New Shortfall in Production Capacity for Fabricated Silver and Gold / Commodities / Gold & Silver 2019
Thetwo largest private producers of bullion bars and rounds in the U.S.have gone defunct over the past two years. Premiums for silver bars and roundsare already on the rise as markets adjust to the lack of supply.
Atpresent, demand for these products is manageable. A surge in buying activity,however, could lead to serious difficulty finding low-premium products.
Elemetalshut down most of its operation in early 2017. The firm was implicated in ascheme to launder money for South American drug cartels and lost itsdesignation as an LBMA and COMEX approved refiner. That loss was the kiss ofdeath for the firm, which soon shuttered most of its production.
Florida-basedRepublic Metals had a blow up of its own late last year.
Thefirm’s problems kicked off in April when an internal audit revealed nearly $100million in physical metals at its Miami facility could not be unaccounted for.Banks withdrew lines of credit on the news and a deal to sell the company’sassets was not completed in time to avoid a bankruptcy filing in November.
RepublicMetals’ considerable production capacity has been offline for three months now.Whether the plant and equipment will be purchased and put back into productionremains uncertain.
Thesedevelopments leave the bullion markets in vulnerable condition. Demand forfabricated silver rounds and bars ticked higher in December. The effect onpremiums was immediate and dealers are now quoting lead times for someproducts.
Buyingappetite from investors remains well below what is was a few years ago. Duringthe peak demand period, both Elemetal and Republic ran multiple shifts in aneffort to keep up.
Shouldeven a portion of that demand return to markets, the current productioncapacity will be swamped quickly.
Wewould expect buyers to respond to higherpremiums and delivery delays by opting for sovereign coins, such as AmericanEagles or Canadian Maple Leafs, instead. Prices would likely rise across theboard for all bullion products, and some products may not be available inquantity at any price.
Bullioninvestors should be aware of the lowered production capacity and planaccordingly. Any supply crunch and corresponding spike in premiums could evenpresent an arbitrage opportunity for those wanting to swap high premium itemsinto large bars.
Capacitywill eventually catch up. However, that process can take many months, perhapseven longer. People with plans to buy physical metal in the near future maywant to move sooner rather than later.
By Clint Siegner
Clint Siegner is a Director at MoneyMetals Exchange,perhaps the nation's fastest-growing dealer of low-premium precious metalscoins, rounds, and bars. Siegner, a graduate of Linfield College in Oregon,puts his experience in business management along with his passion for personalliberty, limited government, and honest money into the development of MoneyMetals' brand and reach. This includes writing extensively on the bullionmarkets and their intersection with policy and world affairs.
© 2019 Clint Siegner - All Rights Reserved
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