Near-Record Silver Sales at US Mint in Q1

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By Ed Moy

The numbers are in for the first three months of 2014, and they show near-record sales of American Eagle silver bullion coins.

The U.S. Mint sold 13,879,000 ounces of silver bullion coins in the first quarter, compared with 14,223,000 ounces in the first quarter of record-breaking 2013.

Silver has long been known as the poor man’s gold. With historic prices ranging from $3 an ounce to a high of $45 an ounce in 2011, silver is much more affordable for individual investors. That affordability also makes it less practical for institutional investors who invest greater sums and do not want the hassle of storing all that silver.

The silver market is also much smaller in value that the gold market is. As a result, silver prices are subject to more volatility than gold is. The silver market’s size makes it less practical for derivatives, like exchange-traded funds and short and futures contracts, so it is an more accurate indicator of demand for physical silver. However, it is also easier for a large investor to influence the silver market a la the Hunt brothers.

And like gold, silver has a number of industrial uses. In fact, more than half (14,000 tons) of all the silver produced in a year (24,000 tons) is used in the manufacture of electronics and solar panels. However, only 15 percent of gold (400 tons) produced annually (2,700 tons) goes to industrial purposes.

The silver-to-gold price ratio currently averages about 65 ounces of silver to 1 ounce of gold, but ranged from a low of 30 to 1 to a high of 85 to 1 during the last decade. When the U.S. Mint was founded in 1792, the law fixed the ratio at 15.5 to 1. The average ratio during the 20th century was around 47 to1. The relative low price as compared with the average silver-to-gold ratios suggests that silver may have more upside in its future.

While investors can buy ingots, bars and jewelry, the undisputed king of silver investments are government-made silver bullion coins. Silver bullion coins are widely recognizable because their designs, weights and purity are standardized, and the government guarantees them. That makes them very liquid.

And the king of silver bullion coins is the American Eagle. By far the world leader, last year the U.S. Mint sold a record 42,675,000 ounces. So it is not insignificant that 2014’s demand for American Eagle silver bullion coins is running close to the record pace set last year.

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