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Premiums for gold and silver bullion aren't dropping any time soon - LBMA

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(Kitco News) - Retail investors can expect to continue to pay high premiums for physical gold and silver bullion as the precious metals markets deal with global supply issues and unprecedented demand, according to speakers at the London Bullion Market Association Global Precious Metals Conference.

Unprecedented physical demand for gold and silver continued to dominate discussion at the LBMA's annual conference, with panelists expecting global uncertainty to dominate bullion purchases through 2023 and into the first half of 2024. At the same time, record flows from western nations to Asia are impacting the global supply chain that is still recovering from the global COVID-19 pandemic.

Mark Woolley, senior vice president at Brink's Global Services, said that in 2020 at the start of the pandemic, the precious metal sector saw massive imports into New York, with more than 2,550 tonnes of gold delivered between May and April of that year.

However, Woolley added that there is a new shift in the market with that metal now flowing back East. The panel noted that India, particularly, is seeing an insatiable, record appetite for silver.

"The flows from the U.S. have been unprecedented," he said. "The majority of that metal is heading east," Woolley said.

After two years of market disruptions, China is once again asserting its dominance in the gold market with record imports in the last few months. Woolley said that shipments into China this year should exceed inflows seen in 2018.

At the same time, Sunil Kashyap, director at FinMet Pte Ltd, said that India's silver imports are expected to hit a record high of 10,000 tonnes this year, double the average annual imports seen in the last few years.

Kashyap said that a good crop season is providing farmers with extra income, which they are using to buy silver as a store of value. He added that silver demand is so strong in India that retailers are having the precious metal shipped in by plane.

Kashyap noted that solid silver demand in India has pushed premiums up 25 cents compared to London market prices. Historically that premium is around five cents.

"The premium is five-times compared to a normal market, and people are still paying it so that the kind of flows we are seeing," he said. "We don't see any signs of this demand abating."

Looking at the U.S. market, Terry Hanlon, president at Dillon Gage Metals, said that a massive supply and demand imbalance will continue to drive premiums for silver bullion higher.

"The number of ounces we move in silver is six times what we moved three years ago, in a normal week, normal month, normal year," he said.

On the supply side, Hanlon said that products from the U.S. Mint remain the biggest hurdle in the silver market. He explained that the U.S. Mint has had issues getting silver blanks to make their coins.

Hanlon noted that the U.S. Mint has said that it is only going to mint 11 to 12 million America Eagle silver coins this year.

"The only thing that I can see that will happen is premiums will continue to go up," he said.

Despite downtrend, there is still plenty of value in gold market - Franklin Templeton

Hanlon said that because of growing demand for precious metal bullion, his company has had to ship products from Turkey and Australia. Extra transportation costs have added to the higher premiums.

As to what is driving retail demand for gold and silver, Hanlon said that investors are looking for safe-haven assets as global uncertainty remains high.

"Fear is what is driving this industry," he said. "Consumers are really afraid of their own currencies and that is what is driving the market."

While gold and silver have seen healthy physical demand, investment flows continue to dominate the price action, which has been in a solid downtrend through most of 2022.

However, some analysts at the LBMA conference said that investors shouldn't ignore physical demand even if it is having little impact on prices.

"Don't short-change retail demand it can be as impact as ETF demand on the right day," said James Steel, Chief Precious Metals Analyst, HSBC Bank Securities in his concluding thoughts at the conference.

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.