Premiums are rising

[Cu Penny Hoarder]

With this last dip to $14, I've noticed that premiums are starting to rise, especially on 90%.

Just wanted to bring this to everyone's attention.

If any of you are still on the fence sitting on dry powder, buying now while premiums are relatively still low is probably a good idea.

[Contradiction]

Hi, thanks for your comments. Do the premiums rise at the producer level, the wholesaler level, or the retail level? All of the above?

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?

I guess a retailer with deep pockets could take his inventory out of the display cases and only buy while waiting for prices to rise again.

Sorry for all the questions. Trying to learn.

[misteroman]

Was at my lcs earlier but he was closing and had most things put away. He told me he sees silver at 9 and gold at 800 in the next year.
I can't imagine silver below 10 these days. K maybe 5 yrs ago it was but things just cost more these days. Even a base V6 Silverado is 45k!!!!!

[johnbrickner]

I'll buy all the way down! Send Wheaton Precious Metals Corp back down to 10. I'll be ready this time.

[Country]

Certainly, premiums on 90% halves jumped even today. Even premiums of quarters and dimes is rising some too. From what I see, dealers are widening their spreads. I would guess that there is some apprehension that once their stock of 90% is depleted there are fewer sellers to replenish stock. Most of us want to buy when price is low (perhaps going lower), and not be selling at these levels. Now, what I'd like to see is an increase in the price that major dealers pay - move their BUY and SELL price spread higher. I haven't seen that happen yet.

[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?

This is a very difficult question to answer. Everyone has different costs. Think about it this way- if you ran a business and were in a state like California where the real estate is expensive and the government does a lot of taxing, your costs would likely be much higher than someone running the same business in, say, Wyoming.

Another factor is that more than half of all silver is mined as a byproduct of something else. In other words, they are taking zinc, lead, copper or gold out of the ground and also find some silver. Their cost for the silver is often times considered to be ZERO when this happens, and that applies to something like 60-65% of all silver mined.

Yet another factor is what is termed hedging. This is much more complicated, as you'd have to have a fairly decent understanding of options (puts and calls) to understand this. I will oversimplify- If you bought ABC stock at $16 a share (let's say that equates to $16/oz. for silver), you might not want to sell now at a loss. So, what you could do would be to sell covered calls at a $17 strike price to add some cash to your account. Let's say the options expire in 3 months and you get $1 a share cash by selling them. You then are agreeing to sell your stock (or silver in the case of the miners) at $17 s share no matter how high it goes anytime over the next 3 months until the options expire. So, if the stock stays in the $14-16 range and you never have to sell the stock, you keep the $1 per share premium as your profit.

If silver were to go to $25, you would still make a profit. Remember your cost was $16 minus the $1 premium you got, so your net cost is $15 a share. Since you are selling at $17, you have a $2 per share profit. Still, you might be disappointed that you were forced to sell for $17 when you could have gotten $25 if you never sold the covered calls.

Remember how I said that options can be complicated? This is just the tip of a huge iceberg. If it only took you 10-20 hours of study to get a good understanding of options, I'd say that would be pretty good.

So, to combine all of these factors with the notion that many companies are not totally honest about everything they know that can affect their earnings, you can understand how this could be a very complicated situation to deal with.

[Recyclersteve]

I can't imagine silver below 10 these days. K maybe 5 yrs ago it was but things just cost more these days. Even a base V6 Silverado is 45k!!!!!

Lots of silver has a cost of ZERO at it is mined as a byproduct of something else. See my other comments on this thread.

[Cu Penny Hoarder]

Hi, thanks for your comments.
1. Do the premiums rise at the producer level, the wholesaler level, or the retail level? All of the above?

2. How low can silver go before the average mine would have to cease operations due to losses when they sell?

3. Of would they keep producing and just stop selling?

I guess a retailer with deep pockets could take his inventory out of the display cases and only buy while waiting for prices to rise again.

Sorry for all the questions. Trying to learn.

