Does somebody have a reasonable explanation for this?

End of April silver was $49 per ounce, one week later it dropped under $35 per ounce. That is fine and all, but the part that really confuses me is the following.

I was perusing the usual websites I visit checking out what they had for sale in silver and noticed that most of them had delayed delivery at the end of April with an approximate ship date of May 17th for ASE's, and other "hot" or desireable smaller 1 ounce to 10 ounce items. Now we'll fast forward to May 6th. Silver drops to about $35 per ounce and the delivery dates many of those e-tailers have posted is May 27th or so. Now this week many of them are listing is June 17th. This is all well and good as it seems to me that the supply is short for the smaller items they are retailing, until I look back to the week of May 2nd when the e-tailers were all advertising delayed delivery for the popular items, but the price of the goods they are advertising dropped by almost 30% in the commodities markets.

I know that it takes time to produce the goods from its commodity form to retail item form, but it still makes no sense to me. For some reason I've always felt I've had common sense, but this one escapes me.

 

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Perhaps they are expecting ( or hoping) that spot price comes back to the high again. They don't want to sell something they bought @ 47 or so for 37 or so. I think they are just stashing it away for a while, figuring in a month or so, they will be OK again.

Jim

 

I'm not buying

I would be more willing to believe this as a plausible explanation if there wasn't a delay for delivery the week of April 25th, but there was. As I stated in the OP, most were advertising a delay of May 17th (approx). The delay was already there while the price was at the top.

 

Are the delayed shipping dates due to short supply or is it really because the sellers are hoping for a recovery from the latest drop in prices? Let's assume that some of the sellers bought inventory at $40 when the price of silver was at $49. Do you really think they are going to sell at a loss when the price dropped to $35? They can claim any reason they want for the delayed shipping dates, but I'd bet they are relying on the standard "Prices subject to change." to bail them out.

Chris

 

It seems to me that they're just picking the Friday of the week of the 15th/30th of the month. That's actually somewhat standard business practice for retailers to maximize profits, as consumers are more likely to spend money near pay-day. They may just be using a brick and mortar model for their e-business.

 

There was a shortage BEFORE the drop.......about a month for most retail places around me.

I simply think there is a shortage of physical silver to the retail market.

 

I think they are just out of coins and the delivery date is when they expect their shipment from the Mint.
If they are selling them in advance, there is no need to hold product back.

 

I don't think they're actually holding the product back. They're trying to deliver it as fast as they can, but the demands are higher than they've expected. I can't say this for 100% certain.

The delays for product were there before the spike and plummet in silver.

To be very forward about it, if the demand is high and the supply is tight, why aren't the basic laws of supply and demand taking over?

 

If I understand what you posted, the most logical explanation to me is that when silver dropped to sub $40, there was a huge surge of buying by savvy silver investors who understand to buy on the dips. This eliminated all the current inventory and the retailers are having to wait for new shipments. My guess is the mints are running as fast as they can to create new product.

Remember the professionals and the people making money with bullion, buy when the price falls. They don't chase the tops.

 

I don't believe a shortage of physical silver is the main reason...perhaps for some specific issues. IMO, I think they are holding back inventory (or holding back purchasing to stock their shelves in a falling market) until they can recoup their costs and/or optimize their profits. Back in 2008, I used to buy a lot from APMEX. Their inventory would disappear when the price dropped and everyone wanted to buy, and then magically reappear within hours/days once the spot price increased. I believe the current delay trend you are seeing is likely a business tactic to make the most profit. TC

 

Cash market and futures market don't always run in sync.

 

There is no shortage of silver. I've said before, sellers say this when they simply don't want to sell.
Guy

 

Jeez, I wish you guys would bother to read previous posts.

 

Supply and demand seems to be working fine to me. The silver margins spiked all week last week which drove everyone out of the market who didn't have enough collateral to cover the new margins. So supply increased and the price dropped. Today it was oil margin hikes which took all commodities down with it, since energy prices impact most everything. If margin hikes are the only thing bringing the price down, and I believe that they are currently, there's no reason to think the price won't continue to rise in their absence. The Fed has already stated they don't plan on raising interest rates this year, so I'm not concerned about that. If there was a shortage at $49, it stands to reason there will be a shortage at cheaper prices. If major dealers are getting their supplies from the mint then the silver that hit the market last week isn't going to end up in their inventories anyway. My local dealers are out of ASE's except for proofs and graded ones.

 

Surprisingly, 3 weeks ago my dealer had NONE! Now my dealer has about 15 ASE's for $40.

 

I don't have the luxury of a local dealer, so I can only go on what I see on the net with the e-tailers. I don't know what is going on, but have a hard time figuring out why the supply/demand link is broken. I'm not a big conspiracy theorist, but this is baffling me. I'm not a young pup, or an old dog (mid 40's) but have never seen anything disconnect from supply/demand like silver is right now. I'll also mention that the premiums are are stiff as I've seen in 3 years of dabbling in this. Yikes when they state as low as $5.09 over spot per coin for a 1 ouncer....double YIKES!!!

Who knows, maybe I'm just an idiot?

