Silver Prices: Paper, Physical and the Coin Dealer

By: Dr_Jeff_Lewis

Confirmation of the coming end to the paper silver market will very likely pivot on the physical dealers’ bid price, so this key benchmark bears very close watching indeed.

When the buy back for physical silver price far exceeds the paper price, then you will know the silver market is just about ready to explode to the upside.

We recently surveyed a group of dealers. Basically, a physical silver dealer will pay more than the current spot price if he is desperate to obtain the inventory that he is buying directly from the public, but not under any other circumstances.

There is a natural limit to how much such a dealer will pay for silver, since he has to make a profit when he then sells it on to someone else.

That odd situation may actually have happened last month, and it may happen again in the future under circumstances where extreme shortages of the physical metal itself are seen.

Background

The separation between physical and spot silver seems to be growing. The latest drive by attack on silver’s price barely registers when on-average prices, including premium, remain just below $30 — about where prices were before the April downdraft.

Physical silver dealers have had the choice of locking in lower prices and waiting for delivery versus waiting and selling their current inventory, probably relying on numismatic silver to support them in the meantime.

Bullion is a low margin segment of the physical silver business, but its availability is perhaps the closest barometer of real, above the ground demand.

Why the Dealers’ Bid Price Matters

While the overwhelming majority of business seen by physical silver dealers is from the buy side, the bid price that physical silver dealers are showing customers who want to sell has recently begun creeping higher.

Overtime, increased demand and new customer orders will gradually boost a dealers’ bid price. When dealers need inventory but cannot receive enough silver in time to satisfy customer demand, their bid prices will typically rise.

That appears to represent a type of retail market backwardation, in the sense that silver dealers will place a premium on having the precious metal in hand now for their customers versus in the future because of the various delays involved.

Silver in Buyers’ and Sellers’ Markets

At a certain point, a seller of physical silver will mentally establish the lowest price that they are willing to accept for their precious metal. This might depend on its weight, the attractiveness of its current format, and any residual sentimental value it holds for the seller.

The more desperate they are to sell, the lower the price they will typically accept, and the market takes on the character of a buyers’ market.

Conversely, the more the seller values the silver they are holding, the higher the price they will demand for it. At that point, the market changes its character and becomes more of a sellers’ market.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit www.silver-coin-investor.com

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

Copyright © 2013 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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