With the White-Hot Demand for Coins, Why Are Silver Prices Falling?

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It's one of the biggest mysteries in finance right now.

I mean, it's a real head-scratcher …

On one hand, demand for silver coins has been off the charts. With so many investors wanting to swap currency for silver, neither the U.S. Mint nor the Royal Canadian Mint has been able to keep up with purchase requests.

In fact, the U.S. Mint actually had to suspend sales of the "Silver Eagles" just a couple of weeks into the New Year – and it still smashed the all-time monthly sales record in January by selling 7.5 million of the hugely popular coins.

And that insane demand carried over into February and March.

After the first two months of 2013, the U.S. Mint had sold nearly 10.9 million American Silver Eagles (ASEs) – a third of its sales total for all of 2012. And on March 18 – the Monday that followed the weekend news about the Cyprus bank-deposit-confiscation plan – the Mint reported a stunning sales total of 638,500 of the silver coins … for just one day.

But here's the kicker. Despite this frenetic buying, spot silver prices have actually fallen since the start of the year – a conundrum that's ignited fears of a silver shortage and investor allegations of market manipulation by Wall Street.

With this scorching demand for silver coins – and reported shortages of silver-based investments – how is it possible for the metal price to be falling?

One reader, after experiencing this frustration firsthand, recently sent us this query:

For several weeks now, it has been difficult to purchase physical silver at any of the nation's coin shows, and most dealers have a very small supply – if they have any inventory at all. What little silver they can purchase, they tell me, goes out the door quickly as buyers snap it up. Yet the market price of silver remains below $29 to $30 an ounce.

Recent reports note that Russia has made a hefty purchase in excess of 25 tons of silver. Has that affected U.S. supplies? What's the overall outlook? We'd be grateful to hear your take on this. Most of the folks we ask seem baffled, too. - C.C.

Our No. 1 goal at Private Briefing – as is the case everywhere at Money Map Press – is to help you make money. We usually achieve that goal by delivering the most-profitable investment recommendations we can find.

But we also want to help make you a great investor. So when we aren't giving you straight recommendations, we're educating you by providing the research you need to make great money-making decisions.

To that end, I wanted to give you an insider's view of the silver market. So I contacted Rich Checkan at Asset Strategies International (ASI), a precious-metals and foreign-exchange dealer that operates out of Rockville, MD – just down the highway from our own offices here in Baltimore.

Because ASI is a longtime veteran of the precious-metals business – it recently celebrated its 30th anniversary – I was certain that Rich and his staffers could offer you insights you might not find elsewhere.

Here's an excerpt of my interview with ASI.

Patalon (Q): Rich, we've all seen the headlines – demand for silver products is soaring, but prices are dropping. And, as you see from some of the e-mail excerpts that I've shared (with reader names withheld, of course), some of our subscribers say they're having a tough time buying silver coins and bullion of late – as if there's a real shortage unfolding. This has ignited all sorts of conspiracy theories, and a lot of worry, too. I was interested to hear you say that you all have experienced some of what I've described firsthand. So let me start by asking: What have you been seeing?

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish… and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

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  1. ben | April 2, 2013

    Read half way thru your comments on silver price but had to stop for scrolling of side comments was to distractfull to keep reading.

    • Editor | April 2, 2013

      Ben, sorry to hear that. There is a "PAUSE" button at the bottom of The Morning Buzz that will stop the movement.

  2. dan solazzo,sr. | April 2, 2013

    i want to thank you william for explaining how to keep my silver at hand. i keep all silver in a security deposit. also so other areas. all i need is a few hundred bullion coins. then i will be buying gold at a slower pace or platium.

  3. cihat cicek | April 2, 2013

    The interview has no mention of paper non existing silver futures sales..which to me is the main driver of prices lower as banks keep dumping sell of paper silver in harmony to avoid high returns to silver investors who lent them money to buy silver whereas they sold it and gave it out as loans … So it must be understood if the banking system looses confidence of each others support, silver will increase by folds suddenly… compared to the amount used in chemical industries the mint sales are peanuts even at record levels..silver is %60 used in the industry.. that is another factor they are trying to keep costs low ..including China and all nations…

  4. louis konyecsni | April 2, 2013

    For quite a # of years I've read of silver mining supply not being able to keep up with demand and the difference was being made up by recycleing. Has any one done an in depth study of mining and recyceling to determine where all the additional investment and industrial demand coming from? Of all that I've read, either these people had all their information wrong or there is a very true manipulation of the price of silver. Supply versus demand has always determined price in anything in the world anywhere. Does the powers to be really have the power to overcome the supply demand determiner of price?

