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<p>[QUOTE=&quot;NorthKorea, post: 1181496, member: 29643&quot;]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.</p><p><br /></p><p>Supply/Demand isn&#039;t broken. It&#039;s just being misapplied.</p><p><br /></p><p>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&#039;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.</p><p><br /></p><p>You said you&#039;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&#039;t happen.</p><p><br /></p><p>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&#039;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&#039;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&#039;s demand isn&#039;t satisfied, the premium will remain in place.</p><p><br /></p><p>To explain this is market charts, envision an options chain.</p><p><br /></p><p>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&#039;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.</p><p><br /></p><p>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&#039;s retail sales prices on sovereign silver.) Spot+$5.09 isn&#039;t a far cry from retail price. It&#039;s merely a marketing ploy to define the price in terms of spot (to entice those individuals who claim to be &quot;buying for silver content&quot; while in reality acquiring numismatic items at a discount).[/QUOTE]</p><p><br /></p>

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