By CoinWeek…
The market for junk silver, primarily pre-1965 U.S. 90% silver coinage, is currently experiencing an unprecedented liquidity crisis. This disruption is stemming from severe refining backlogs and an associated spike in the cost of financing silver, which has effectively frozen the process by which scrap and less-than-.999-fine silver is converted into investment-grade bullion. The result is a growing disconnect between the spot price of silver and the real-world ease of buying or selling physical metal, placing a strain on both retail and wholesale market participants.
The Refining Bottleneck
The core of the problem lies with the global precious metals refineries. These facilities are essential for melting down less-pure silver, like “junk” coins and sterling scrap, to create the high-purity (e.g., 0.999 fine) 1,000-ounce bars required for large-scale trading on exchanges like COMEX and the London Bullion Market Association (LBMA).
Refiners have been inundated with material, partly due to Americans liquidating silver assets in response to high prices. However, the true breaking point has been a massive surge in silver lease rates—the interest rate paid to borrow physical silver. In normal times, refiners borrow silver or cash at low rates to finance the metal while it is being processed. Recently, these lease rates have skyrocketed from typical single-digit percentages to levels nearing 100% or more. This makes it uneconomical for refiners to accept and hold new material, as the financing costs wipe out any potential profit.
Consequently, many major refineries have temporarily paused or severely limited their intake of scrap and junk silver. This is not just a slowdown; it’s a structural freeze of a critical part of the silver supply chain.
Silver Freeze Impact on Wholesale and Retail Buyers
The silver refining freeze has immediate and distinct consequences for both wholesale dealers and retail investors who deal in junk silver:
Wholesale Liquidity Drying Up
- Dealers Stop Buying: Wholesalers and larger bullion dealers rely on refiners to process the high volume of scrap silver they purchase from the public. With refiners no longer accepting the material or charging prohibitive fees, dealers can no longer afford to buy junk silver at their usual, close-to-spot rates.
- Reduced Offerings: Many dealers have completely halted purchases of 90% silver and sterling scrap, or are offering drastically lower prices, far below the metal’s melt value. This creates an enormous gap between the paper-market spot price and the actual selling price of the physical product.
- Inventory Stress: Wholesalers are hesitant to stock more junk silver inventory that they cannot efficiently offload or convert into refined product, adding to market inertia.
Retail Sellers Face Illiquidity
- Selling Difficulty: For the retail investor, the primary consequence is a sudden and sharp reduction in liquidity. Junk silver is historically popular precisely because of its high liquidity and fractional size, making it easy to sell small amounts. Now, the traditional avenue for liquidation (selling back to a dealer) is choked.
- Plummeting Buyback Prices: Retail sellers who manage to find a dealer willing to buy are receiving offers significantly lower than what they would have expected, creating a sense of loss and frustration.
- Rising Premiums for Buyers: Ironically, for those still looking to buy junk silver, the product may experience an increase in its premium over the spot price. The existing stock held by dealers becomes more valuable as a finished, fractional product, given the difficulty and delay in converting new scrap into refined forms.
The (Likely Short Term) Outlook
Until the refining logjams clear and, critically, the silver lease rates return to sustainable levels, the illiquidity in the junk silver market is likely to persist. This event underscores a fundamental reality in the precious metals space: the value of physical metal is not just its spot price, but its convertibility. A breakdown in the refining supply chain can quickly decouple physical market dynamics from paper market pricing, leading to significant volatility in premiums and a challenging environment for those seeking to liquidate their holdings.
This situation reveals the underlying stress in the physical silver market, where a convergence of high demand, dwindling above-ground stocks, and financial constraints has exposed a critical vulnerability in the global refining infrastructure.
YouTuber Silver Seeker has a fantastic video that explains the state of the market for junk silver and problems sellers face in the current market environment.
The post The Silver Freeze: Refining Backlogs Create a Liquidity Crisis for Junk Silver appeared first on CoinWeek: Rare Coin, Currency, and Bullion News for Collectors.
