Most of the past five years in the retail bullion markets were a sellers’ market. Buyers faced hefty premiums and demand outstripped supply.
Over the past few months, that dynamic turned 180 degrees in the U.S. retail market.
A whole lot more people are inclined either to sell the metal that they have – or simply hold.
Ask premiums – the amount buyers pay in addition to the metal value for coins, rounds, and smaller bars – are at the lowest levels in years.
That is good news for buyers, but lower premiums aren’t the only reason that now could be a good time to buy.
The market is showing some tightness where it really matters in terms of metal prices. There aren’t enough COMEX deliverable bars at the moment, at least not inside the U.S. The potential for a short squeeze exists, driving spot prices higher.
Over the past week, the premium for “registered” bars in a COMEX vault has ranged from 50 cents to a dollar per ounce for silver. At the same time, premiums for deliverable gold bars made a big move higher, topping $40 per ounce.
So far, these premiums haven’t shown up in the retail physical market. They are primarily being paid by shorts who have to deliver actual metal in Comex deliverable bar form.
The difference between COMEX futures prices and the price of physical metal will eventually either push spot prices higher or futures prices lower as arbitrageurs play the spread.
Readers may remember the “Silver Squeeze” in 2021. It was a grassroots effort by retail investors to create a short squeeze in the futures markets and force prices higher.
While the effort was certainly successful in driving demand for retail bullion products, it did not drive futures higher. Thousand-ounce silver bars and kilo gold bars remained plentiful and the market price never really took off.
The current situation is different. The shortage in COMEX bar inventory available for delivery is having an impact behind the scenes and may soon burst into the public markets.
The trigger for the recent events is tariffs. President Trump is expected to levy tariffs on a variety of imports, including potentially precious metals. This threat has caused a global scramble to get gold and silver inside the United States before any tariffs take effect.
Vault inventories in London and elsewhere are not exactly plentiful. They’ve actually been declining for years.
A lot of the reported London inventory is allocated to gold and silver exchange traded fund (ETF) holdings. Some of what remains is held in “strong hands” – owned by investors who aren’t willing to sell at all, or who are holding out for much higher prices. It isn’t clear how much of a “free float” of bars is available for export.
There is also a supply deficit in silver. While mine output for gold has risen recently, silver production is expected to decline and remains 200 million ounces short of annual demand.
Producers have yet to respond to somewhat higher prices with more production. That means traders who need physical silver to cover a short position won’t be the only ones bidding for the available above-ground supply.
For anyone planning to buy physical gold or silver, now could be the best opportunity in years. Considering premiums by themselves, it definitely is.
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