We're Back! Bullion Market Recap

Hello and welcome back, finally, at long last, to another episode of Breaking the Dollar. As always, I’m your host, Everett Millman. We are finally back from an extended hiatus; so this episode is going to recap why that was the case, and explain how in these intervening years the market for physical gold and silver bullion really transformed from 2020 to today.

So when I started this podcast back in 2019, the gold market was just beginning to wake up from a kind of hibernation that had lasted for over five years. That summer of 2019, gold prices finally got back above $1,400/oz for the first time since 2013. There was a liquidity crunch going on with American banks, the gold price rallied, and gold really never looked back after that. From my experience and what I’ve studied, I’ve always understood the precious metals markets to behave very cyclically—big price movements come in these long cycles of seven to ten years. So this pattern made sense.

As you can imagine, the renewed interest in gold and silver meant a lot more folks were buying precious metals. In fact, after the start of the covid pandemic in 2020, we saw sales volumes that were on par with the mania of 2009 to 2011 following the financial crisis. It was really an “all hands on deck” situation at Gainesville Coins, and some of my projects like Breaking the Dollar ended up taking a back seat to other priorities.

On top of that, the surge in metals prices meant that I was staying busy with opportunities for media appearances. I’ve done almost weekly interviews with Kitco News—they have two reporters who I really enjoy speaking with, Anna Golobuva and Neils Christensen—and have been a regular guest on the TD Ameritrade Network with Ben Lichtenstein; I also had the privilege of appearing multiple times on other podcasts such as Money Life Show with Chuck Jaffe and Market Buzz with Moe Ansari. I’ve also had an occasional spot on Bloomberg Radio and Reuters.

My favorite of these new relationships has been the pleasure of working with Jan Nieuwenhuijs, who is a gold researcher and writer from the Netherlands. He is truly the most impressive and dedicated researcher I’ve ever encountered in the gold space. Jan has a wealth of knowledge about gold’s role in international reserves, how gold is traded, and why gold will still play a part in the way the global monetary system evolves in the future. I cannot recommend his work enough! It’s been an honor for me to help him edit and publish more than a dozen articles on the Gainesville Coins blog. You should definitely check out his substack called The Gold Observer, and he’s also quite active on Twitter.

So that’s what I’ve been doing during this prolonged absence from the podcast, but let’s get into what’s gone on with the actual metals markets, because I can say without exaggeration that it has been pandemonium.

I’ll explain that in a moment, but it’s worth quickly examining how we’ve had a perfect storm so to speak for gold prices to move higher.

Aside from the public being worried and flocking to gold during the pandemic, we’ve of course experienced the highest inflation rates in four decades. Historically, gold has a solid track record of maintaining its purchasing power as inflation eats away at the real value of government currencies, so naturally this has been reflected in higher prices. Central banks have continued to buy gold in record amounts. There’s been geopolitical strife, particularly between the West and China, and the ongoing war in Ukraine, both of which have driven safe-haven demand for gold. There’s also been widespread uncertainty about whether the world economy is teetering on the brink of a recession. And more recently, there’s been stress in the banking system as two medium-sized banks, First Republic and Silicon Valley Bank, as well as a rather large bank, Credit Suisse, have all failed already in 2023. That’s three major bank failures in the span of about a month. Any time people are worried about keeping their money in banks, understandably so, they tend to turn to gold for safety and protection. If you’ve paid attention to the news lately, there’s also the drama in Washington over whether or not the government is going to raise its self-imposed debt ceiling and avoid defaulting on its debt obligations. It’s the confluence of all of these factors at once that has made gold especially attractive as a hedge or a financial insurance policy.

Now let me address the pandemonium I mentioned before—the uproar and chaos that has characterized the bullion market. As metals prices have risen near their highest in a decade, with gold around $2,000/oz, there have been persistent issues with supply chains. Most dealers and wholesalers have faced difficulties in getting bullion products as quickly and as easily from suppliers as they once did. As a result, the premium on these products, which is essentially the mark-up above their melt value, has exploded higher. This is mainly true of government-issued coins from government mints. For more generic products, like bars and silver rounds, you can still find some low-premium deals, and I encourage you to do so if you’re planning on buying silver.

But gold coins and silver coins that come from official government mints, like the United States Mint, Royal Canadian Mint, Perth Mint in Australia, and so on: these coins are all heavily in demand by investors. Yet the mints have basically not been able to keep up with the level of demand, causing severe backlogs in the supply chain and, consequently, much higher premiums when you buy these coins. It has stubbornly remained an industry-wide problem for the past three years. To illustrate, prior to 2020, I can distinctly remember that the premium over spot for an American Silver Eagle coin, for instance, was consistently about $2.50 to $3. That’s roughly 10% to 20% of the value of the metal in the coin, depending on if the silver price was at the top or bottom of its range over that time period. But 10 to 20%. Today, that $3 premium has become a $15 or $20 premium, meaning you’re paying almost double the coin’s melt value, so more like a 100% premium instead of 20%.

Understandably, a lot of people are angry about this. But it’s really Economics 101: those premiums climb and climb until they reach the point that demand goes down enough for supply to catch up. It’s a problem that has affected the entire industry, too. In addition to that, as private mints and private suppliers of gold and silver have had to pick up the slack and pump out more products as an alternative to Silver Eagles and other government-issued silver, it’s led to significant delays in product shipments. Things that used to take a week or two to get processed and shipped out to customers now can take as much as six or seven weeks. And this has gone on now for multiple years. It’s incredibly frustrating for people buying precious metals. I see it firsthand all the time, and I deeply empathize with those frustrations. Nobody wants to pay for something and wait two months to receive their product while the company holds their money—but that’s the reality we’re all stuck with right now.

I will point out that one of the main reasons the delay bothers people is, I suspect, that they’re trying to flip their metals for a quick profit. Not that there’s anything wrong with that, but in my opinion, I generally look at precious metals more like an inflation-resistant savings account. Ideally, you hold them for the long run. This problem with delays gets exacerbated because the flood of new orders never stops coming in. Even when metal prices are high, the volume of buying is stronger than I’ve ever seen in my ten years at Gainesville Coins.

Nonetheless, I’ve been eagerly waiting for the situation to revert back to what I knew in the seven or eight years prior to all of this madness; but the longer that it goes on at this point, the less likely it seems that we’ll ever get back to the way it was before. In the meantime, until it does normalize, I would suggest buying privately-minted bullion products as an alternative, and to remain patient with the shipping times. Just keep in mind that an online bullion dealer or your local coin shop are having to deal with the same problems with shipping delays from their suppliers; and moreover, those higher premiums we talked about don’t necessarily mean that profit margins for gold dealers are any higher, because the price they have to pay to wholesalers has skyrocketed by the same amount. So just keep that in mind that we’re all really in the same boat here.