This supply constraint, in the midst of rising demand, forces dealers to raise premiums. The US Mint goes on “allocation', limiting supply to authorized purchasers. Manufacturing is inelastic with respect to short term scalability. Over the long term, the US Mint might be able compensate, but certainly not in the short term. What if demand triples or quadruples? You get the idea. If we assume demand (in dollar terms) doubles, the mint would need to increase production from 66.67M coins to 200M coins. Now, if the silver spot price fell by 33% in a condensed time frame, you can be certain that demand would increase precipitously. The mint would need to increase minting capacity from 66.67M coins to 100M coins - a huge increase. In this scenario, if the demand in dollar terms remains flat, the manufacturing output would need to increase by 50%. Let’s assume the annual average demand for physical silver is $1B. Let’s assume the spot price of silver is $15 and subsequently falls to $10.ī. Let’s use an extreme example to illustrate the nature of how the physical metals markets move.Ī. However, it is important to understand how and why supply constraints occur during periods of falling prices, and why precious metals premiums consequently spike. The entire annual silver production from the US Mint can be purchased for ~$750M! ( 2014 statistics), which is a rounding error in the equity markets, let alone the bond markets.

The mint carries relatively little stock, and even in boom times annually produces only about 1 (one!) silver coin for every 9 people in the United States. The constraint is not a raw supply shortage, but a manufacturing bottleneck.īy no means does this exonerate the US Mint from culpability for their habitual 'shortages'. Some have interpreted this as an indication that the US Mint has run out of silver. It was reported yesterday that the US Mint has run out of silver coins.

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