May 04, 2017

Patrick A. Heller

There is a tendency to focus on narrow statistics where it is possible to derive hard data in circumstances where accurate big picture information is simply not available.  Here is an example:

Through the end of April 2017, the US Mint reported it had sold, year-to-date, 8,792,500 bullion-priced Silver Eagle Dollars.  That was 53.5% lower than the 18,914,500 coins sold in the same period a year earlier.

In fact, that is the lowest January to April sales of US Silver Eagle Dollars since 2008, as you can see below

January to April Silver Eagle Sales by year        Quantity sold

2017                                                                               8,792,500

2016                                                                             18,914,000

2015                                                                             14,922,500

2014                                                                             17,448.000

2013                                                                              18,310,000

2012                                                                              11,659,000

2011                                                                             15,248,000

2010                                                                             11,531,000

2009                                                                              9,675,000

2008                                                                              5,809,000

While these are hard numbers, the sales of bullion-priced Silver Eagle Dollars do not necessarily reflect worldwide physical silver demand, especially when you realize that total demand for physical silver has been running on the order of 80 million ounces per month for multiple years now.

Still, there are some analysts who focus solely on Silver Eagle sales and claim that physical silver demand is down sharply thus far in 2017.

I agree that there are other indicators that physical silver demand is down this year from last year.

At the Central States Numismatic Society show in Schaumburg, Illinois last week, a Midwest dealer told me that he would typically sell about a thousand ounces of bullion-priced silver at such a show.  This time around, he was only expecting to sell maybe 50 ounces.  I also heard from multiple US-based bullion retailers at the show that their sales of silver have fallen off sharply in 2017.  That parallels the experience of Liberty Coin Service, where I work.

Demand for bullion-priced silver by Americans in recent years has been very strong, so much so that sales dollars of silver bullion products usually exceeded the dollar volume of bullion-priced gold coin and ingot sales—despite the fact that gold has been averaging about 70 times the price of silver!

There have also been some parallels in lower demand for bullion-priced physical gold in the US this year.  Through the end of April year-to-date, the US Mint had sold 174,000 ounces of Gold American Eagles of all sizes combined, down 50.4% from the 350,500 ounces sold in the same period in 2016.

Despite such gloomy demand figures for this tiny market niche, a proper analysis of global demand for silver would be the accurate indicator of whether overall demand is rising or falling.  For that, I don’t have hard figures.  However, I hear continuing reports from China and India, the world’s two largest consuming nations of gold and of silver, that demand has been close to prior year levels and perhaps even higher.  Further, gold demand in Russia remains strong.

The US Mint’s Gold and Silver Eagle products are not popular sellers in those markets, for multiple reasons.  First, the US Mint’s products are weighed in troy ounces, not in even metric weights.  Second, the Gold American Eagles are not pure 24 Karat gold issues, which dominate demand in the Southern and Eastern Asian markets.  The pure gold issues of China Pandas, Australia Kangaroos, Austria Philharmonics, Canada Maple Leafs, and ingots regularly outsell Eagles in those markets.  Finally, most competing bullion issues can be purchased at premiums lower than those for the Gold and Silver American Eagles.

The other major element that affects silver prices is supply.  Peru is the world’s second (according to the US Geological Survey) or third largest (according to several other sources) silver producing nation on the planet, producing about 1/6 of all silver worldwide.  Reports have come out that silver output in that country has fallen sharply from 2016 levels due to exhaustion of reserves that have not been replaced.  Output in February 2017 was down about 12% from year-earlier levels.

The prices of gold and silver have trended significantly higher in 2017 up to about two weeks ago.  When gold threatened to top $1,292 and silver to surpass $18.50, both of which would trigger a surge in demand from technical traders, incredible quantities of paper contracts were sold short in the New York COMEX market starting around Easter weekend.

While both metals are still up thus far in 2017, there are now some who think the peak may have passed for the year.  I disagree.  The massive amount of short sales (over 250 million ounces in the silver market) indicate to me that pressures are growing for significantly higher prices later this year.  Should that be accurate, prices today could be a real buying opportunity for those who focus on the big picture rather than simply on the US Mint’s sales of bullion products.