credit card or Paypal.
While some investors prefer to take personal possession of the bullion they purchase, other options are available from some firms that will store your physical bullion for you.
For example, Citadel Global Depository Services Inc. is a wholly owned subsidiary of APMEX that provides security storage for precious metals. The storage facility is managed by Brink’s.
World mints offering silver bullion issues share similar experiences with other mints.
“The Austrian Mint produces blanks itself and our only difficulty is estimating demand for the upcoming months,” says Andrea Lang, the Austrian Mint’s director of marketing and sales. “At times when the market jumps unexpectedly we struggle, like everyone else, to speed up production, but the market is unpredictable, so there is little we can do about that.
Lang says the Austrian Mint sources silver from the open market, and has not had any difficulty thus far in obtaining the metal.
“We sell coins to the public through our webshop and outlets in Austria, but mainly through dealers,” Lang said. “Our premium has not changed since we introduced the Vienna Philharmonic in silver and is a competitive premium. We believe that the industry should allow its players to make money while supplying products to the end consumer at a fair price. Thus our premium remains stable despite fluctuations in demand.”
The Perth Mint conducts a two-way market in the precious metals bullion products it sells in gold, silver, platinum and palladium in various sizes and weights. Investors and collectors can buy the bullion issues directly from the mint.
Perth Mint’s .999 fine silver products range in weight from a half ounce to 10 kilograms.
From the Royal Canadian Mint, primary among silver bullion options is the Maple Leaf 1-ounce .9999 fine silver bullion coin.
The RCM in recent years has taken steps to combat any possible counterfeiting of its products.
According to the RCM, “Every die used to produce the Gold and Silver Maple Leaf coins is laser micro-engraved with an anti-counterfeiting security mark: a textured maple leaf. Our registration process — digital non-destructive activation (DNA) technology — captures images encrypted with a string of code, and stores these in our secure database.
“Using the specialised device, approved Bullion DNA dealers can easily verify the authenticity of registered Gold and Silver Maple Leaf bullion coins.”
Britain’s Royal Mint conducts business online directly for buying and selling its bullion products.
Bullion buyers may store their bullion purchases for a fee in the Royal Mint’s vault dedicated for that purpose.
The Royal Mint’s silver bullion options include the 1-ounce Britannia and other bullion bars in various sizes.
Privately held companies like PAMP SA, whose products are widely bought and sold worldwide, are also participants in the bullion investment market to consumers.
PAMP, the acronym for Produits Artistiques Métaux Précieux, is a world leading, independently operated, precious metals refining and fabricating company, headquartered in Switzerland.
Established in the late 1970s as a minting facility of bars weighing less than 100 grams, PAMP has expanded its production lineup to include bullion bars from 1 gram to 12.5 kilograms.
PAMP bars are accepted as “Good Delivery” worldwide.
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