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Silver price premiums: when to draw the line? Peter Hug comments

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A shortage of silver and gold coins has caused suppliers to increase the premiums charged to several times what they were making before the pandemic, this according to Peter Hug, global trading director of Kitco News.

“The wholesalers are arguing it’s a supply and demand issue, and as far as the old saying goes, you make hay when the sun is shining,” Hug told Kitco News. “The big wholesalers make relatively incidental spreads on Eagles, both gold and silver.”

Under normal market conditions, coin wholesalers may make 10 cents an ounce on silver Eagles to their dealers and $2 or $3 on their gold coins. Currently, they are able to increase their spread by five to ten times, Hug said.

Silver prices traded slightly lower on Friday, down 16 cents an ounce.

“Price gauging should not be allowed. When you see these wholesale distributors that have access to silver Eagles at $2 and gold Eagles at $3, charging other dealers anywhere from six to eight percent, and charging silver Eagles five to six to seven dollars over…now these dealers have to mark that up to their retail clients. So by the time it gets to the retail public, you’re paying anywhere from $10 to $14 for a silver Eagle and you’re paying anywhere from $120 to $200 on gold Eagles,” Hug said.

He added that the cost of these gold Eagle coins being sold to the public for $120 to $200 is about $50 over the spot price.

“This is an anomaly that’s probably going to last for the next few weeks,” Hug noted.

Where investors should draw the line depends on their psychology and investment objectives, Hug said, but he personally would not be buying physical products at today’s premiums.

“If you’re buying a silver bar for capital appreciation, and you’re paying almost %100 mark-up on the price, your investment’s got to go up %100 before you break even, so it doesn’t make any logical sense to buy it in that form,” he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.