Asset repricing is in full swing as uncertainty push Treasuries higher, and stocks lower. In this environment, precious metals are getting crushed - it's not the type of "uncertainty" that bodes well for metals. Yet, there's an interesting situation playing out in the silver markets, as the spot price of "poor man's gold" has fallen 34% since topping out at $18.99/ounce on February 24th. Currently trading at $12.57 as I write this, that's an 11-year low that occurred during the 2008/2009 market meltdown.
Seems like it could be an interesting entry point, especially if you believe that the "correction" in the spot price has gone too far to the downside. However, if its physical silver you wish to purchase, good luck finding it anywhere near the spot price. At two renowned precious metals dealers I surveyed this morning, physical silver is selling at massive premiums to the spot price.
What is known as "junk silver", primarily 90% pure silver coins minted in the U.S. prior to 1965, with no numismatic value, can be had for about $20.62/an ounce ($1475 for a $100 face value bag of junk silver which contains 71.5 ounces of silver). That's a premium of nearly $8, or a whopping 63% above silver's current spot price. One-ounce Silver American Eagle coins have even higher spreads to the spot price, in lower quantities it can be $12/ounce, a 95% premium to spot.
Business is brisk and inventories are low or empty, as consumers clamor for physical metal they can hold in their hand. I've never seen premiums this high, which is an indicator of the fear that is so prevalent. Silver is especially popular because it can be purchased in very small increments. In the doomsday scenario, silver coins dime, quarters, half dollars, silver dollars (and even nickels minted between 1942 and 1945, which contained 35% silver) are small enough that they could be exchanged for smaller goods. That's one of the draws here, but the disconnect between the spot price and physical silver is astounding.
There are other ways to get exposure to silver. The iShares Silver Trust (SLV) , for instance, somewhat closely tracks the price of an ounce of silver. While the Trust does hold physical silver, it has continued to follow the spot price lower.
Clearly, there's a huge disconnect between the price of spot silver and physical silver, the latter in high demand as fear runs rampant. It's a good representation of the old adage "a bird in the hand is worth two in the bush". When the fear subsides, however, I'd expect the premium over spot to decline sharply, and the price of spot silver to rise, closing the gap between the two. When that could happen is up in the air, however.
