Buy Silver Bullion Coins

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.

by Sean Brodrick on April 16, 2010 at 8:30 am

Main Street may know something that Wall Street’s chattering class doesn’t know. Because while Wall Street always seems to give silver short shrift, mom-and-pop investors are buying silver at a furious pace.

Here’s what I mean: The U.S. 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 the first quarter of this year, the highest amount since the coin made its debut in 1986.

I think that we may be seeing the start of something big in silver. And I have some ideas on how you can ride this wave, as silver goes to $20 an ounce, $25, and potentially higher.

And it’s not just the small investors tucking silver coins away at home. Take a look at the combined holdings of silver ETFs around the globe ….

Last year, total silver ETF holdings grew by 122 million ounces. That’s nearly 1 in 5 of every ounce mined. How much do you think silver ETFs will add to their holdings this year?

I’m not going to guess, but it’s just one of upward pressures on silver now. The other forces include …

#1) Supply Squeeze. The 2009 numbers aren’t in yet, but in 2008, silver saw its demand decrease by 0.9% to 832.6 million ounces. In fact, both the price and demand for silver have been trending higher for the past 10 years. It’s also good to remember that the average bull market in commodities lasts around 17 years.

Silver miners couldn’t meet demand in 2008 — only about 657 million ounces came out of the ground — a gap of 175 million ounces. So, the world relied on recycling to fill the gap.

Now for the bullish news: Above-ground stockpiles, while off their lows, are trending lower. Considering that stockpiles include all the silver in ETFs, that trend is very interesting.

In fact, even including the silver in ETFs, the above-ground stockpiles of silver amount to just 10 months’ worth of supply. That’s one-sixth the ready supply of a decade ago, when ETFs barely figured into the equation.

Now for some potentially bearish news on supply. Silver production will increase over the next few years when existing mines ramp up or new operations start including Coeur’s San Bartolome in Bolivia, Pan American’s Manatial Espejo in Argentina, Coeur’s Palmarejo mine in Mexico, Goldcorp’s Peñasquito in Mexico, and Barrick’s Pascua-Lama in Argentina and Chile.

So, to keep upward pressure on prices, demand will have to increase as well. I think that’s going to happen. For one thing, as I’ve showed you, investment demand is surging. For another …

#2) Industrial Demand for Silver. Silver is a precious metal, but it’s also an industrial metal — used in everything from flat-screen TVs to zinc-lithium batteries. The industrial uses for silver keep growing and growing. Silver is not only beautiful, it’s malleable, it’s the best conductor for electricity and heat of all metals, it’s reflective, and it’s even an anti-bacterial agent. It’s a chemical catalyst, and approximately 700 tons of silver are consumed every year in the production of plastics.

New industrial uses for silver come along all the time. For example, one new source of silver demand comes from the electronics industry and the use of silver in photovoltaic applications for solar energy panels.

What’s more, silver’s industrial status means that 50% of global production is consumed — used up, never to be seen again — every year.

Last week, in my column “America Shifts into Higher Gear,” I gave you a long list of bullish indicators for the global economy. That list keeps growing, with U.S. gasoline demand rising, producers reporting rising orders, and confident retailers building inventories. And industry is booming in China and along the Pacific Rim, too.

Those are some happy, cheery reasons why silver could and should go higher. There are also the scary reasons. For example …

#3) Are We on a Collision Course with a Global Currency Crisis? Take a look at how silver is performing in a group of major currencies …

This chart shows the progress of silver over the past year priced in U.S. dollars, euros, yen, Australian dollars, Canadian dollars and Swiss francs. You can see that silver is rising in all these currencies, but it is up the least in the Australian and Canadian dollars. These are what are called the “commodity currencies” — because they are backed by hard assets like gold, silver, copper and oil that those countries produce and export.

Silver is doing the best in the U.S. dollar, euro and yen. These are fiat (paper) currencies, backed up by little more than faith in a principled government and the conservative practices of bankers.

Good luck with that!

I don’t have to tell you about the serious financial woes the U.S. and other countries are in. Greece is in debt up to its eyeballs and may take the euro down with it. Japan has an aging and shrinking population that can’t keep up with its ballooning debts. As for the U.S., the short version is we are trillions of dollars in debt and can’t seem to grow our way out of it. The only way to get out from under that debt is to print money, or inflate out of it.

We aren’t seeing official inflation … yet. But as debts become insurmountable … as balance sheets sink deeper into the red … as debt payments eat up more and more of national budgets … the temptation for central bankers to print their way out of this problem will probably become irresistible.

You know what does well when central bankers turn on the printing presses? Gold and silver, and hard assets generally.

Smart traders realize this. Heck, mom and pop investors on Main Street realize this. That’s why they’re buying silver eagles with both hands. Sure, the U.S. mint set a new record in March. But records are made to be broken.

And here’s one last chart to keep your eye on …

Silver is trying to break out now. Maybe it will head lower. But if it can break out to the upside the next stop should be its old high at $21.44. And if that overhead resistance shatters, we could see $25 silver pretty shortly after that.

This may sound like pie in the sky, especially because silver is up 21% from its low this year on February 8th, and up a whopping 103% from its low back in November 2008.

But take a longer-term view. The historical ratio of the price of gold to silver is 16 to 1. Moving closer to that would give us a silver price of around $70 an ounce! I’m not saying we’re going there. I’m saying there’s no reason we can’t.

Will You Get a Chance to Buy Cheaper?

I think you can wait for a pullback. We’re in earnings season now, and the last two market pullbacks of 5% to 10% occurred early in the earnings season. While stocks and commodities trade differently, most seem to be generally moving opposite the U.S. dollar now.

But don’t wait too long. Silver is impatiently tapping a glittering shoe, with an eye on the clock. The profit train will be leaving the station. Be on it!

What You Might Want to Buy …

For a short-term trade, consider buying one of the ETFs that holds physical silver, like the ETFS Physical Silver Shares (SIVR) or the iShares Silver Trust (SLV). There’s also a leveraged silver fund — ProShares Ultra Silver ETF (AGQ), but you can get burned if you’re holding that one at the wrong time.

If you’re a long-term buy-and-hold investor, save yourself the fees associated with an ETF and buy physical bars, silver eagles, or silver Canadian Maple Leafs. You might sleep better holding the physical silver, too.

Yours for trading profits,

Sean

P.S. You can buy individual silver stocks, too. A silver stock I recommended in my new Crisis Profit Hunter service is already up 30%! I might have to add a new pick to the precious metals component of Crisis Profit Hunter soon — and you won’t want to miss it the next time I pull the trigger.

Now, for a very short time, I’m offering a special subscription price — just $89 for one year. If you haven’t already signed up already, don’t waste another minute — get your subscription to Crisis Profit Hunter TODAY!






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Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Amy Carlino, Selene Ceballo, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.



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