Question about the premium on a coin like the Silver Eagle
FellintoOblivion
Posts: 280 ✭✭✭
I'm not sure if I'm asking this in the right way to get the answer I'm looking for since I'm brand new to coin collecting (truth be told I'm not even an actual collector yet) but hopefully I am.
I have noticed that a Silver Eagle costs a few dollars more than a random 1 oz. bar of silver due to it's collectibility and the US Mint charging above spot for it to dealers.
Is that premium affected by the spot price of silver or does it largely remain static over long periods of time (assuming the Mint doesn't raise their prices and adjusting for inflation)?
For instance if the current premium for a 2017 Silver Eagle is $3 over a $17 spot price (random numbers) and silver suddenly shoots up to $47/oz would I still only pay $50 for a Silver Eagle?
Thanks!
Comments
I've noticed the premium on silver eagles actually go down as the silver price has gone down over time. The current premium seems pretty stable and has been stable for a while.
There is a general trend I've noticed that the premium on silver tends to increase as silver is dropping because people are reluctant to take a loss and that the premium decreases as prices are increasing for the opposite reason.
Silver Eagles are a bullion that seems to most closely follow ideal supply demand trends. You can regularly buy ASEs at 2-3 dollars over spot from dealers and easily sell at 1-2 dollars over spot in private party transactions. The spread is pretty tight because there are always lots of people buying and selling.
This behavior may not last forever. ASEs are pretty unlikely to be melted since they sell at a higher premium than other bullion. Long term pricing will have more to do with how demand for ASEs will increase as the total supply increases over time.
IG: DeCourcyCoinsEbay: neilrobertson
"Numismatic categorizations, if left unconstrained, will increase spontaneously over time." -me
Is the first sentence something you've noticed over a longer period of time while the second sentence is a trend you've noticed in the short term? If not I'm afraid I've confused myself.
A.... Silver Eagle?
Edit: Duh, American Silver Eagle
Sorry about that. The long-term trend of the silver spot price over the past 5 years has been downward. So the long-term trend is in that direction. There are also short term trends where the price goes up or down by smaller amounts.
The second thing I said was more of a recognition of a general pattern in how bullion is priced, and not necessarily a reflection of what happened at any specific point in time.
People will argue in the Precious Metals forum until the cows come home over whether silver bottomed out last year or whether it will continue to decrease/increase. It's really hard to predict the future, but you can go read people's opinions in those forums and make your own. If you ask me, I think gold and silver are just a hair away from being a fiat currency themselves and are not immune from volatility.
IG: DeCourcyCoinsEbay: neilrobertson
"Numismatic categorizations, if left unconstrained, will increase spontaneously over time." -me
One thing to keep in mind is that while there is a larger premium when you buy you get some of that back when you sell.
Dealers often (always?) sell bullion at a % above their cost, so I assume that as the spot price goes up so does the premium as a % of value. (Not sure if I worded that right, but in other words, if there is a $3 premium at $20 an ounce, there might be a higher $ premium at $50 an ounce).
An example is to look at extremes. As an Engineering manager, I stressed to new engineers to check their designs past the limits to see where it fails.
So, on Silver Eagles, if silver went to 5 cents a pound, the ASE would still have some premium, albeit small.
Likewise, if silver went to $10,000 an ounce, premiums on anything would go away until a new reality set it.
When silver sky rocketed to $50 an ounce, twice in the last 50 years, truck loads of silver coins, that had a "premium" price on them were ripped out of holders, etc. and went into the melter. The more "rare" stuff was saved, but the more common and lower grade stuff is now part of your American Eagle after the meltdown. A lot of money has been made by those careful enough to discern coins that were common may not be common, since "everybody" knew they were "common" so "everybody knew" no harm no foul in melting down "common" stuff.
Kind of like the passenger pigeon, billions in the skies, then extinct.
Initially, a spike in silver prices would bring down the premium over spot as sellers compete to collect on their windfall. At $50 spot a seller might even sell at $48 since he bought at $20. As newly minted ASEs leave the mint at the new price, sellers would return to their normal premium to cover the premium they have to pay the mint.
