People are panicking. You go to the grocery stores and you see empty selves all over the place. It only took a few days for that to then find its way over into our office, where we had people coming and buying, especially silver, off the shelves.—Eric Sepanek, president of Scottsdale Bullion & Coin, on the Mike Broomhead show on AZTV
Across a country gripped by crisis, people are preparing for the worst. They’re clearing out grocery stores. They’re stockpiling medical supplies, guns, ammunition.[1] And they’re hoarding gold and silver. So much gold and silver that many major dealers and the U.S. Mint are SOLD OUT.[2]
No more American Eagle silver bullion coins. Gold American Eagles and Gold Buffalos? Gone at many big brokerages. Canadian Maple Leaf coins, British Britannias, Australian Kangaroos? All gone. Even South African Krugerrands are reportedly sold out at some dealers.[3]
Scottsdale Bullion & Coin’s precious metals advisors have seen the panic buying firsthand. As Senior Advisor and President, Eric Sepanek, recently told Mike Broomhead:
We extended our hours to make sure that we could try to keep up. We can’t.
But more alarming than the bullion shortages is the number of Americans thinking they have time to wait to buy because of spot prices, explained Sepanek. They don’t.
Keep reading to learn why so many investors are making this mistake.
COVID-19 Crisis Shocks Economy and Country
Scenarios range from a short but deep recession to a much more prolonged period of economic contraction. Regardless of when and how economies recover, the economic, social, and financial disruptions and dislocations caused by all of these developments will continue for many years to come.—commodities research firm CPM Group.[4]
How bad could it get?
- P. Morgan predicts GDP to contract 14% in Q2.
- Goldman Sachs foresees a 24% drop in GDP during the same timeframe.
- Morgan Stanley anticipates GDP to plummet 30%.
- James Bullard, a reputable Fed official, forecasts GDP to fall 50% in the second quarter and unemployment to soar to 30%.[5]
Spot Prices Misleading Investors
Almost nobody on Wall Street has noticed the full price surge for actual gold bars and coins. That’s because financial traders mostly just deal in paper “contracts” for gold. Those are basically gold IOUs—a mere promise to deliver gold if the buyer ever wants.—Brett Arends, former analyst at Mckinsey & Co and award-winning financial writer
With the country practically shuttered, it’s understandable why many Americans are opting to monitor the markets from the safety of their homes.
But watching spot prices for gold and silver can be misleading because they’re determined during the trading of contracts on commodity futures exchanges. Worse, many investors are making vital decisions about their financial futures based on spot prices—prices that don’t accurately reflect the market.
Spot Prices Explained
Gold or silver futures are paper contracts promising the delivery of the physical metal at an agreed upon date in the future. The price for them, or the “spot price,” is essentially an average of the net present value of the estimated future price of the metal, based on the nearest month and the specific contract.
Spot prices can present an unrealistic picture of the physical precious metals market because sellers often offer contracts promising far more gold or silver than they ever intend to deliver. Contracts can be traded before the delivery due date, which many sellers count on.
Metal Shortages Even in the Paper Markets
Such distance from the restraints of real supply and demand make for days like March 16, 2020, when the COMEX silver market traded 155,868 5,000-ounce contracts. Representing 779.34 million ounces, this means the exchange traded nearly as much silver as the yearly global output of all primary and secondary silver mines.
Even the paper silver market is starting to feel the squeeze of supply shortages, though. An increasing number of maturing silver and gold contracts are being settled by exchange for the delivery of the precious metal. And, just as when Warren Buffett famously demanded his 129.7 million ounces of silver futures contracts be honored with the physical metal in 1998, short-sellers are struggling to deliver and paying hefty late fees.[6]
Physical Metals Shortages Could Get Worse
In 2018, we produced, as a global industry, 855 million ounces of silver. So far, we’ve had Peru come offline, with 145 million ounces, we’ve had Chile come offline with 42 million ounces, we’ve had Argentina come offline with 26.5 million ounces. That’s a total of 213.5 million ounces that has now been shut down.—Keith Neumeyer, CEO of First Majestic Silver.[7]
The panic driving many Americans to their local gold and silver dealer may subside, but the resulting bullion shortages could be here to stay.
- Silver production around the globe ground to a halt as the pandemic forced mines to close.
- After selling 3 million American Eagle silver bullion coins (300% more than in the previous month) in just 10 days, the U.S. Mint is temporarily out.[8]
- The Royal Canadian Mint announced it’s stopping production of gold and silver Maple Leaf and all other bullion coins for two weeks.[9]
Premiums for Physical Precious Metals Rising
The case for gold is simple. You want to own gold in times of financial dislocation and or inflation. And that’s been the case since time immemorial… Gold held its value during 2008 and after all that money printing it tripled over the next three years.—Josh Strauss, partner at money manager Pekin Hardy Strauss in Chicago[10]
The biggest risk to American investors right now is making crucial financial decisions based on spot prices.
They don’t represent true supply and demand but rather the fluctuations in a paper trading exchange that can be as volatile as equities.
Already, last Tuesday the spot price of gold notched its largest one-day dollar gain since November 1984 and greatest daily percentage increase since March 2009, indicates data from the Dow. On Wednesday, silver jumped 4.3% to close at $14.873.[11]
Supplies of the physical precious metals you can purchase right now at a bullion dealer are shrinking. Many brokerages are out completely. Those who do have gold and silver bullion coins and bars still are raising prices on unprecedented demand.
Now IS NOT the time to wait for a deal. Bargain prices are gone.
If you’re serious about protecting your portfolio from the current crisis and the yet-to-be seen havoc it could wreck on the global economy over the coming months and years, BUY GOLD NOW.
Scottsdale Bullion & Coin is here help clients secure their wealth and make wise financial decisions during the crisis. We’re here for you. Call us at 888-812-9892.