Premiums are rising

[Contradiction]

Another thought. Could it be that the large dealers know that SILVER is going much higher, and soon. Why should they sell cheap right now?

So, are you saying we should buy now, or should we buy a lot now? LOL

[Country]

There are some who make the case that you should back up the truck now. One could make the case for PMs going down further or going up from here. Markets don't always go down; it's a risk vs. reward calculation. However, the more premiums rise, the more I don't want to buy.

[Recyclersteve]

Remember this- a wider spread is a sign of lack of confidence in the direction of the market. A tight spread is a sign of confidence. I'm going to give an example from the stock market.

There are plenty of stocks that trade millions of shares a day and the difference between the bid and the ask is usually a penny during regular market hours. Yet these same stocks outside of market hours typically have wider spreads (perhaps 10-20 cents betweeen potential buyers and sellers) as many of the regular participants are not trading in extended hours and there is perceived to be less liquidity and also more risk.

Someone might offer to buy Ford, G.E. or Sirius XM Holdings in the pre-market session, but they want to be pretty darn sure they can get out quickly with a profit when the regular session begins. Therefore, they will try to buy at a little lower price in the pre-market session (or even after hours) than they would once the regular trading session had started.

Now I can take this one step further and apply it to precious metals. I know of a local dealer who has flat out told me that I will get better pricing on my silver buys from him when I stop by during the regular work week as opposed to dropping by on Saturday.

I don't track the spreads on precious metals so I don't know if they are wider or more narrow than usual. That said, I get the feeling that there are plenty of people who would NOT back up the truck right now. I don't see panic in the streets. I don't have my friends who don't own much silver asking me about it. I don't hear about it on the national news each day (like I did in 1979). I don't see lines standing outside the doors at local coin shops with armed guards standing at the doors (like I did in 1979-80). So I don't see anything close to a real obvious buying opportunity. I could probably buy 5-10 bags of silver (locally) pretty easily if I really wanted to, and that isn't the sign of a bottom.

[Country]

Very well thought through. Thank you Steve.

I remember 1979-80 and afterwards too.

[Cu Penny Hoarder]

I don't track the spreads on precious metals so I don't know if they are wider or more narrow than usual. That said, I get the feeling that there are plenty of people who would NOT back up the truck right now. I don't see panic in the streets. I don't have my friends who don't own much silver asking me about it. I don't hear about it on the national news each day (like I did in 1979). I don't see lines standing outside the doors at local coin shops with armed guards standing at the doors (like I did in 1979-80). So I don't see anything close to a real obvious buying opportunity. I could probably buy 5-10 bags of silver (locally) pretty easily if I really wanted to, and that isn't the sign of a bottom.

High Ag prices like in 1979-80 would be a buying opportunity?... how so? The only reason those events happened is because prices were going parabolic and making new highs every day. The public majority is the dumb money and always will be. They buy only after the prices have gone to the moon... stocks, houses, tulip bulbs, beanie babies, baseball cards, bitcoin, etc. When the public is in a frenzy and buying hand over fist, you should be selling whatever it is as quickly as possible.

You want to buy an asset when it's low, quiet, ignored, hated... just like silver is right now. Could it go even lower?... of course.

[Country]

Just noting that Monday night September 10, Provident raised their BUY prices by 25c and their SELL prices by 50c on generic 90% SILVER. It's been awhile since I've seen the BUY-SELL spread move higher. Does Provident know something we don't?

[Recyclersteve]

I don't track the spreads on precious metals so I don't know if they are wider or more narrow than usual. That said, I get the feeling that there are plenty of people who would NOT back up the truck right now. I don't see panic in the streets. I don't have my friends who don't own much silver asking me about it. I don't hear about it on the national news each day (like I did in 1979). I don't see lines standing outside the doors at local coin shops with armed guards standing at the doors (like I did in 1979-80). So I don't see anything close to a real obvious buying opportunity. I could probably buy 5-10 bags of silver (locally) pretty easily if I really wanted to, and that isn't the sign of a bottom.

High Ag prices like in 1979-80 would be a buying opportunity?... how so? The only reason those events happened is because prices were going parabolic and making new highs every day. The public majority is the dumb money and always will be. They buy only after the prices have gone to the moon... stocks, houses, tulip bulbs, beanie babies, baseball cards, bitcoin, etc. When the public is in a frenzy and buying hand over fist, you should be selling whatever it is as quickly as possible.

You want to buy an asset when it's low, quiet, ignored, hated... just like silver is right now. Could it go even lower?... of course.

No, I definitely don't mean to imply that pricing like we had in 1980 would be a buying opportunity. When you have really wild price moves (UP OR DOWN), that is a potential sign of pending trend reversal. 1980 reversed downward after a sharp move to just over $50 oz. and the move down was very swift.

