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US Mint Lost $111.7 Million In 2021 Silver Contracts

 
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Pillar of the Community

United States
784 Posts
 Posted 12/03/2022  07:02 am Show Profile   Bookmark this topic Add livingwater to your friends list Get a Link to this Message
I looked at the US Mint 2021 annual report. I noticed they lost $111.7 million in silver derivative and hedge positions through their broker. I wonder if there's any correlation between this and the low Silver Eagle mintage in 2022 of about 14.86 million. Or, I read somewhere there may have been a shortage of planchets, maybe due to Covid, supply chain, etc. On the other hand, the mint director could have for another reason, chose to limit silver eagle production in 2022. Silver Eagle production in 2020 was over 30 million, for 2021 about 28.27 million.

I didn't know the mint not only just buys silver but also has their broker use derivatives and hedges it. On the COMEX there are many more paper silver contracts than what silver is actually available. Can be risky. I read actual silver inventories are low right now.

https://www.usmint.gov/about/reports



Edited by livingwater
12/03/2022 07:25 am
Pillar of the Community
United States
948 Posts
 Posted 12/03/2022  09:42 am  Show Profile   Bookmark this reply Add otto to your friends list Get a Link to this Reply
Silver prices are volatile, so I can see why the mint needs insurance to make their costs more predictable.
Bedrock of the Community
United States
11781 Posts
 Posted 12/03/2022  11:16 pm  Show Profile   Bookmark this reply Add CelticKnot to your friends list Get a Link to this Reply
The ongoing high premiums tend to support the theory of low inventory.
Bedrock of the Community
Australia
20593 Posts
 Posted 12/03/2022  11:50 pm  Show Profile   Bookmark this reply Add sel_69l to your friends list Get a Link to this Reply
Organizations like the US Mint cannot do business unless they have a good idea of what their overall future costings are going to be. It is this sort of information upon which their annual budgets and business planning is based. They are not in the business of using futures trading for speculation purposes. Instead, they still need silver at a known price as a commodity, to produce their silver collector coins. That is why they need to deal in silver futures, but sometimes, like any other investor, they get it wrong.

Nevertheless, it logical that silver prices would feed into the pricing of silver Mint product. It does not pay them to produce large quantities of silver mint product, which is at least partly based on the silver price, in a year in which they know they are going to make a loss for that year.

If there is less silver available for making collector coins in a particular year, it follows that fewer silver coins are going to made in that year.
Edited by sel_69l
12/03/2022 11:54 pm
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United States
3719 Posts
 Posted 12/07/2022  8:34 pm  Show Profile   Bookmark this reply Add BStrauss3 to your friends list Get a Link to this Reply
The mint indicated they had had trouble sourcing sufficient silver planchets within in the restrictions of the law.

https://www.law.cornell.edu/uscode/text/31/5116


Quote:
(b)
(1)The Secretary may buy silver mined from natural deposits in the United States, or in a territory or possession of the United States, that is brought to a United States mint or assay office within one year after the month in which the ore from which it is derived was mined. The Secretary may use the coinage metal fund under section 5111(b) of this title to buy silver under this subsection.
(2)The Secretary may sell or use Government silver to mint coins, except silver transferred to stockpiles established under the Strategic and Critical Materials Stock Piling Act (50 U.S.C. 98 et seq.). The Secretary shall obtain the silver for the coins authorized under section 5112(e) of this title by purchase from stockpiles established under the Strategic and Critical Materials Stock Piling Act (50 U.S.C. 98 et seq.). At such time as the silver stockpile is depleted, the Secretary shall obtain silver as described in paragraph (1) to mint coins authorized under section 5112(e). If it is not economically feasible to obtain such silver, the Secretary may obtain silver for coins authorized under section 5112(e) from other available sources. The Secretary shall not pay more than the average world price for silver under any circumstances. As used in this paragraph, the term "average world price" means the price determined by a widely recognized commodity exchange at the time the silver is obtained by the Secretary. The Secretary shall sell silver under conditions the Secretary considers appropriate for at least $1.292929292 a fine troy ounce.


Section 5112(e) authorizes the ASEs.

The average world price clause basically means spot. So the secretary can't pay spot plus 1%...
-----Burton
49 year / Life ANA member (joined 12/1/1973)
Life member: Numismatics International, CONECA
Member: TNA, FtWCC, NETCC, OnLine Coin Club
Owned by four cats and a wife of 39 years (joined 1983)

PS: ANA's records are messed up, they show me as a 50-year member and I'm now Emeritus
Bedrock of the Community
Australia
20593 Posts
 Posted 12/08/2022  05:05 am  Show Profile   Bookmark this reply Add sel_69l to your friends list Get a Link to this Reply
Can the Secretary buy silver at spot on forward contract ? (futures market)
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