Silver thread amongst the gold
News
April 29, 2010
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 per cent of all silver is used for industrial applications, 30 per cent for jewelry, 20 per cent for photography and other uses, and only five per cent 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 first quarter up 15.5 per cent from its February 4th low – but it was basically flat for the quarter overall, up a measly 1.9 per cent. 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 US$1,000 for over six months now and has spent much of that time above US$1,100. You’d be lucky to pay less than US$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 would be if gold sales were down in the face of these higher silver sales.
Sure enough, the U.S. Mint reported a decline in Gold Bullion sales of 20.8 per cent this past quarter as against 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 per cent drop in sales for the first two months of the year and the Royal British Mint a 50 per cent 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 US$10,263,500 from a year earlier – but silver sales increased by US$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 US$1,000 and maybe even US$950, with silver going to the US$14 to US$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, 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 1970s bull market gold advanced over 700 per cent, but silver soared over 1,400 per cent.
Don’t be a “poor man” by ignoring gold’s shiny cousin.
And while buying silver is a must, it’s the silver stocks that will truly soar in a mania.
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