Tags: silver | gold | demand | physical

Every Cloud Has a Silver Lining

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Friday, 08 Nov 2013 08:31 AM Current | Bio | Archive

All the media attention about U.S. investors being mixed about gold has stolen the spotlight from silver, which will likely have a record-breaking year.

Year-to-date sales of American Eagle silver bullion coins from the U.S. Mint are 39.2 million ounces with five weeks left for additional sales. That is a big jump from 2012 sales of 33.7 million ounces. The historic record happened in 2011, when sales peaked at 39.9 million ounces. And to put this in perspective, consider that pre-financial crisis sales were pretty steady at 10 million ounces a year.

Silver is generally seen as the more accessible cousin of gold. It is a precious metal, but costs much less than gold and it has many industrial uses.

American Eagle silver bullion coins are the most popular way to buy silver in the United States for individual investors. And because of its accessibility, silver is generally a good indicator of individual investor sentiment toward precious metals, and historically is one indicator for future gold demand.

So what is silver demand telling us?

First, individual investors in the United States are concerned about the modest and fragile economic recovery and the large scale of quantitative easing needed to prop up the economy and the stock market. Another big concern is the possibility of aggressive inflation if the economy is less than robust when the Federal Reserve decides to unwind quantitative easing. As a result, these investors are buying silver at a record pace to diversify their portfolios to include tangible assets.

Second, because there is less interest in silver by institutional investors, there is also less leveraging of physical silver assets and more transparency. Therefore silver demand accurately represents physical silver demand without the distortion of electronic proxies like exchange-traded funds and short and futures contracts that plague the physical gold market.

Third, silver demand usually precedes gold demand. If the historical trend holds, physical gold demand in the United States should pick up. However much of the excess gold that backed electronic proxies for gold were sold to Asia when U.S. demand sagged. Because Asian investors are far more likely to hold onto their gold for the long term, supply may be scarcer for investors if U.S. demand picks up. And when demand exceeds supply, prices usually go up.

Do not let the vocal bearish sentiment on gold become a distraction to what is really happening to the physical demand for all precious metals.

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Ed-Moy
All the media attention about U.S. investors being mixed about gold has stolen the spotlight from silver, which will likely have a record-breaking year.
silver,gold,demand,physical
406
2013-31-08
Friday, 08 Nov 2013 08:31 AM
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