Many precious metal investors don’t give much thought to bullion coin premiums. A novice investor’s decision to buy physical silver is typically made in anticipation of future silver spot price appreciation. The acquisition of physical bullion is regarded as a buy and hold investment since delivery costs, insurance and dealer margins make active trading uneconomical.  This is sound advice for novice investors, however, bullion dealers and established investors are always on the lookout for an opportunity to squeeze addition returns out of an otherwise passive investment.

Buy low and sell high you ask? Not on your life! Any serious bullion investor will have a hard time trading in their metal for worthless paper, in hope that a near-term sell off will offer a better entry price. The trading opportunities we refer to are of course, metal for metal - aimed solely at increasing the number of ounces in your stack without having to fork out the cash to do so. Many investors play the gold / silver ratio to accumulate these cost-free ounces.  The best bullion investors shifted from gold to silver early in late 2008, reaping huge benefits from reallocating their bullion portfolios.  Not so well publicised is the play on coin premiums, in particular silver coins where premiums are much wider.

Coin Premiums Track the Fear Index

Trading in your silver coins for silver bars when panic engulfs the market is a strategy employed by many successful bullion investors. Premiums can rise to unbelievable levels when buyers are whipped into a frenzy of fear and panic buying during times of crisis. US junk silver coin premiums rose to 50% over spot in 1999 when the Y2K computer scare saw investors pile into junk silver coins in fear of systemic bank computer malfunctions. Of course, Y2K was a non-event and coin premiums collapsed shortly thereafter, providing the astute investor with the perfect opportunity to pick up silver coins below spot, at the expense of the herd. Buying silver coins in times of broader market optimism and trading them in for bars during crisis also paid off during the 2008-09 credit crunch, where American Silver Eagles were trading at an 80% premium over spot.

Note that these premiums are US eBay premiums and do not reflect the price that dealers were offering for buy-back.  The biggest profits on the coin premium trade are made by selling your coins to eBay buyers who run to silver coins in times when supply is tight, often when dealers are temporarily out of stock.  Comparable data on silver coin premiums in Australia is not readily available, but a massive increase in premiums on Perth Mint Silver Kookaburras and US Mint Silver Eagles in late 2008 can certainly be confirmed.

Given that the world’s fiat currencies and the global economy still stands on shaky grounds, we can almost be certain that there will be excellent opportunities to trade on this strategy in the coming years. While many still ponder the possibility of an overnight collapse in the global monetary system, the reality is that the breakdown is likely to unravel in a series of crisis spanning a number of years - Each panic being patched up by government intervention, money printing and bailouts, resulting in zigzagging markets and a fear index which wildly fluctuates from peak to trough, presenting excellent opportunities to trade the silver coin premium.

US Mint Announces 33% Price Increase on Silver American Eagle Premiums!

Written by Tarek Saab

BREAKING NEWS: The United States Mint has officially raised their wholesale pricing above spot on American Silver Eagles to all authorized dealers from $1.50 to $2.00, an increase of a whopping 33%. This news comes on the heels of a significant silver spot price rally over the last month to a new thirty year record over $22 per ounce. The impact of this news is significant and has already affected dealer pricing across the country within hours, as prices on Silver American Eagles have jumped over $0.50/oz industry wide.

The year 2010 will go down as a record year for Silver Eagle sales, as the United States Mint has already sold more than 25 million coins year-to-date. See chart below:

This development comes only two days after the US Mint announced it had sold out of 2010 gold American Buffaloes and would cease production for the remainder of the year.

The impact of this rise in premiums will undoubtedly affect the prices of generic silver rounds as well. We will monitor these developments closely, as the rush into silver impacts pricing and availability.

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