Silver's 9% run-up from about $27.01 on Friday to Monday's $29.49 close has been viewed as another small retail investor inspired-event, and has been big news. On the surface, that move however, has been short-lived, as silver pulled back to $26.60 yesterday, below where it traded at several points during 2020. However, that is only part of the story. As usual, the spot price of the metal does not tell the entire tale.
Back in March, as the pandemic was taking hold, I'd noticed that the spot price of silver was tanking, yet the price for physical silver (junk silver, which primarily 90% pure silver coins minted in the U.S. prior to 1965, with no numismatic value) was not. In fact, the premium for physical silver was huge. At the time, the spot price was in the $12.50 area, while physical silver would cost you about $20.62/ounce, a whopping 63% premium. Demand for physical silver was high - it can be in times of uncertainty - and I presumed that over time, the spread between the spot and physical price would narrow, which it did.
The price of spot silver, in fact, recovered in a big way, rising from $11.90 on March 18th to $29.25 on August 10th. By May, with silver at $17.50, an ounce of junk silver commanded $22.50, a 28% premium, still large by historical standards, but nowhere near March levels. By August, with spot silver around $26/ounce, the premium for junk silver was about 15%.
Fast forward to this past week's action, and the premium for physical silver is back up. A $100 bag of silver dimes or quarters, which contains 71.5 ounces of silver, will cost you about $2870, or just over $40/ounce. That's a 48% premium to the current spot price ($27.16 as I write this). It's also the highest price I recall for junk silver, at least dating back to 2011 when the spot price rose to more than $47.
If anything, this action in silver is not the 1980-era market cornering by the Hunt Brothers, which drove silver to $49/ounce, the equivalent of more than $160/ounce adjusted for inflation. This is a time of great uncertainty, scary amounts of government spending, and a $28 trillion national debt. That, in my view, for the most part, is what is driving folks to buy physical metals.
Silver's run-up on Monday was seen as monumental, at least in the eyes of those who have not regularly been following the markets.