 

Maybe im missing something... even if they are holding back silver, saying theres a delay due to shortages you can still order at there current price and just receive the product when they "get it in".... right?

I ordered some from provident and it is still delayed... so even if silver goes higher then my buy price, they have still taken my money and should deliver when ever they get it, even if spot price is higher then what i paid... im ok with that.

Does that make sense?

Basicly buy now at there lower price with expected delivery delays, and just wait for stock to come in/prices to go up. either way, you are paying the lower price and still getting silver. they cant not ever ship you the silver you already paid for. if they can, i better get my money back... lol

 

A little rant

Normally I'm patient when it comes to these kinds of things, but here is the deal.

Last week Friday I placed an order for about 10 oz of silver with a company that I've dealt with before. I paid for it with a cc and it was "boutique" silver, stuff I want that the premiums from spot make me wonder why I bought them. Anyway, since they are fancy and said to be in stock, one would believe that they would've been shipped within a week, right? Wrong! It's not so bad that they haven't been shipped, it is bad that they have the money, they have the products, but they can't even send an email with an expected ship date? Are they really this busy? One week for 8 stinking coins? Heck, I'd take any explanation, but why on earth ignore a returning customer for a week? The really sad part is they have other things I want to purchase, but I'm going to think long and hard before I buy anything from them again.

 

To address the last statement first, premiums are inline with small unit premiums. The reason they seem high is on the way up, most retailers were compressing the premium to $2 to maximize turnover of inventory. With silver dropping in price, primary distributors for the US Mint are allowed to sell Eagles at a significant premium to spot... because they paid a significant premium to current spot. No one complained when vendors were charging under-$35 per Eagle with spot at $45, yet folks are now complaining about $40-$42 Eagles with spot at $35. Average cost per ounce still works out below spot. The timing is just a bit off.

Supply/Demand isn't broken. It's just being misapplied.

Spot price is demand price on paper exchanged silver. For the most part, redemption of paper silver incurs a melt/coining fee. So when spot is at $37, it might cost $2.75 additional to get a 1 ounce coin out of a commodity pool. Since retailers already have the bullion in stock, they'll typically price according to the recovery/replacement cost, as opposed to current spot. This is rational until a commodity shows indications of never recovering. At that point, prices are sold BELOW spot all the way down.

You said you've never seen anything disconnect from supply/demand as with silver currently. Yet, it happens EVERY WEEK at your local supermarket. Retailers will create loss leaders to get you in the door while maintaining price points on similar products of a different SKU. Example: 2L Coke products for $1 per bottle. 20oz Coke products for $1.79 per bottle. The demand for a Coke product would be the same in either case, and the premium for the smaller unit is completely unwarranted. Supply/Demand would dictate that the 2L bottle be priced at a 15-20% discount of the size equivalent 20oz price. Yet, that doesn't happen.

Now, to address your query on inelastic premiums. Coin dealers are not in the commodity trading business. While they benefit from rising commodity prices, they typically will not discount inventory to reflect commodity drops. Why? Because it's bad business to do so. Demand is strong for physical silver on a retail level, as the media continues to fear-monger. Individuals who are excluded from the commodity futures game are willing to pay a premium to receive physical bullion. So long as the demand side of the equation is inelastic (which happens at both short-term tops and bottoms), it's proper business to extract maximum economic value from said demand. You might not be willing to pay a $5.09 premium, but SOMEONE obviously is. So long as that person's demand isn't satisfied, the premium will remain in place.

To explain this is market charts, envision an options chain.

The open interest on silver for physical delivery today holds a premium of $6. If 800 contracts of open interest are willing to purchase at the $6 premium, and 500 are willing to purchase at a $5 premium, it's very likely that the holder will sell at $6 and $5.25. The reasoning is that the 800 open interest will take precedent over the willingness to sell at $5.25.

In your case (of the $5.09 premium), it just happens that open interest is willing to absorb premiums of $4.75-$6.50. (This range was derived from Kitco's retail sales prices on sovereign silver.) Spot+$5.09 isn't a far cry from retail price. It's merely a marketing ploy to define the price in terms of spot (to entice those individuals who claim to be "buying for silver content" while in reality acquiring numismatic items at a discount).

 

NorthKorea...OK, I see that you have what could be a reasonable explantion, and might be a big part of what's going on, but I still don't think it's the whole story. Over the last 3 years of buying silver and numis, I've never encountered the premiums I'm now expected to pay, and in most cases won't, nor have I encountered the delays in shipping that now seem to be the norm. As my post above yours states, I ordered on the 6th and 10th, items that both sellers had "in stock". I got an email today from the seller I ordered from on the 6th telling me it will ship on Monday, and the seller from the 10th put an expected ship date of the 17th when they confirmed my order. My previous experience has been if it was ordered and paid for with "good funds" then the goods were shipped out the day after the funds were confirmed as good. Now it takes 7 working days for them to ship. The only thing I can think of is they're that busy. I'm sure they have quality/inventory controls that most businesses wish they could implement, because of inventory costs and margins, but I can't come up with any other reason for the delay other than being buried in orders. So, it takes me back to demand and the disconnect from spot. My only conclusion at this time is physical silver is undervalued, and not just a little.