Signs point to trouble in the physical precious metals market. There is an obvious shortage of palladium right now. What about gold & silver?
We are getting bits and pieces of information which are pointing to serious trouble in sourcing precious metals.
Recall that just last month an ill-prepared US Mint ran out of American Silver Eagles, and then the mint sold out of American Gold Buffalos during the same week. I get it, demand has been weak for the better part of two years, so in the world of “just in time inventory” in which we live, one would come to expect that. However, with prices at historically low levels, when adjusted for inflation, especially silver, you would think it would make sense for the US Mint to stock up on blanks, wouldn’t it?
On our last SD Metals & Markets, David Jensen discussed how there is in fact a global supply shortage of palladium right now. I have started the video at the palladium discussion for those who may have missed the podcast:
Recall that back in late May, the US Department of the Interior, while implementing a President Trump executive order, listed palladium (and platinum) as a metal that is considered “critical to the economic and national security of the United States”. Here is a little excerpt from that press release (bold added for emphasis):
Under the Executive Order, these commodities qualify as “critical minerals” because each has been identified as a non-fuel mineral or mineral material that is essential to the economic and national security of the United States, that has a supply chain vulnerable to disruption, and that serves an essential function in the manufacturing of a product, the absence of which would have significant consequences for the economy or national security.
A “supply chain vulnerable to disruption”.
Putting David Jensen’s discussion of a global physical shortage of palladium together with the US government saying palladium is vulnerable to supply chain disruptions, and the picture is coming clear that there are in fact problems in sourcing palladium.
Which brings us to this week.
We learn the US Mint has nixed its plans to offer a 2018 American Palladium Eagle bullion coin.
Sure, the mint made some proof coins, but the mint was set to coin the standard, non-proof bullion coins, but the US Mint has abruptly decided to not produce any palladium bullion coins this year.
From Coinweek we learn:
No American Eagle palladium bullion coins will be struck and issued by the U.S. Mint in 2018, bureau officials announced Sept. 27.
The only American Eagles struck in palladium to be issued in 2018 are the 15,000 Proof 2018-W coins offered by the Mint Sept. 6. The bureau is still reconciling orders placed Sept. 6 that exhausted the number of coins offered within five minutes of their release. The Mint’s Sept. 23 sales report indicates 14,881 of the 15,000 coins are sold.
U.S. Mint officials have not indicated whether an American Eagle palladium bullion coin will be introduced in 2019 or later.
What is missing from the US Mint is an explanation as to why?
We can speculate on an answer by looking at the largest palladium producers in the world as reported in the the USGS Mineral Commodities Summary 2018.
From the report, we see that Russia has overtaken South Africa as the largest palladium producer in the world:
Those production numbers represent total production in kilos.
Of additional interest in that table above is that South Africa may have come in second in palladium production last year, but the African nation by far has the largest palladium (platinum group metals that is) reserves. Furthermore, notice how little palladium the US produced in comparison to Russia and South Africa.
Circling back to the whole “supply disruptions”, well, yeah, we are seeing it in real time and just a few months after we were warned by the US Department of the Interior.
Here’s the thing – Russia and South Africa are by far the world’s leading palladium (and platinum) producers. Take that, and add geo-politics, Russiagate, sanctions and the trade wars into the mix as it pertains to Russia, and add in the internal problems in South Africa with the land grabs and the problems in the mining industry in general, and we have some supply disruptions going on in the precious metals markets.
OK, “Hey Half Dollar, I don’t stack platinum and palladium, I stack gold and silver because those are the metals specifically named in the US Constitution. Does this palladium shortage have anything to do with gold or silver?”.
Here’s the thing – We know the gold & silver markets are manipulated 24/7.
What we don’t know is how long the cartel is able to supply gold & silver at the current prices. There will come a time when the cartel is either unable to supply the metal or unwilling to supply the metal at these current prices. Our problem is that we do not know how close we are to that point in time. What we do know is that when we reach that point in time, market forces will have to take over, and like it or not, the cartel will have to let the prices rise.
Last month, towards the end of the month, American Silver Eagle sales spiked. That’s not the only mint sales which have spiked. This week we also learn that sales of both gold and silver have spiked at the Perth Mint. From Reuters (bold added for emphasis):
Sales of gold products by the Perth Mint surged in September to their highest since January 2017, while silver sales more than doubled from August to mark an over two-year peak, boosted by lower bullion prices, the mint said on Wednesday. Sales of gold coins and minted bars surged 61 percent from August to 62,552 ounces last month, the mint said in a blog post. Gold sales in September rose about 35 percent from a year-ago period. Gold prices dropped 0.8 percent in September, declining for a sixth consecutive month in their longest losing streak in two decades. “We have experienced added interest in our bullion coins since the drop in price of both gold and silver during August. Some of this is down to the previously dormant U.S. market, which at last is showing signs of reawakening,” said Neil Vance, Group Manager, minted products, at Perth Mint. Silver sales soared 151 percent from August to 1,305,600 ounces, their highest since March 2016. From a year earlier, sales advanced about 87 percent.
What is the bottom line?
This is all very bullish fundamental news for all four of the precious metals.
We have verifiable supply shortages in the palladium market, and while we are not hearing of shortages in the platinum market, we do know that platinum is also on the list of “critical minerals”.
We also have a “reawakening” US physical gold and physical silver investor.
And premium creep is kicking in.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.