Update (1345ET): The shortage of physical silver is exposing a tear in the precious metals market unlike any we have seen before.
As we detailed below, various executives from bullion dealers have explained that huge demand has left them with no supply (and no source) for physical silver.
And while silver futures prices (paper silver) have 'stabilized' modestly during the day...
Physical silver prices remain at extremes...
And, as the chart below indicates, that massive premium is unprecedented...
Simply put, the establishment can print all the paper silver it wants, but there is no physical supply... and that likely ends badly for those attempting to suppress reality for too long.
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As we noted over the weekend, online bullion dealers saw such huge demand for silver ahead of today's moves as 'Reddit-Raiders' prepared to take aim at the precious metals markets.
Over the weekend, Tyler Wall, the CEO of SD Bullion wrote the following (emphasis ours):
In the 24 hours proceeding Friday market close, SD Bullion sold nearly 10x the number of silver ounces that we normally would sell in an entire weekend leading to Sunday market open.
In a normal market, we normally can find at least one supplier/source willing to sell some ounces over the weekend if we exceed our long position (the number of ounces we predict we will sell over the weekend).
However, everyone we talk to is afraid of a gap up at Sunday night market open.
This is about ready to get really interesting as there was very little inventory left from suppliers/mints going into Friday close.
Our direct AP supplier informed us after close on Friday that the "US Mint will be on allocation for the remainder of Type 1" (Current Silver Eagle Design).
Our sales for the month of January exceeded any one month last year during the heart of the pandemic. It was an all-time record month in our company history.
And, perhaps most importantly, as QTR tweets so succinctly, "no matter what happens with #SilverSqueeze, a lot of younger people are for the first time informing themselves that metals are the only true real money. That realization sticks for life, even when squeezes end... this is a red pill moment for many, and it's beautiful."
The #silversqueeze is a rage against the machine— Tyler Winklevoss (@tyler) January 31, 2021
However, the comments from APMEX's CEO Ken Lewis were just as shocking... (emphasis ours)
To our valued customers,
APMEX Statement On Current Market Conditions:
In the last week, we have seen a dramatic shift in Silver demand from our customers. For example, the ratio of ounces sold per day was running about two times earlier in the week and closer to four times the average demand by the end of the week. Once markets closed on Friday, we saw demand hit as much as six times a typical business day and more than 12 times a normal weekend day. Combined with the extremely high demand levels, we are also seeing a surge in new customers. On Saturday alone, we added as many new customers as we usually add in a week.
Any Precious Metal dealer will take a long position in the futures market to protect against spot price exposure when the markets open. We do this because it is our goal not to take a speculative position on metal. The weekends are unique as we are not able to real-time hedge our position. We took an aggressive position this weekend, but clearly could not have predicted the volumes that were seen. We have partnerships around to world that allowed us to cover these long positions, but only to a point. Once we exceeded our comfort levels, we had little choice but to stop the sale of Silver on our website. This was a difficult decision to make and unprecedented in our history.
As we evaluate the markets, it is difficult to know where Silver's price and demand will go in the coming day and weeks. APMEX is highly capitalized and has more than $150 million in inventory to support demand. We have made strategic decisions to procure additional metal, locking up any metal we can find in the market place. We suspect premiums will rise and rise quickly, as we are seeing significant increases in our costs, when we can even locate the metal. It is also highly likely that we will need an additional day or two to fill orders based on current order counts. The one guarantee we can make to our customers is that you will only be sold metal that is on-site, or we have procured the metal with a firm commitment date from our partners. In markets like this, we feel this is the best approach a retailer can take, as no one can predict product availability.
We want to thank our customers for their patience and understanding during these turbulent times. APMEX prides itself on best in class service and delivering on promises to our customers.
GoldSilver.com's President, Alex Daley, also noted this rush on physical silver came at a time when the industry was already experiencing tight supply...
...a year of significantly higher than previous volumes which stretched many mints to their limits, the US Mint providing very limited allocations of its most popular product pending a redesign, and stocks of generally stretched thin as holders are simply not selling.
In fact, over the weekend we saw over 50 times the number of buys as sells. This is exacerbated because bid/ask spreads widen quickly in physical metals markets when supply thins out. Ask premiums rise rapidly with demand. Yet future mint allocations, which are often at pre-contracted premiums, slow the speed at which bid premiums rise and eventually pull asks back down toward them. We saw this last Spring and are seeing it again now.
This spike in demand quickly drove up spot prices, as well, jumping nearly 20% in the past week, much of that since Friday. There are many good fundamental reasons for silver prices to be higher than they have been, as Jeff Clark has often outlined.
However, moves this fast in premiums and spot prices can often reverse as quickly, so we encourage all of our customers to exercise good judgment and disciplined trading in volatile markets.
We wonder if Nelson, Lamar, and William Hunt would approve of Reddit's approach?