The Great Silver Rush of 2016

silverbullion100ouncebarsSilver demand is running at record levels and the price is up over 30% on the year.  Volume for the physical metal among USAGOLD’s clientele, mostly in the form of one-ounce silver bullion coins and 100 troy ounce bars,  is running at levels apace the strong global trend. This series of charts  provides an overview of the Great Silver Rush of 2016.

Global investors snapped up a record 89.6 million one ounce silver coins in 2015, according to USAGOLD’s annual survey of global bullion coin sales, and the strong demand has continued at a comparable pace in 2016. The U.S. Mint reports sales of just over 30 million one-ounce silver American Eagles thus far this year with another big demand pick-up in October.  American Eagle sales are just one component of our four coin annual grouping and a bellwether for the rest of the global market. We suspect that once we compile the statistics from the four top mints for 2016, the chart will show volumes approaching the record performance of last year.

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As you can see from the chart, demand for silver bullion coins grew significantly after the 2008 financial crisis and never returned to pre-crisis levels. The persistent demand over the period indicates lingering concerns among investors about the economy and continuing worry about the potential for a similar crisis at some future date.

Coin demand is only one segment of the burgeoning market for silver. Demand through silver ETFs is also running at record levels with a total of 938 million ounces now in aggregate holdings.  ETFs are a favorite among major investment funds and institutions.

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Chart courtesy of goldchartsrus.com/Nick Laird

As you can see by the chart immediately below, China has put its foot on the accelerator with respect to its silver purchases – a development widely neglected by the financial media. Take a look at the ramp-up of physical demand in China over the past two years (bottom bar chart). China’s quiet, nascent interest gives credence to silver’s graduation from commodity status to a monetary metal utilized by many investors as an asset of last resort, i.e., the other metal, besides gold, that separates itself from the pack as an asset that is not someone else’s liability. China, the largest single source of silver demand in Asia, is buying silver as a means to augmenting its attention-grabbing gold acquisition program.

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Chart courtesy of goldchartsrus.com/Nick Laird

Past supply disruptions for silver Eagle coins signal more of same for future

The U.S. Mint reports sales for the silver Eagle would have been much higher in 2015 if it could have secured more coin planchets. Planchet manufacturers have consistently been unable to supply enough blanks to meet the extraordinary demand over the past several years. The mint suspended silver Eagle sales this past July when a sharp price decline generated huge demand among investors. It did not begin delivering wholesaler orders again until mid-August.

The U.S. Mint has suspended wholesale allocations for one or both metals in 2009, 2011, 2013, 2014 and 2015. Since the 2008 crisis, there have been numerous stoppages at other national mints in the face of strong, unprecedented investor demand for both gold and silver bullion coins that depleted stocks. As a result, worries about potential supply disruptions consistently haunt the bullion coin market.

Bill Bonner, the long-time market analyst who founded the Agora publishing empire, recently warned investors about the potential for further disruptions.  Bonner focuses on gold but his warning could just as easily apply to silver:

“[T]here will be one important difference between the new super spike and what happened in 1980. Back then, you could buy gold at $100, $200, or $500 per ounce and enjoy the ride. In the new super spike, you may not be able to get any gold at all. You’ll be watching the price go up on TV but unable to buy any for yourself. Gold will be in such short supply that only the central banks, giant hedge funds, and billionaires will be able to get their hands on any. The mint and your local dealer will be sold out. That physical scarcity will make the price super spike even more extreme than in 1980. The time to buy gold is now, before the price spikes and before supplies dry up.”

If you are planning to buy silver – particularly if you are buying for a longer-term retirement plan – it might make sense to secure the metal now, while it can still be purchased at favorable prices and the market is functioning normally. If we do encounter another shortage, in all likelihood buyers will faced with three problems – rising prices, increased premiums and lack of availability.

There is an old truism about the precious metals market that applies to the current environment:

The time to buy gold and silver is when the markets are quiet. Apparently, as seen in these charts, a good many silver investors around the world (including some major hedge funds and financial institutions) have already taken that advice to heart.

This final chart shows the performance of silver relative to other investments thus far this year.  It ranks fourth as of this posting and it has been as high as second.  As you can see, silver has quietly gone about its business of providing a strong return while its more widely-publicized competitors, like stocks and bonds, have languished.  (Note also gold’s strong performance.)

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Chart courtesy of Barchart.com

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