  5. Bill McCall | April 2, 2013

    You did not mention slv or slv options. I have a sizeable interest in slv "leaps" both 2014 and 2015. Any comments?

    • mgross | April 2, 2013

      There is a risk of breakdown in the paper market, if a crisis occurs, that is not incurred by the physical possession of silver.
      And, if no price movement occurs, your options expire worthless.
      Conversely, there is no storage risk to derivatives, and the possibility of outsize gains, if there is an orderly increase in silver prices, may be realized.

    • (Admin) Bill Patalon | April 2, 2013

      Dear Bill:

      Good questions, and definitely grist for a follow-up. We'll take a look at that very soon.

      And thank you for the note.

      Respectfully;

      William Patalon III
      Executive Editor
      Money Morning & Private Briefing

  6. RJ Schultheis | April 2, 2013

    No one dares to point a finger at the PM manipulation that is going on right at the end of everyone's nose. It (fraudulently) suppresses the PM prices so that small scale investors fear the market volatility trends. The paper shares that pass through the COMEX are backed by a high percentage of air. It is an exceptional buying opportunity for the smart investor who looks between the lines and does not get distracted by the "Lame Stream Media" propaganda. Just buy physical and sit and wait for your "Sell Points." PM will go exponential when the global banking "Ponzi Scheme" implodes. There will be very few safe havens when the "Fiat Systems" collide and the equities are backed with more trash than value. Of course I am optimistic in some regards. Good luck with your trades.

  7. SIDNEY H KOSANN | April 2, 2013

    WITH ALL DUE RESPECT TO RICH CHEKAN, HE IS ALL WRONG ON SILVER. HE MUST ANSWER THE QUESTION OF "WHERE DID ALL THE SILVER GO?".
    IN 1936 THE U.S. HAD OVER 6 BILLION OUNCES IN IT'S STOCKPILE. IN 1950 THE STOCKPILE HAD
    SHRUNK TO 3 BILLION OUNCES. ON NOVEMBER, 2000 THE U.S. DEFENSE NATIONAL STOCKPILE CENTER (DNSC) COMMITTED TO DELIVER IT'S REMAINING STOCKPILE OF SILVER, NEARLY 15 MILLION OUNCES, TO THE U.S. MINT FOR IT'S COINAGE PROGRAMS. THE FINAL BALANCE OS SILVER HAS LONG SINCE BEEN SHIPPED TO THE U.S. MINT EFFECTIVELY DEPLETING THE SILVER STOCKPILE. IN 1986 CONGRESS CREATED THE "AMERICAN SILVER EAGLE BULLION COIN" SPECIFYING THAT METAL FOR THE COIN BE BE DRAWN DOWN FROM THE U.S. SILVER STOCKPILE. IN AS MUCH AS THIS STOCKPILE IS LONG GONE, THE U.S. GOVERNMENT MINT IS FORCED TO BUY SILVER FOR THESE INCREASINGLY POPULAR COIN WHICH IS BOUGHT AND HOARDE ALLM OVER THE WORLD.
    WHAT MR CHEKAN AND ALL EXPERTS LIKE HIM FAIL TO REALIZE IS THAT ALL GOLD MINED FROM THE BEGINNING OF TIME, STILL REMAINS PHYSICALLY SOMEWHERE, WHILE ALL SILVER MINED HAS BEEN USED UP. THE USAGES FOR SILVER KEEP CLIMBING WHILE THE SUPPLY HAS REMAINED FAIRLY CONSTANT. AGAIN "WHERE DID ALL THE SILVER GO?" EVERY ELECTRICALLY DRIVEN INSTRUMENT USES SILVER, AS RECENT AN INVENTION SUCH AS THE
    CONTRAVERTIONAL DRONE, SHOOTS SILVER INTO THE ATMOSPHERE AND IT DISAPPEARS.

