Junk silver is the key to watch these days. So what is junk silver? These are coins with silver in it ranging from 35% to 90%. But mostly we are referring to the 90% silver bags. On APMEX you can buy these 90% silver bags here: http://www.apmex.com/Category/17/90_Silver_Generic_Bags.aspx
Now what was the premium historically on these 90% silver coins?
In 2008, when we saw a collapse in gold and silver, the premium on junk silver went from a discount of $0.67/ounce or -4% to spot price to a premium of $3.81/ounce or 41% premium (Chart 1). This happened because the silver price was so cheap at that moment. Nobody was able to buy junk silver from the market without waiting several months. So that's why the premiums were so high. We all know what happened in the years after this take-down, silver skyrocketed to new highs of $50/ounce.
|Chart 1: 90% silver US coins premiums historically|
Miles Franklin posts on his website that junk silver premiums went positive last winter (Chart 2). This is comparable to the winter of 2008. On APMEX, the premium is already at 15% if you buy via Check or Wire Transfer. If we see the silver price fall even further, this premium could go up significantly and possibly go to 2008 highs of 41%. And we all know what that means: shortages and a higher silver price. Silver went from $10/ounce to $50/ounce in the years after 2008 because of a shortage. Today, silver would need to go from $25/ounce to $100/ounce by 2015 just to be comparable to 2008.
Keep watching the junk silver premium. You will know when it is time to buy silver, when premiums go to 41%. That's the moment where the physical market is ignoring the futures market. The physical market will set the price of the futures market as bullion is transferred from the futures market warehouses to the physical hands.