Avoid silver american eagles... and save big

Most long-time bullion investors know Silver American Eagle premiums are very high these days. The coins command a numismatic-like premium, but they are anything but collectible.

The dysfunctional U.S. Mint makes tens of millions of them each year. But unlike well-run private mints, these government bureaucrats are incapable of or unwilling to address their production and sourcing stumbles, so demand for silver Eagles continues to outstrip supply.

Buying silver Eagles is something of habit for some investors. In addition, the droves of newcomers entering the markets these days are instinctively drawn to the coins.

They are official, legal tender and carry universal recognizability.

However, as our staff will explain to anyone who asks, there are alternatives which offer so much greater value.

We often can’t talk people out of buying silver Eagles. Still, since we want to do right by our customers, it is worth trying.

Here are three reasons to buy cheaper alternatives.

The first reason is that an investment in silver Eagles is seriously speculative at this point.

Buyers aren’t just betting on silver prices. Almost 40% of what an investor puts into each coin is the premium, which is at all-time highs. In order for that portion of their bet to pay off, premiums will need to go even higher from here.

It is easy to make a good argument for silver itself being cheap. Making the same argument for silver Eagles is way harder. No one paying today’s premiums should be under the impression they are “buying low.”

If silver Eagle premiums return to what they averaged between 2010 and 2019, it will be a decline of nearly $15 per ounce. In our estimation, the likelihood of that is far greater than Eagle premiums rising by another $15.

The second reason is buyers get very little actual value for all those extra premium dollars.

The trust and recognizability that comes with an official U.S. coin is worth a buck or two historically. Over time buyers expected to pay a couple dollars more when they bought them, and they expected to get a couple dollars more when it was time to sell.

What does paying more than a $2 extra get for investors? Probably nothing.

They aren’t getting a collectible because Eagles are anything but scarce. There are no meaningful legal or tax advantages to owning them. And they aren’t going to be easier to sell than other common silver bullion products.

The third reason is that bid/ask spreads are extremely high. Dealers are afraid the bubble in Eagle premiums will burst and they will get stuck holding the bag. Thus, they are hedging that possibility by setting bid prices well below the ask.

Prudently managed dealers hedge against price fluctuations in the value of their inventory.

This allows them to keep buying and selling to clients without regard to market prices.

There are, however, no similar tools dealers can employ to hedge against premium fluctuations.

They don’t want to be caught with a lot of inventory purchased at ultra-high premiums, so they must add extra cushion.

This means new Eagle purchasers will need to see a larger rise in silver prices in order to break even versus investors who bought something with a narrower spread.

For those who bought silver Eagles in years past when premiums are low… congratulations! You could make a nice profit by selling them to Money Metals Exchange and swapping the proceeds into silver bars or rounds. Considered doing so before silver Eagle premiums come back to Earth.

The best deals on silver, by far, are found on silver rounds and silver bars.