Precious Metal Shortage: High Premiums

WHERE IS MY METAL!!?

 This article is intended for informational purposes only and should not be considered investment advice. Prior to investing, one should always seek counsel from a certified financial advisor. This article is an explanation of the current and on-going global shortage of physical precious metals and our part within the industry.

What we do.

Investor Crate (recently referred to as "Late Crate.") is a subscription crate company based on a subscription business model. The idea was started by our founding members on a popular investing forum. Essentially the idea was to purchase massive wholesale precious metal orders, obtaining a lower-than-average premium, that we could then distribute among our friends who pitched in on the large purchase.
Nothing has changed since those days and we continue to do exactly that. These are the key dates and operational things that happen within our company. 

Pouring 400 oz Gold Bars. Location: Redacted for security.

Operational timeline.

The 1st of the month.

Billing of all clients occurs on the 1st.

Our trade desk meticulously builds each SKU (or crate type based on metal type and price tier).
We then place our trades with the various suppliers, importers and mints.

This process is extremely long and difficult and can take up to 5 days to complete negotiations and bidding. These things can be delayed any time the markets are closed, such as weekends, national holidays or national emergencies.

The 5th of the month.

Due to fraud that started slowly in 2017, later gaining popularity, we were forced to create our cut-off date policy. This policy states that all orders must be placed on or before the 5th, approximately 10 days before our ship out date to ship during that months fulfillment cycle.

The 15th of the month.

All orders are packaged and shipped on the 15th of the month.

Upon completion of fulfillment a thorough inventory is conducted and any precious metal products and dunnage that is left over is listed for sale, at cost, on our Fire Sale page.

In order to utilize the Fire Sale page, you must be an Investor Crate Plus member. 

The reason for the shortages.

Quick note before we begin. It is important to understand that Precious Metals are very expensive. A mere shoebox filled with Gold can easily exceed USD $1,000,000 dollars. It is also important to note that because it is a commodity and the price is set by the market (namely the LBMA, London Bullion Market Association) mark ups are very small. A supplier or retailer is only expected to make (as GROSS profit) an average of 2.5% during a sale of a bullion product. The average business in the United States makes 10-20% NET profit. In other words, any industry in the United States is on average 8-16 times MORE profitable than that of the Investment Bullion Industry. (Not to be confused with the Jewelry or Industrial Metal industries.) Furthermore, this makes the mints, retailers, suppliers and importers extremely careful with the timing, trades and inventory of the product. It also makes these businesses extremely efficient and highly optimized, in terms of day-to-day operations.

Unlike a shoe store or department store, suppliers and mints do not have a large inventory of the product on hand. In fact, most purchase orders are manufactured to fulfill. This is due to costs associated with liability, insurance, security and the potential for market loss. For example and especially in times of market volatility, having on hand a million dollars’ worth of Gold that perhaps the supplier picked up at $1800 an ounce could quickly devalue to $1700 an ounce before the product is purchased by the end user. Not to mention, employee costs, facility costs, security costs and insurance costs which quickly add up.

Often we hear customers rebuke this notion as business risk, however even a large company could go upside down in a scenario like that (which by the way happens all the time) and I am unsure if we want bullion retailers to go out of business. More competition generally means lower prices. If only one retailer dealt in Precious Metals, they would be able to charge whatever they wanted.

The Pandemic

Early in 2020 a global pandemic known as the coronavirus or COVID-19 struck. This impacted the Precious Metals industry in a few different ways;
Economic Downturn – During any time of economic uncertainty everyone from hedge fund managers to your run in the mill middle class worker turns to buying precious metals. Precious Metals are considered a safeguard during times of uncertainty and this has been proven true multiple times in history.

Any time the economy takes a downturn or government spending is increased, the price of Gold and Silver goes up as well as the demand for the bullion as the to are closely correlated. This usually puts the commodity into the news cycle which also brings new customers to market.
*Note* If you see Precious Metals in the news or trending on the internet, you can expect bullion to go out of stock. Some folks on the internet claim that this is the retailers holding onto inventory in hopes market prices rise due to the demand. I can say this is completely untrue as bullion retailers (as a business) are not investing in the commodity. They sell the commodity for a retail profit. As explained, we deal with tiny profit margins so actually the opposite is true. Bullion retailers are successful due to VOLUME of sales and shortages like this are never self-inflicted or artificially created.

Mining and Mint production

Just about everything slowed down due to new safety protocols stemming from the pandemic. This caused mining and minting to slow. Also, as big hedge funds and large IRA portfolios transferred their holdings into physical bullion, mints focused on fulfilling large orders such as Kilo, 100 oz and 400 oz bars, focusing less on smaller 1 oz (or fractional) size bullion. Some mints even reported that they discontinued minting of those smaller products temporarily. This is why things like fractional Platinum, Palladium, Gold and Silver are scarce.

Logistics

As the pandemic panic ensued, consumers turned to online purchasing more than ever. This caused delays with all mail curriers that are still felt today. I personally was told by a USPS dock worker that it was, “like the Christmas rush, except every single day.”
Often times you will hear people wanting them to increase infrastructure to handle the new demand, however, with no one knowing when/if the pandemic will end, this is a risky business move for those carriers.

#SilverSqueeze

This hashtag trended across social media due to the GameStop conundrum started by r/wallstreetbets, late January of 2021. WSB is a subreddit on the popular social media platform Reddit that discusses investments in the stock market.
After they “manipulated the market” to send GME to the moon, popular trading apps such as Robinhood suspended trading and put an end to what they did. In response, they attempted to squeeze and then short Silver stocks, which is impossible to do because the market capitalization and trade volume is well over 100 times greater than GameStops stocks even on a daily basis, let alone total market capitalization. When this trended, some people on the internet took this as a signal to buy physical Silver which was not the intended target.
This caused physical bullion demands to skyrocket and the aforementioned reasons for small and limited available inventories to dry up almost instantaneously.

Shortages happen now, more than ever.

The precious metals market (minus certain economic events, namely Silver Thursday) is usually and historically calm. It sees constant, slow gains but never has it been this volatile. This is likely going to bring some changes to the industry and honestly, we hope this is the case. Time for someone to innovate!

In conclusion.

We expect to see physical bullion shortages well into the future. This is due to;

Market Volatility

Economic Downturn

Government Spending and Stimulus Bills

Bored Reddit Users

The Pandemic and the New Safety Protocols

Shortages on certain items (at the discretion of mints and manufacturers)

Private and Government mail currier delays

Embargos, Treaties, Taxes and Import Restrictions


Please note that these things are very disheartening for bullion retailers. It is obviously not our intentions to make customers angry with wait times and to be completely frank, fulfillment is the best part of the business. We all share a great deal of passion in the industry and having hands on all this shiny goodness is truly the best part of it all. From receiving pallets of the stuff, opening it all up, taking an inventory, pre-packing and shipping it out to you guys beats paperwork, trading and other day to day activities each and every time!

On behalf of all retailers and folks in the industry, we are truly and sincerely sorry for the wait times and delays. Please be patient as we work towards the global effort to get things back to normal.

If you have any questions, comments or concerns feel free to write us at ‘support@investorcrate.com.’ 

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