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Silver bullion coins are scarce, but prices don’t show it

Near 6-year low, futures may have some catching up to do

APMEX

The U.S. Mint and others are controlling the distribution of silver coins.
Silver bullion coins are so scarce that certain countries have set limits on the amount they distribute, but prices for the metal haven’t budged much from their recent six-year low.

Silver is experiencing an “unprecedented industrywide phenomenon,” with strong demand for the physical metal prompting mints in certain countries to put silver bullion coins on allocation, according to The Silver Institute. In recent history, allocations have only been put into practice occasionally by the U.S. Mint.

Silver prices SIZ5, +0.59% have yet to catch up with the strong demand for physical silver. They settled at $15.84 an ounce Thursday, not far from their six-year low in late August near $14 an ounce on Comex.

“This is the kind of disconnect you often see before a reversal or breakout,” Sean Brodrick, an editor of the Oxford Resource Explorer, said in a recent article.

Weaker industrial demand for the metal on the back of a slowdown in the global economy is part of the reason prices have been reluctant to climb. Industrial fabrication accounted for 55.8% of physical demand in 2014, according to The Silver Institute, while coins and bars accounted for 18.4%.

“When Western speculative sentiment turns against the precious metals, the price of silver can be pressured ever lower, despite high physical demand,” said Brien Lundin, editor of Gold Newsletter. “And those lower prices, which don’t reflect the true market demand for physical silver, serve to create even greater physical demand.”

Rationing

The Royal Canadian Mint, Australia’s Perth Mint, the Austrian Mint and the British Royal Mint have all put their silver bullion coins on “allocation”—meaning that they are controlling the distribution of coins “due to bottlenecks in the manufacturing process,” according to a recent report from The Silver Institute.

The U.S. Mint has allocated around 1 million American Eagle silver bullion coins a week for the past three months, selling its maximum allocation every week, U.S. Mint spokesman Adam Stump said.

True, low prices can attract buyers, explaining the strong demand, but in July—before futures prices for silver hit a six-year low in late August—the U.S. Mint temporarily sold out of its American Eagle silver bullion coins.

It resumed sales later that month, setting limits on the number of coins available. This week, the U.S. Mint allocated 970,000 American Eagle silver bullion coins for distribution.

Data from the U.S. Mint shows that it sold roughly 14.3 million ounces of American Eagle coins in the third quarter. That’s the most in 29 years, according to Brodrick.

‘There is very little silver currently available to meet physical demand…’
Brien Lundin, Gold Newsletter

Year to date, it’s sold a total of roughly 38.8 million one-ounce silver bullion coins, compared with about 44 million for all of last year.

“As silver prices drop, total physical demand can soar, and this is why major national mints are now straining under the demand,” said Lundin. “There is very little silver currently available to meet physical demand…”

“Once investors realize how tight the market truly is, the price will begin to rise,” Lundin said.

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