1. Don't know for sure, all I monitor is internet retail and LCS prices.

2. I've heard many different prices regarding the cost of mining. $8-12 dollars seems to be the numbers most quoted by the PM pundits.

3. I imagine they would do both, to some degree or another.

Just an FYI... A family friend of ours worked at APMEX during the 2000's. Some of the fractional inventory was pulled during the price drop of 2008. They also hedge their physical inventory using PM contracts.

[Cu Penny Hoarder]

I can't imagine silver below 10 these days. K maybe 5 yrs ago it was but things just cost more these days. Even a base V6 Silverado is 45k!!!!!

Lots of silver has a cost of ZERO at it is mined as a byproduct of something else. See my other comments on this thread.

So silver costs ZERO to dig it out of the ground? Hmmmm.

[Recyclersteve]

I can't imagine silver below 10 these days. K maybe 5 yrs ago it was but things just cost more these days. Even a base V6 Silverado is 45k!!!!!

Lots of silver has a cost of ZERO at it is mined as a byproduct of something else. See my other comments on this thread.

So silver costs ZERO to dig it out of the ground? Hmmmm.

Think of it this way. You are paying someone to dig something other than silver out of the ground. They just happen to find some silver while they are digging for gold. The cost is allocated entirely to the prime metal (gold) that they are looking for, not the byproduct (silver) that they accidentally stumbled upon.

I agree that there should still be some cost allocated to the silver, but that is not the way it works from an accounting standpoint. And that could be the prime reason why miners do from time to time appear to be selling at a loss.

Another is the veins of the mines and how rich they are. For instance, let's say you have two veins of the same mine that branch off in different directions. Vein number 1 has a lot of the primary metal (let's say gold) and also a lot of the byproduct metal (silver) that is pretty easy to get to and therefore lower cost. Vein number 2 is almost all gold (near zero silver) and the metal is a LOT harder to extract and the extraction comes at a much higher cost.

When prices are depressed, I'd have the workers working in Vein 1, just so they can keep producing and selling stuff at a profit (to keep the mine open). Closing and reopening mines is very time consuming (can literally take years and produce no revenue) and expensive, so this is to be avoided if possible. One big reason why this is so is that when reopening a mine you often times have to deal with a new group of environmental protestors that take the miner to court before allowing the mine to produce again. They may argue that there was a huge mess left behind with the old mine, so it should not be allowed to reopen. Also, the miner has to hire new employees.

When the price of gold goes up sharply, then the miners can afford to work in Vein 2.

One other little tidbit- there is more silver mined as a byproduct of other metals than there is any other metal. So that could be part of the reason why silver can go to such cheap levels where people assume the mines are losing money, but in reality they aren't. Silver is usually found as a byproduct of zinc, lead, copper and gold (in no particular order).

[Cu Penny Hoarder]

Friday, Sept 7th and premiums are up again. Generic 90% now averaging $1.00 above spot. ASE and Maples up about 0.20-0.30 cents this week, just about $3.00 above spot now. I said premiums were going to rise... and voila!

[mflugher]

provident still has 90% at 49c over spot.

Premiums are up, but not enough to cover the drop in underlying commodity. Deals are still out there to be had. A little more shopping around is in order this week vs a month ago when premiums were low across the board due to stagnant price.

[Cu Penny Hoarder]

provident still has 90% at 49c over spot.

Premiums are up, but not enough to cover the drop in underlying commodity. Deals are still out there to be had. A little more shopping around is in order this week vs a month ago when premiums were low across the board due to stagnant price.

2008: Ag was $9 and the premiums on ASE's were $6-8. Apmex was offering $2-3 above the spot to buy ASE's. Most dealers had no inventory, or they pulled it. 100oz bars were still available, but not many.

Once the big boys (i.e. Apmex) start raising premiums, the little guys soon follow.

