31 May 2011

Silver Coin and Bar Market Returns to More Normal Behavior

Eurozone worries continue to drive market. Small investors Shun Gold in favour of Silver.

With the sharp correction in silver prices, described by some commentators as more of a “drive-by shooting” than a correction, big names such as George Soros having liquidated their Gold holdings, and a rally in the US dollar, it had led to speculation by some in the media that the precious metals bull was over.

But last week, Silver moved through the $37 per ounce level, and Gold broke $1,525 per ounce once again. It seems the precious metals bull is alive and kicking. Improving economic output data and indicators for US continue to be a focus – supporting some bearish outlooks, but increasingly in the forefront of investors thoughts are Eurozone woes, which are driving safe haven impulses. With the current Greek situation in the short term likely to be calmed by a debt reprofiling exercise, what happens to Greece in the longer term will likely set the tone for the Eurozone crisis. The spectre of contagion still looms large.

Small investor demand remains strong for coins and bars, as gold and silver you can actually hold, rather than options that entail a degree of counter-party risk. Whether there will be any significant shift further towards this remains to be seen, but sources such as Bloomberg reported on the significant increase in demand for Gold coins, earlier last week. BullionSupermarket customers have been favoring 1oz Silver Eagles over any other type of bullion coins currently, even as tighter availability nudges up premiums. 20 ounce rolls of American Silver Eagles (ASE’s) are currently trading at 20.5% over the Silver price.

With recent volatility in the physical Silver coin and bar market, investors and collectors are also showing ever savvier buying behavior when making purchases, with precious metal priced at higher premiums being left on the shelf for equivalent items at lower premiums. This is in stark contrast to the market 3 months a go, where if it was Silver, it sold at almost any price. This may indicate that the market has returned to a more “normal” pattern. Popular branded bullion continues to fetch a higher premium than less well known counterparts.

What is particularly interesting, is that smaller investors appear to have forsaken Gold coins and bars in favor of Silver. Jon Hunt, founder of BullionSupermarket.com , the precious metal price comparison site, said on Tuesday: “Though we are seeing roughly equal levels of interest in Gold and Silver, sustained higher Gold prices appear to be putting off a large number of smaller investors. As a result of this we are seeing a significantly higher proportion of Silver transactions than Gold at the moment.”


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