    THE GREATEST PROOF OF "THERE IS NO SILVER" IS THE HUGE PAPER SHORT POSITION IN
    SILVER HELD BY J P MORGAN. MAINTAINING THIS POSITION IS KEEPING THE PRICE DOWN.
    IT WILL FLY UP IN AS MUCH AS THE "FIAT CURRENCY" DOLLARS CONTINUES TO LOSE VALUE. IN FACT, SINCE 1913 (THE FORMATION OF THE FED) THE PURCHASING POWER OF THE DOLLAR HAS LOST 90% OF IT'S VALUE. SILVER AND GOLD ARE MONEY, THE DOLLAR AND ALL OTHER FIAT CURRENCIES ARE PAPER. "THE ONLY ENTITY KNOWN TO MAN, THAT CAN TAKE A VALUABLE COMMODITY (PAPER), PRINT ON IT WITH ANOTHER VALUABLE COMMODITY (INK)
    AND MAKE THEM VALUELESS IS GOVERNMENT".

  8. Robert Lewis | April 2, 2013

    I am absolutely stunned that a so-called 'expert' in the field of precious metals can discuss the factors affecting the price of silver without a single mention of the Government/JPMorgan (they are one and the same) manipulation of silver. Has this gentleman not studied in depth and detail the writings of real experts such as Ted Butler, Jim Willie, Bix Weir, and Jim Sinclair, to mention only a few ? If he did, he would soon learn that Government control of the price of silver is paramount to maintaining confidence in those pieces of paper with green ink on them, and their role as the world's reserve currency. The physical ability to produce silver coins in enough quantity is nothing but a smokescreen, as he should well know. I suggest, therefore, that if you publish future articles on this topic, you interview someone who has a far wider perspective on the whole fiscal and financial arena affecting precious metals.

  9. Marc | April 2, 2013

    Informative Q & A, but I am still missing something. There is plenty if silver, but not enough desired product. Yet prices for the desired product is falling (though possibly offset by increased fees.) Why don't the laws of supply and demand work for the desired product too?

  10. Tommy | April 2, 2013

    Lets be honest if JP Morgan had to actually produce the physical silver to its investors
    they could not even come close and would be bankrupt! The government will never let that happen to the banking system. They have already spent billions in our tax dollars bailing them out already. No conspiracy theory here folks just plain truth!

  11. Hoy Hawkins | April 3, 2013

    People went into denial when digitial photography took a huge chunk of silver demand (in the early eighties). After peak buying is a unique study in mass social psychology. In the early eighties no one ever factored in mass buying as a 99% certainty that a commodity price is headed south. A watched pot never boils. Imagine 2012-2013 where literally millions of after peak buyers are watching this huge pot on the stove. After G&S hit their peak, in 1980, there were silver analysis projections layer upon layer. I am convinced that climb charts and projections are good for only a brief period in the upstroke- after that, when the talk is everywhere, its time to buy corn. I give the after peak buying in the early eighties a shameful factor of 10. I give the after peak buying of 2012-2013 a factor of 100.

  12. Sniper | April 7, 2013

    There is no silver shortage,banks need to pile up 10% gold/silver,countries like Germany wants some gold back,people are hyped by the media for over15 years.
    It's just another banker scam.
    Russia is about to explore goldmines you've never seen b4.(new techn.)
    Putin just visited the Bilderbergers for his oil terminal in the Netherlands.
    Goldman is dealing water…wtf
    Bankers use the stupidity of the masses,they always did,since the Rotshield's started it in Frankfurt.
    The 99% is getting smarter,every day somebody wakes up.

    With the latest off-shore leak €25 trillion was moved,that,s double the U.S. debt….wtf

    The crisis is created by the NWO,the poor only have money for Fat,Salt&Sugar.
    Monsanto is poisoning the world and they get Billions from brussel…wtf

    You know when i'm right when the internet shuts down :)

  13. Jay | April 7, 2013

    I'm confused. What good is storing physical silver? I can understand if you have assets say over 1 million, you may want to have a significant portion of your assets in a commodity that world demand will keep up with inflation. But, why would the average person want to store silver? Your supermarket, car dealer, electric company, etc. do not have the ability to test the purity of your silver or convert it to currency value. Try to buy something using your silver bar, good luck. Also, even private sellers have less ability to know if your silver is worth what they're selling. What am I missing?

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