Posted on 04/10/2010 12:07:38 AM PDT by dennisw
Why Are Silver Sales Soaring?
Jeff Clark, Senior Editor, Casey’s Gold & Resource Report
The U.S. Mint just reported another record, but this time it wasn’t for gold. The Mint sold more Silver Eagles in March and in the first quarter of the year than ever before. A total of 9,023,500 American Silver Eagles were purchased in Q110, the highest amount since the coin debuted in 1986.
While this is certainly bullish, there’s something potentially more potent developing in the background. Namely, how this matches up with U.S. silver production. Like gold, the U.S. Mint only manufactures Eagles from domestic production. And U.S. mine production for silver is about 40 million ounces. In other words, we just reached the point where virtually all U.S. silver production is going toward the manufacturing of Silver Eagles.
Yikes.
This is especially explosive when you consider that roughly 40% of all silver is used for industrial applications, 30% for jewelry, 20% for photography and other uses, and only 5% or so for coins and medals.
To be sure, mine production is not the only source of silver. In 2009, approximately 52.9 million ounces were recovered from various sources of scrap. Further, the U.S. imported a net of about 112.5 million ounces last year. (Dependence on foreign oil? How about dependence on foreign silver!) So it’s not like there’s a worry there won’t be enough silver to produce the Eagle you want next month.
Still, why so much buying? The silver price ended the quarter up 15.5% from its February 4 low – but it was basically flat for the quarter, up a measly 1.9%. We tend to see buyers clamoring for product when the price takes off, so the jump in demand wasn’t due to screaming headlines about soaring prices.
I have a theory.
For some time, silver has been known as the “poor man’s gold.” Meaning, silver demand tends to increase when gold gets too “expensive.” The gold price has stubbornly stayed above $1,000 for over six months now and spent much of that time above $1,100. You’d be lucky to pay less than $1,200 right now for a one-ounce coin (after premiums), an amount most workers can’t pluck out of their back pocket. But Joe Sixpack just might grab a “twelve-pack” of silver.
What would perhaps lend evidence to my theory is if gold sales were down in the face of these higher silver sales.
The U.S. Mint reported a decline in gold bullion sales of 20.8% this past quarter vs. the same quarter in 2009. Further, other world mints have seen sharp declines in gold bullion coin sales as well: the Austrian Mint reported an 80% drop in sales for the first two months of the year and the Royal British Mint a 50% decline in gold coin production for the first quarter.
What’s even more dramatic is the difference in the dollar value of the sales. Gold Eagle sales in the U.S. dropped $10,263,500 from a year earlier – but silver sales increased by $61,855,290. So, not only did silver sales make up the drop in gold sales, they exceeded them by $51,591,790.
Is the rush into “poor man’s gold” underway?
Why the answer to that question is significant is that a shift toward silver for this reason could signal we’re inching closer to the greater masses getting involved in the precious metals arena. And that – for those of us who’ve been invested for awhile now – would be music to the ears. Because when they start getting involved, the mania will be underway, and from that point forward, it’s game on.
I’m not saying the mania is starting, and I actually think we could see another sell-off before things take off for good. Gold could dip to $1,000 and maybe even $950, with silver going to the $14-$15 range. But as clues like these begin to build up, we’ll know we’re getting closer. (And any drop to those ranges would clearly be a major buying opportunity.)
Everyone talks about gold, myself included, but a meaningful portion of one’s precious metals portfolio should be devoted to silver. The market is tiny, making the price potentially explosive. Remember that in the ‘70s bull market gold advanced over 700%, but silver soared over 1,400%.
Don’t be a “poor man” by ignoring gold’s shiny cousin.
While buying silver is a must, it’s the silver stocks that will truly soar in a mania. And I’m convinced we recommend the two best silver producers in the world. Get their names and our suggested entry points with a risk free trial to Casey’s Gold & Resource Report... click here.
You got Cour D’Alene and Hecla. What you say is true.
They are predicting another summer of $100+ oil. I expect many will be dumping to invest in natural resource stocks and gold/silver.
Ive ridden three silver bubbles since the Hunt’s tried to corner the market I going to sit this one out...
Ive ridden three silver bubbles since the Hunt’s tried to corner the market I going to sit this one out...
My brother has done exactly the same. Not that many people remember the Hunt’s shenanigans.
Color me skeptical. Hard to believe 20% of silver production is still used for photography.
“Color me skeptical. Hard to believe 20% of silver production is still used for photography. “
I believe the heaviest photographic use for silver is XRAY inspection of welds.
There is a shortage of all types of bullions, and more buyers wanting fast delivery.
ping
If there is a monetary collapse. a silver Eagle will be easier to spend than a gold Eagle. It’s the difference between spending a $ 20 bill and a $ 1000 bill.
I figure I could buy at least a day’s groceries with one silver Eagle.
Ping.
“If there is a monetary collapse. a silver Eagle will be easier to spend than a gold Eagle. It’s the difference between spending a $ 20 bill and a $ 1000 bill.”
Exactly.
I have bought gold bullion in small denominations (e.g. 1g - 10g) for this very reason. People may be suprised when they have to use their treasure to purchase something of lesser value and the vendor cannot make change. I have bought a lot of silver too.
To be fair, many (if not most) people buy the larger denoms simply to preserve wealth while other lesser assets depreciate.
“Much of the gold sold of late has been a paper promise. If you don’t have the gold in hand, you may have nothing but an empty promise.”
EXACTLY!....the only way to own is physical gold/silver...why accept a piece of paper from some guy you never met saying gold you’ve never seen is ‘stored’ some place you’ve never been?
Because during the last depression, the Fed confiscated gold?
Just tossing that out there. It's wouldn't matter, they can confiscate silver as well.
Treasury claims power to seize gold and silver -- and everything else
...I’m still holding bags of junk coins bought during Jimmy Carter...and some gold coins bought direct from the Mint....maybe it’s time to unload.
....I wonder if you’re thinking of the Bass brothers back in those days...they almost cornered the silver market... their defense was “It’s not our fault....we’re big buyers...we disrupt any market we buy into”...
....those were colorful times back then...traveling buyers would take a room at the Holiday Inn and start paying spot cash for family heirloom sterling...lots of nice pieces got melted down...I look for history to repeat itself on that score.
if your a nurse, you should relize that a lot of silver is used in the medical profession..
people back then were uninformed compared to today and they also trusted their government, do you really think the people who are smart enough to own and stash bullion will fall for it this time???
Gold and silver ETFs are big paper promises. I would only deal with them short term. You hear of John Paulson who made 4.3 billion betting on areal estate implosion. He got into gold in a big way via the gold ETF. Then he had second thoughts and said to that ETF, “I want my gold holdings in verifiable physical bars held in a segregated vault”
The ETF accommodated him because he is a big shot who brought them good publicity. Paulson has a few hundred million in gold probably more. Some may be his hedge fund holdings.
FROM MAY 2009——>>>
Paulson & Co., the hedge-fund firm run by billionaire John Paulson, increased its investment in gold and gold-mining shares in the first quarter, according to a regulatory filing.
As of the end of the first quarter, Paulson was the largest holder of SPDR Gold Trust, an investment fund that buys gold bullion. The New York-based firm owned 8.7 percent of the fund, valued at $2.8 billion as of March 31, according to a filing with the U.S. Securities and Exchange Commission.
That position was established as a hedge, the company said in a statement, because its funds have a share class that is denominated in gold rather than in dollars or euros.
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