Yes, some deals still to be had now, but they won't last long. I see a repeat of 2008 coming. A smash to $10-12 would not surprise me. When that happens premiums will rise dramatically. Ag goes lower than $10? ... you won't find anything under 100oz bars to buy anywhere.

[Country]

SELL price premiums are up. But, BUY prices are NOT!! Provident is paying UNDER SPOT for all their 90% - under 10x. Currently, they are maximizing profits because demand is up a bit. If there was a shortage in their stock of 90%, their paying prices would be commensurately higher.

[Recyclersteve]

Who are the biggies that I should be watching to gauge sentiment?

APMEX?
Monarch Precious Metals?
Provident?

Anyone else?

Also, I haven't really dealt with any of these guys in the past. Instead, I deal with local dealers and go to coin shows. Does anyone sense any attempts at collusion on the part of the major silver retailers?

Thanks in advance.

[Recyclersteve]

2008: Ag was $9 and the premiums on ASE's were $6-8. Apmex was offering $2-3 above the spot to buy ASE's. Most dealers had no inventory, or they pulled it. 100oz bars were still available, but not many.

I went to a local dealer in October, 2008 when silver was around $9ish. I wanted to buy a bunch of ASE's. He said the limit was 2 coins per customer. Not two monster boxes or rolls, but two coins!

[pennypicker]

Who are the biggies that I should be watching to gauge sentiment?

APMEX?
Monarch Precious Metals?
Provident?

Anyone else?

Thanks in advance.

I've always considered JM Bullion to be a "biggie"...at least in my book since they're the only dealer I buy from. Don't know how they stack up against APMEX, Monarch, and Provident with respect to gross sales however.

[Cu Penny Hoarder]

SELL price premiums are up. But, BUY prices are NOT!! Provident is paying UNDER SPOT for all their 90% - under 10x. Currently, they are maximizing profits because demand is up a bit. If there was a shortage in their stock of 90%, their paying prices would be commensurately higher.

Yes, they're taking advantage of demand. That's what bullion sellers do. Every business does this. No surprise.

2-3 weeks ago I posted that the low premiums weren't going to last long. They've increased quickly. I predict we won't see 90% at 0.29 over spot again for a very long time, especially if the Ag price heads lower from here.

[Country]

I do believe that raising premiums will blunt demand. Personally, I was more interested when premiums were lower and followed the price. Increasing the spread too much will kill volume; fewer buyers and fewer sellers. It is in volume that money is made.

[everything]

Premiums will be different on different products, we can buy 10 oz. bars for less than $150 right now which isn't to bad.

[Mercuryman]

I found a local antique shop that has walking liberties/franklins for $5 a pop- melt is $5.11. Should I buyout what they have? I'm a little hesitant because I see silver prices going even lower. I thought about buying and flipping them but i'm worried about silver crashing before i can make the flip.

[theshoenlebens]

I found a local antique shop that has walking liberties/franklins for $5 a pop- melt is $5.11. Should I buyout what they have? I'm a little hesitant because I see silver prices going even lower. I thought about buying and flipping them but i'm worried about silver crashing before i can make the flip.

$5 would be a good deal as far as I'm concerned. Depends on the amount and if you think you could flip quickly. Right now, not a huge profit but still is better than nothing. I just had dimes at 10.4 x face with free ship and they just sat here for a couple days. Did sell elsewhere so there is a profit to be made.

[Country]

Premiums will be different on different products, we can buy 10 oz. bars for less than $150 right now which isn't to bad.

That's very true. I see Provident selling $100 bags of generic 90% at spot+39c (spot ask) on their website today.

[Contradiction]

Premiums will be different on different products, we can buy 10 oz. bars for less than $150 right now which isn't to bad.

That's very true. I see Provident selling $100 bags of generic 90% at spot+39c (spot ask) on their website today.

Is Provident selling 90% with low premiums because they think the price will fall even lower and they want to reduce their exposure? I guess they could reduce their inventory by lowering their buy price, and allow their 90% inventory to dwindle naturally through attrition.

[Country]

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?