COVID-19: Is Now A Good Time To Buy Silver?

April 16th, 2020

The below references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

Aside from what is deemed essential services, all silver and gold bullion production is currently on hold due to COVID-19. The Royal Canadian Mint has released the following statement:

"The Mint remains open for business. We are maintaining critical services for our refining, storage and ETR customers and continue to maintain the highest levels of security. Hundreds of employees are working from home to seamlessly manage Canada's coin management system."

The statement by the Royal Canadian Mint found here makes it clear that production of bullion is no longer in effect at the Ottawa Mint until further notice. The same approach is being carried out by other government and private mints; essentially bullion production is on hold.

Due to COVID-19, the stock market has felt turbulent times not seen since the 2008 financial crisis. While gold has remained strong, as expected during economic uncertainty; silver has taken a beating. Over the last 3 months silver has fallen from a high of $18.65 in early March to a low of just under $12.00 in mid-March, finally recovering to $15.50 at the time of this article.

The above image courtesy of silverseek.com.

If the spot price of silver is trading so low, then online precious metal retailers can justify the premiums due to lack of supply due to the supply chain being disrupted by COVID-19. However, once the supply chain resumes, the prices for physical silver should correct to something definitely more reasonable, as the price of silver was trading at almost $20.00 USD spot in late summer of 2019 and the cost of an ounce of physical silver was still cheaper during that time than now.

It is also worth noting that online retailers and local coin shops would be operating at a loss if they tacked on the customary 15%-20% premium onto spot when calculating their price.

Pre COVID-19:

$18.50 USD [Spot Price] X 1.20 [20% premium] = $22.00 USD for an ASE

Currently:

$15.50 USD [Spot Price] X 1.65 [65% premium] = 25.66 USD for an ASE (Current pre-order price at APMEX)

Therefore, the premium for silver is currently three times what it was months before the COVID-19 outbreak. If silver's price is only high because production has come to a halt, then premiums should correct to much lower when production picks up some time in May and June.

We must also understand that silver is speculative. With demand for industrial silver down, we can expect the price of silver to hover under $18 until next year. With all the money printing by the Federal Reserve and around the globe. The better bet in physical precious metals is still gold; even as it trades at seven-year highs.

A precious metal ETF traded by iShares called SLV might be a much better bet in the short term. At the time of this article SLV is -14.24% for the year, making it a great entry point for silver. Once the economy picks up and demand for silver rises, we can expect the SLV ETF to take off. Furthermore, by that time the physical silver supply chain will have caught up and we can expect cheaper premiums at a time when the hype for stacking due to panic and fear has surpassed.

Nothing excites me more than getting my hands on silver, but now is not the time to pull the trigger on this speculative metal.