I'm saying that if the opposite happened (for instance panic selling taking silver down to single digits (perhaps even as low as something like $8+/oz.), that would likely be a sign of the price trend about to reverse from the panic lows and go higher. Keep in mind that I am not saying all moves to single digits are created equal. If we slowly and steadily go down to single digits that would be awful. If we had a quick abrupt move that lasted 1-2 days, that could be a MOABO (mother of all buying opportunities).

I know this will probably make me sound delusional, but if gold stayed around where it is ($1,200ish) and silver went to, say, $8-8.50/oz. you could potentially trade a slabbed common date St. Gaudens gold coin for a 100 oz. bar of silver PLUS 2 rolls of silver ASE's. Now that would be quite the deal! (and no, I'm not on any special medications)

[InfleXion]

How low can silver go before the average mine would have to cease operations due to losses when they sell? Of would they keep producing and just stop selling?

The average mine produces silver as a byproduct. Whatever they sell silver for is essentially pure profit, because they'd be paying to get the other metals out anyway. This is a big reason why it can and does go below fair market value. The other big reason is the futures market which is a bad joke, if you ask me.

The other question is how low can silver go before the market buys up all the above ground available silver and where demand exceeds the ability for miners to provide enough new supply to fill the gap. I suppose that depends how many people are on the sidelines saying they would buy if silver was only such and such price. Some people are delusional and think $4 silver is coming back, but I'd guess that anything in the single digits would do the trick pretty quick. As the price drops premiums rise, because people don't want to sell for a loss, so buying the dips will only get you so far. The price has to stay low while the metal is mined to actually be able to buy at that price, and when everyone wants to buy it doesn't stay low. So I prefer to stay ahead of the curve and buy before it becomes an obvious buy to everyone else. Sometimes that means paying a little more. Maybe the grizzly bear coins I bought at $30-35 were overpriced, but that perspective also gives me a lot of comfort buying at current prices.

[Recyclersteve]

How low can silver go before the average mine would have to cease operations due to losses when they sell? Of would they keep producing and just stop selling?

The average mine produces silver as a byproduct. Whatever they sell silver for is essentially pure profit, because they'd be paying to get the other metals out anyway. This is a big reason why it can and does go below fair market value. The other big reason is the futures market which is a bad joke, if you ask me.

The other question is how low can silver go before the market buys up all the above ground available silver and where demand exceeds the ability for miners to provide enough new supply to fill the gap. I suppose that depends how many people are on the sidelines saying they would buy if silver was only such and such price. Some people are delusional and think $4 silver is coming back, but I'd guess that anything in the single digits would do the trick pretty quick. As the price drops premiums rise, because people don't want to sell for a loss, so buying the dips will only get you so far. The price has to stay low while the metal is mined to actually be able to buy at that price, and when everyone wants to buy it doesn't stay low. So I prefer to stay ahead of the curve and buy before it becomes an obvious buy to everyone else. Sometimes that means paying a little more. Maybe the grizzly bear coins I bought at $30-35 were overpriced, but that perspective also gives me a lot of comfort buying at current prices.

Well put. I agree wholeheartedly.

[Contradiction]

Thanks, all, for the good info.

[Recyclersteve]

To complicate matters, many coin dealers maintain brokerage accounts with futures trading firms to (hopefully) hedge their risk. For instance, there is substantial risk in holding a large position in silver over a weekend (or even overnight) in the event of a sharp move. I'm not going to get into the inner workings of these operations, but they are somewhat similar to someone who owns stocks and hedges their risk by trading options (puts and calls).

There were two significant bankruptcies in the futures trading space. One was in 2005 with a company by the name of Refco. The stock had just started trading publicly in the summertime of 2005. A few months later the CEO basically said "Oh yeah, I borrowed something like $425 million from the company." Wait a minute! You mean all the companies that helped bring you public (probably 5 or more in the syndicate) had a chance to look at your books and nobody caught this? I owned the stock and remember selling when BofA initiated coverage with a rare at the time "Hold" rating. This was a polite way of saying sell, very unusual for a company that just received millions in fees to help bring a company public. It was an unwritten rule in the markets that the underwriting indicate would reward the newly public company about 25-30 days after it started trading with a bunch of "Buy" and "Strong Buy" ratings.

BofA was part of the underwriting syndicate and I'm guessing they found out just before the CEO disclosed his shenanigans to the public. I imagine they were PO'ed, leading to the "Hold" rating. But, they should have been ashamed that they didn't catch this in the first place. How does a fairly small company hide over $400 million?

The second bankruptcy in the space was M.F. Global. The CEO was former New Jersey governor Jon Corzine. This one hit thousands of coin dealers and hit hard. The stock was halted from trading in the stock market on Halloween day in 2011, only about 6 months after silver peaked in the $49ish range. Keep in mind that it was the second time in 6 years that a bunch of dealers got hit (first Refco and then MFG). In fairness, a percentage of the money lost was returned to many people who had accounts- still, many were hurt.

So, when you think about buying and selling gold/silver and premiums and so forth, keep in mind that there is also hedging with futures and (perhaps for some) many thousands in losses that they may still be trying to get back.

Now what was it that somebody said about silver going to the moon?