By Paul Tracy
NEW YORK (StreetAuthority) – Demand is soaring nearly out of control. Investors can’t get enough silver bullion.
The most popular form of silver bullion is the American Silver Eagle. The coin contains one ounce of pure (99.9%) silver. It has a face value of $1, but right now that single troy ounce of silver is worth $32.
For years now, the United States Mint has been striking these coins as fast as they can. The U.S. Mint facility in West Point, New York, has been solely responsible for minting these coins since 2001. But even the mint facility known as the "Fort Knox of Silver" can’t handle the soaring demand.
In fact, multiple times in 2008 and 2009 the U.S. Mint had to suspend sales. According to an article in the Wall Street Journal on May 23, 2008, "The government rationed food during World War II and gasoline in the 1970s. Now, it’s imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles.
"The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can’t make them fast enough. In March, the mint stopped taking orders for the bullion coins. Late last month, it began limiting how many coins its 13 authorized buyers world-wide are allowed to purchase."
But the interesting thing is that sales in 2008 were only about half what they are today. You can see the annual sales of American Silver Eagles in the past 10 years in the table below.
In the past five years, demand has grown at a 31% annual pace. The government has even authorized the San Francisco Mint to start producing the Silver Eagle coins for the first time in more than a decade to catch up.
So what’s driving this mountainous demand, and should you be buying silver yourself at these prices?
To be sure, the rise in silver has plenty to do with the increasing uncertainty we see around the world. In fact, I think the soaring debt, inflation worries, mass currency printing, and the falling dollar are so well-known that I won’t go into them here. Instead, there’s another bullish catalyst for silver I want to tell you about that I don’t think most people realize.
Silver is about 17 times more common in the earth’s crust than gold; yet gold is nearly 55 times more expensive than silver.
Something doesn’t add up here. We consume the overwhelming majority of the silver that we take out of the ground each year, while we pile up gold reserves that just sit in vaults. And yet gold is still selling for about 55 times the price of silver — $1,725 an ounce for gold vs. just $32 for silver.
There are two ways this will resolve itself. Gold can fall or silver can rise. My money is on silver going up. Way up.
After all, silver fills every economic function gold does, plus a whole lot more.
Gold is a hedge against economic uncertainty. So is silver. Gold shields investors from inflation, so does silver. Silver offers "safe haven" status, just like gold.
But there’s one big difference: If gold disappeared from the face of the earth tomorrow, then most people would barely notice. But if silver vanished, then our lives would be severely disrupted.
That’s because silver is needed in just about every electronic device modern society runs on — from cell phones to TVs to computers to cameras to MP3 players to iPads.
We use silver in more of mankind’s most useful devices than any other commodity besides petroleum. So when it comes to how valuable these two metals are to our society, silver beats gold hands down.
Action to Take. How high will silver go? I’ll give you my forecast in a coming essay. Just keep in mind that 31 years ago silver spiked to about $143 per ounce in today’s dollars: 347% higher than today’s price. And every supply/demand factor I can find is more bullish now than it was back then.
It’s little surprise investors are scrambling to buy every American Silver Eagle that Uncle Sam can mint.