Retail Silver Premiums – The Candle Blowing In The Wind

July 17, 2015

Despite the continued technical, paper induced bias to the downside, recent news that the US Mint has stopped silver eagle production is once again is being singled as the likely cause for the premium surges now being observed across all physical silver retail products.

Is this true physical demand bleeding through the paper charade?

The bullion retail trade is a thin margin business to begin with.

While difficult to verify, it is possible that some of this surge in premium is coming from dealers protecting thin margins. It would be somewhat of a natural business strategy.

Dealers may have simply decided to take advantage of the available mint production as it came back online and stock up while they could.

The last four years of downward price action came with massive physical off take. And yet premiums are just now beginning to rise.

As Ted Butler has pointed out – with no convincing opposition – that most of this off take came from JP Morgan. They’ve been in free-range control of price direction, allowing them to accumulate at ever lower prices.

What else would account for flat overall retail demand as generally reported across the retail industry?

Certainly, the majority of those reading this are bullish. But we are a very small group by all comparisons.

New physical silver investment demand comes with all manner of psychological barriers. For the “everyman” waking up to this from the “mainstream trader’s landscape”, silver price is the often the first and only easily verifiable indicator.

When considering the available above ground investment-grade supply relative to the constant flow of investment and fabrication demand – against the backdrop of a purely naked paper derived price – the depth of undervaluation is often overwhelmingly good to be true.

Because of widespread just in time delivery, the true state of available physical inventory — the flow of ‘good-delivery’ bar form used for fabrication is always on the silent edge – on the verge of panic.

While it’s always interesting to see the retail premium fill some of the artificially induced price delta -it’s nothing in the context of where we ought to be.

While the lows of 2008 created similar pressure on supply and retail premiums, price suppression has created silver virtual reality.

Alas, retail demand continues to be driven by the illusion of price.

True demand, given actual supply would be an entirely different character. We are probably seeing a flicker of that with this surge in premium.

Price analysis must start with trade positioning.

The managed money trader category is the engulfer.

This could be the bigger the issue -as this category has hit all-time highs — and represents the final disconnect — if it’s even possible to stretch the imagination even further…


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Silver has 47 protons and 61 neutrons

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