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The
U.S. Mint just reported another record, but this time it wasn’t for
gold. The Mint sold more Silver Eagles in March and in the first quarter of
the year than ever before. A total of 9,023,500 American Silver Eagles were
purchased in Q110, the highest amount since the coin debuted in 1986.
While
this is certainly bullish, there’s something potentially more potent
developing in the background. Namely, how this matches up with U.S. silver
production. Like gold, the U.S. Mint only manufactures Eagles from domestic
production. And U.S. mine production for silver is about 40 million ounces.
In other words, we just reached the point where virtually all U.S. silver
production is going toward the manufacturing of Silver Eagles.
Yikes.
This
is especially explosive when you consider that roughly 40% of all silver is
used for industrial applications, 30% for jewelry, 20% for photography and
other uses, and only 5% or so for coins and medals.
To
be sure, mine production is not the only source of silver. In 2009,
approximately 52.9 million ounces were recovered from various sources of
scrap. Further, the U.S. imported a net of about 112.5 million ounces last
year. (Dependence on foreign oil? How about dependence on foreign silver!) So
it’s not like there’s a worry there won’t be enough silver
to produce the Eagle you want next month.
Still,
why so much buying? The silver price ended the quarter up 15.5% from its
February 4 low – but it was basically flat for the quarter, up a measly
1.9%. We tend to see buyers clamoring for product when the price takes off,
so the jump in demand wasn’t due to screaming headlines about soaring
prices.
I
have a theory.
For
some time, silver has been known as the “poor man’s gold.”
Meaning, silver demand tends to increase when gold gets too
“expensive.” The gold price has stubbornly stayed above $1,000
for over six months now and spent much of that time above $1,100. You’d
be lucky to pay less than $1,200 right now for a one-ounce coin (after
premiums), an amount most workers can’t pluck out of their back pocket.
But Joe Sixpack just might grab a
“twelve-pack” of silver.
What
would perhaps lend evidence to my theory is if gold sales were down in the
face of these higher silver sales.
The
U.S. Mint reported a decline in gold bullion sales of 20.8% this past quarter
vs. the same quarter in 2009. Further, other world mints have seen sharp
declines in gold bullion coin sales as well: the Austrian Mint reported an
80% drop in sales for the first two months of the year and the Royal British
Mint a 50% decline in gold coin production for the first quarter.
What’s even more dramatic is the difference in the dollar value of the
sales. Gold Eagle sales in the U.S. dropped $10,263,500 from a year earlier
– but silver sales increased by $61,855,290. So, not only did
silver sales make up the drop in gold sales, they exceeded them by
$51,591,790.
Is
the rush into “poor man’s gold” underway?
Why
the answer to that question is significant is that a shift toward silver for
this reason could signal we’re inching closer to the greater masses
getting involved in the precious metals arena. And that – for those of
us who’ve been invested for awhile now – would be music to the
ears. Because when they start getting involved, the mania will be underway,
and from that point forward, it’s game on.
I’m
not saying the mania is starting, and I actually think we could see another
sell-off before things take off for good. Gold could dip to $1,000 and maybe
even $950, with silver going to the $14-$15 range. But as clues like these
begin to build up, we’ll know we’re
getting closer. (And any drop to those ranges would clearly be a major buying
opportunity.)
Everyone
talks about gold, myself included, but a meaningful
portion of one’s precious metals portfolio should be devoted to silver.
The market is tiny, making the price potentially explosive. Remember that in
the ‘70s bull market gold advanced over 700%, but silver soared over
1,400%.
Don’t
be a “poor man” by ignoring gold’s shiny cousin.
While
buying silver is a must, it’s the silver stocks that will truly soar in
a mania. And I’m convinced we recommend the two best silver producers
in the world. Get their names and our suggested entry points with a risk free
trial to Casey’s Gold & Resource Report... click here.
Jeff Clark
Editor, Casey’s Gold & Resource
Report
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