You Think Silver Price Premiums Are Big Now???

September 4, 2015

Premiums on silver over the past weeks have exploded! Generally speaking,  10-25%+ seems to be the norm and anywhere from two - six weeks delay for delivery.  We have talked about the dichotomy between silver being panic "sold" and "shortages" occurring simultaneously.  In a free market, this is an impossibility.

What I'd like to do today is get you to think forward or around the corner.  If premiums exist today in what has been a declining market, what will happen in a rising market?  

 If we look at the move in 1980 when silver traded to $50, what was the backdrop?  There was actually more silver above ground (we still had Manhattan project silver as supply) and the uses were far less than they are today.  Also, the amount of debt, money supply "people" with a living standard high enough to buy silver were much smaller than today.  Debt and money supply have risen maybe tenfold and those with the ability to purchase silver around the world has at least doubled, maybe even tripled.

If there are currently very high premiums for real metal, is this a function of low prices?  The answer is yes and no.  (I am not hedging as you will soon see).  Premiums are a function of real demand being greater than real supply.  The premium has risen presumably because the gap between supply and demand is widening and sellers are less willing to let go of product as the price approaches zero.

Now, what would happen to premiums if the same supply demand dynamics were applied, but rather than the price declining was rising?   In a rising market, buyers will pay a premium out of fear!  This fear will arise not only because other assets are crashing around them but because owners of fiat don't want to be stuck with something worthless.  The other side of the coin, the supply side, will also be a source of fear.  "Fear" of metal going "no offer" (which it will) and having no exit door at all!

  We will very soon see a new currency regimes and even new currencies to replace old and tired ones.  Any new currency MUST have the confidence of the public in order to be accepted.  In my mind, the litmus test as to whether a new currency is accepted is whether or not holders of gold or silver will sell part of their hoard for paper currency.

You may be shocked with the current 25% premiums in silver, don't be.  You might ask yourself "what is the price of silver"?  Is it COMEX/LBMA pricing or is it whatever you must pay to get it into your hands?  You might mistakenly at first quote the paper price.  In the near future you will have no question what the "price" is.  This is an exercise in sharks (Goldman) eating sharks.  In silver, there are no more little fish left and even many of the previous sharks are no more.  The day where those who hold (real silver) and choose not to sell is close at hand.  OWNERS of silver will be the ones pricing it.  You will have no questions as to what the "price" really is.  In fact, the term "discount" will be applied to paper rather than "premium" to physical. 


Holter-Sinclair collaboration

Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.

The symbol for silver ‘AG’ comes from the Latin word ‘agentum’ meaning silver.