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01 November 2012

All Aboard the Physical Silver Train?

Physical Silvers relative accessibly to the small investor may well be its greatest strength

Silver has can be a cruel mistress, and one that has shown a tendency in the past to burn the small investor. With allegations of institutional Silver Market Manipulation, conspiracy and cover up having battered it's reputation, not to mention disappointing price performance, it is important to separate the reputation from reality. Physical Silver may be showing signs of a renaissance among small investors.

Last week, the US mint reported record sales (3.153 million ounces) of Silver Eagles, probably the worlds best known and most numerous Silver bullion coin, for October 2012. These are the highest October units sold since 1986 when the figures were first published by the mint. The US mint sells only to approved "primary" dealers, and not directly to the general public. Even with the US mint having boosted supply of Silver Eagles over the past few years the secondary markets still show signs of stress. When started comparing Silver Eagle prices in 2008 the bullion coin availability exceeded the limit of items our systems compared. These days there are not sufficient coins at auction to need to limit our comparisons. The premiums have also moved up to reflect this.

One data point does not make a trend. But Silver watchers have also seen in China the mintages of Silver Panda bullion coins exploded from 600,000 per annum between 2003 and 2010, to 6,000,000 coins in 2011 and 8,000,000 coins in 2012. Implying huge demand for the Silver Bullion coin from investors and savers in the burgeoning Chinese middle class.

In addition to buoyant bullion coin activity, other shifts in Silver investing patterns also imply increasing demand for physical Silver. Casey Research published a chart in the CPM yearbook this year pointing to a trend of investors shifting away from "paper" metal into physical bar and coin, as investors fearful of future Silver default secure their holdings.

However all these bullish pointers may well be trumped by the one characteristic that separates it from other precious metals. Silvers relative cheapness in relation to Gold, makes it a much more accessible investment to the man in the street (at time of writing 53.8 ounces of silver buys 1 ounce of gold) there would seem to be a way to go before Silver starts to price the small investor out of the market.

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