Investors See a Bargain in Silver Price, but Is It for Real?

New York (Sept 16)  A drop in silver prices this year has attracted investors seeking a bargain, prompting a temporary sellout of the 2018 American Silver Eagle bullion coins at the U.S. Mint this month.

“The sellout of Silver Eagles implies that demand for physical [silver] has recently been increasing,” says Chris Gaffney, president of World Markets at TIAA Bank. “With Silver Eagles being the most popular bullion coin available, this is a good indicator of physical demand,” he adds, and higher demand “makes sense,” given that prices are nearing multiyear lows again.

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Front-month silver futures settled at $14.052 an ounce on the Comex Tuesday, the lowest level since Jan. 22, 2016. At $14.192 Wednesday, they were down nearly 17% since the end of 2017.

The mint announced on Sept. 6 that it is producing additional coins to restock its depleted inventory. “The U.S. Mint and the authorized dealer network were caught off guard as bargain-hunting physical buyers returned to the market ahead of $14” an ounce, says Peter Grant, vice president of Chicago-based Zaner Metals. He sees that as a “glimmer of stronger investment demand, but not a big deal in the overall context of the dominant downtrend.”

Through August, this year’s sales of Silver Eagles totaled 10.275 million ounces, the mint reports. The full-year figure is likely to come in well below 2017’s 18.065 million.

Edmund Moy, director of the U.S. Mint from 2006 to 2011, says the recent sellout of the 2018 coins from strong growth in demand was unusual. He adds that sellouts happened much more frequently during the financial crisis of 2007-2009 and the Great Recession, which began in late 2009. Back then, the mint had a hard time meeting surging demand, as some worried investors sought refuge in precious metals.

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