Shortages of certain bullion products is possibly the most important issue facing the gold and silver markets today.
The sole maker of South African Krugerrands, Rand Refinery Ltd., largest gold refinery in the world, today ran out of the iconic bullion coin after an ‘unusually large’ order from an unnamed buyer in Switzerland.
Rand Refinery has delivered more than 46m blank coins over the years since it opened in 1967.
Bloomberg reported yesterday how the largest gold refinery in the world was out of inventory of gold Kruggerands due to just one sizeable order from Switzerland of 5000 Krugerrands. This would be worth a measly $4,160,000 (5000 X $832) and this shows how small the precious metals markets are vis-à-vis the bond, equity, currency and derivative markets. It is more than likely that a tiny fraction of these international capital markets has realised the supply/demand issues in the physical market and is following the smart money and this will likely lead to huge moves up in precious metal prices. This should lead to the inflation adjusted price of $2,300 per ounce being reached in a matter of weeks rather than a matter of months and years.
Premiums on nearly all gold and silver bullion products continue to rise significantly. Some products are actually increasing on a daily basis. As reported in Bloomberg and Marketwatch (see news) yesterday, we are now paying a wholesale premium of 3.8% over spot for Krugerrands in volume, up from 3.2% the day before.
Some of the largest wholesalers in the US have no stock left of silver bullion coins (Eagles and Maples) and silver bullion bars (1, 10 and 100 ozt) and only have 90% and 40% silver bags. Increasingly there are delivery delays on a swath of bullion products including on older European coins including British sovereigns. Some wholesalers are not just talking about delays of a few weeks but delivery delays into 2009 on certain products.
These shortages are leading to premiums going up sharply on all bullion products . Some large wholesale bullion dealers have assigned and appointed a dedicated person to monitor pricing and raise premiums as required in accordance with lack of supply and rising demand.