Keep an open mind, or get financially repressed -Zoltan Pozsar
Great questions and welcome to the forum. I love collecting the silver eagle because it is easy to buy and sell in a short period of time without a huge loss in value. In other words, it is very liquid. Premiums tend to be around $3 over spot when you are buying but those premiums can shoot up or down depending on supply and demand.
My best piece of advice is the following. There are literally millions of silver eagles out there. They are not rare and they are not running out of them. If you are patient, you can always find someone willing to sell you silver eagles for spot plus $3 if you are willing to shop around and wait. Don't let people pressure you into believing that you need to buy now otherwise the price will be higher tomorrow. As mentioned above, no one can accurately make that prediction. Just have fun with it and don't fall into the high pressure sales tactics. I would also stay away from older silver eagles that have a much higher premium based on their collectability until you have more experience.
If you start to hang out on the precious metals forum you will hear about all kinds of deals and sometimes you can buy those silver eagles for much less than $3 over spot with free shipping. Generally, you will have to buy at least a roll (20 coins) to get the best deals online so be willing to save up and spend around $400 right now.
I would also discourage you from buying silver eagles on credit cards or with borrowed funds. Some people mortgaged their houses in the last big correction and suffered mightily.
The short answer is that as spot goes up, premiums will increase on a dollar basis but decrease on a percentage basis. This is consistent with buy/sell spreads on all goods. In the case of coins tied to the price of bullion, spot acts as an anchor on the bid side.
The Mint charges its dealers aka authorized purchasers a premium of $2 per coin over spot. The APs in turn sell to dealers like JMBullion, B & Ms, etc. who in turn sell to customers. The $2 premium usually persists in the marketplace, but don't expect your local B & M to pay that even tho it's cheaper than they can get them from their suppliers.
The best way to recover your premium is to sell privately to other stackers, like thru the BST board here.
Right now in spite of a favorable price for silver [about $17.35] there is a reduced demand for ASEs as evidenced by the fact that one AP is selling monster boxes of 2017 year coins for $2.20 over spot to its dealers. 2016s are $2.12 over spot, suggesting a glut of last year's coins is still in play. Mint production is down as well with 37.7 million being struck last year and just 11,147,000 so far this year.
MY COINS FOR SALE AT https://www.pcgs.com/setregistry/collectors-showcase/other/bajjerfans-coins-sale/3876
Best way to explain is to compare the premium of Silver vs. Gold coins. When the silver reaches $1300 same as the price of gold coins today, the premium in $ value may be higher but the % will be lower.
A coin with 50,000 produced means nothing if there are less than 5000 collectors each kept a coin or two. In the meanwhile a coin with 10 million mintage may have a greater demand when 250,000 collectors buying them by the rolls.
SAE's are trusted for their purity.
A random bar or round could be of any purity of silver.
On a whim I hit up some local places today and found one that was willing to sell me two raw Silver Eagles for $20 each which is about $2.50 over spot. From a complete newbie's point of view they look to be in pretty good condition, no scratches or dents, no discoloration.
Oh don't worry about that this is a completely casual endeavor!
Well done!
Why did this happen? If a silver coin is .999 silver what is the purpose of melting it down and reforming it into a different shape?
The premium moves with the market. (supply and demand)
Because if the time it takes to "ship and handle" individual coins to eke out a little premium exceeds the window of opportunity to shovel them into the smelter all at once before silver price crashes again.
Liberty: Parent of Science & Industry
So people were smelting them into larger (by weight) pieces so they could move larger quantities faster?
Follow up question (thanks to everyone for the help so far):
If I buy a tube of Canadian Silver Maple Leaves (random coin) with the intent of sticking it in a safe for a few decades do I need to store them individually in capsules or can I just leave them in the tube they come in from the Mint?
I leave my ASE's in their tubes.
Keep an open mind, or get financially repressed -Zoltan Pozsar
@FellintoOblivion .... Welcome aboard...and welcome to the roller coaster world of precious metals (PM's). There are collector PM's for type and/or rarity, bullion PM's for stackers, and proof and mint PM's for general collectors. Each type will vary as to price and availability - some affected by spot, others not much or not at all. I recommend you follow the Precious Metals forum - over there you will find good information - opinions - and some not so good information.... After a while you will learn a lot and will be able to discern the difference. Cheers, RickO