Long-Term Trend in Investment Demand for Silver

In a previous post, I reviewed the amount of silver bullion sold by the United States Mint during 2008. With this post, I will take a longer term look at silver demand, which highlights the absolute explosion in demand which has occurred in recent years.

The supporting data for the charts included with this post comes from a new section of Gold and Silver Blog which collects the US Mint Silver Bullion Sales data since the inception of the program in 1986. You can visit the page to find the monthly sales figures for any date from 1986 to present. The section also calculates the approximate silver bullion value of each period’s sales based on the average monthly price of silver.

Silver Bullion Sales in Ounces

Here’s a chart summarizing the total ounces of silver bullion sold by the US Mint each year since 1986. (Click on the chart for a larger version.)

During 2008, the US Mint sold 19,583,500 ounces of silver through its bullion program. As explored previously, this marks an all time high for the program. It represents an increase of more than 98% from the prior year, and an increase of 92% from the previous all time high reached in 2002.

One important thing to note when considering the magnitude of the increase for 2008 is that the number of ounces sold could have been much greater. The US Mint suspended silver bullion sales during February before resuming sales on a rationed basis. When the rationing first began, one dealer claimed that he could have sold 500,000 ounces of silver per week, but was only allocated 100,000 ounces.

2008 Silver Bullion Sales in Dollars

Here’s a second chart which illustrates the explosion in demand for silver in even more dramatic fashion. The chart shows the approximate dollar value of silver bullion sold by the US Mint each year. As mentioned, this was calculated based on monthly silver bullion sales and the average monthly price of silver. (Click on the chart for a larger version.)

During 2008, The US Mint recorded silver bullion sales of approximately $286,451,715. This marks an all time high and an increase of 114% from the prior year, which was also the prior all time high.

The magnitude of the increase is more pronounced when compared to silver bullion sales from earlier years of the program. Throughout the majority of the 1990’s, the US Mint was selling less than $30 million worth of silver each year. The year for the lowest value of silver bullion sold was 1996 with $17,434,050. During 2008, the US Mint recorded monthly sales exceeding this level for ten out of twelve months.

Silver Bullion Sales and the Price of Silver

But what about the price of silver amidst this explosion in demand?

Here’s a third chart which plots the value of US Mint silver bullion sales from the last chart, together with the average annual price of silver for each year. (Click on the chart for a larger version.)

Silver bullion sales increased from a low of $17,434,050 to last year’s high of $286,451,715 representing an increase of 1,543%. The average annual price of silver increased from a low of $3.95 per ounce to last year’s high of $14.99 representing an increase of 203%. While this is a respectable gain, it pales in comparison to the increase in demand.

Everyone has been waiting for the disconnect between the demand for silver and the price of silver to resolve itself. Will it finally happen in 2009?

Disclosure: Long physical silver.

Comments

[Ian R. Camp...:]

I considered commenting on this article on my blog this morning - see My Website - but elected not to once I realized it focused on U.S. statistics only. I would have found the article far more interesting if it dealt with the same subject matter, but reached conclusions based on the world supply/demand equation for silver - particularly in the current economic climate where world bi-product silver supply must be dropping as base metal mines reduce outputs, and where world industrial demand for silver must be dropping.

Feb 06 11:24 AM

[Gold Barron:]

There is less silver above ground than gold. Silver is consumed, gold is not.

All of the silver in the world is currently valued at around 9 billion dollars. There will be silver shortages sometime in the future.

Feb 06 11:29 AM

[Jake2:]

". . . conclusions based on the world supply/demand equation for silver . . . "
I agree with the comments above by Ian Campbell: The view of the silver supply/demand equation is very narrow and therefore Mr. Zielinski's article is of little if any use.

Feb 06 05:38 PM

[E.D. Hart:]

Part of what keeps spot prices down in the silver market is massive short selling in the futures market. Look on e-bay and silver "spot" is much higher than real spot prices. Possible Conclusion: silver is either actively manipulated, or suppressed as an artifact of the future shorting .

I agree that we are due for a silver rally, even in the midst of a recession. Reliable measures of world silver stocks above ground are around a billion ounces, or about 13 billion dollars.

What would it take to move the silver market of 13 billion dollars? I don't think anyone really knows the total amount but this seems like a investment that has limited downside, with massive upside potential.

Disclosure: long SLW

Feb 06 07:16 PM

[Tetrapod:]

I don't think this data means much except that there is a high demand for particular silver coins (e.g. Silver Eagles). The last chart is particularly misleading as it doesn't even plot the price of Silver Eagles against demand -- it plots silver spot price vs. sales of silver eagles, which is a tiny fraction of silver demand.
This is like plotting demand for sewing machine oil vs the price of NYMEX crude.

Feb 06 11:04 PM

[JudeJin:]

it's actually a comforting thing that most of the gold bugs' call to buy gold and silver fall on deaf ears!

more than 90% of my colleagues(at a brokerage in shanghai) don't think gold has any big chance.

Feb 07 01:25 AM

[silverwood:]

Some of the above posters comments missed the point Mr. Zielinski is making with his analysis of demand for the popular Silver American Eagles. I say Michael does a good job showing that the later half of 2008 with silver falling to a low of $8.92 on the Comex didn't reflect the demand part of it on Main Street. It wasn't only Silver American Eagles that had this hugh demand but all the popular silver bullion bars and coins. What the author has done is to use available data from the US Mint. I would imagine that data form other silver bullion bars and coins is not as available.

Michael poses this question...Everyone has been waiting for the disconnect between the demand for silver and the price of silver to resolve itself. Will it finally happen in 2009?

I says we do see a silver make higher highs in 2009 taking out $21.40, confirming it's long term bull.

Feb 07 01:50 AM

[auto44:]

Google(not worth a continental).

Feb 07 09:45 AM

[PeteK:]

JudeJin;
I found out the opposite, so please tell the truth.
Chinese always treated gold as God in their lives.
That's why emperors always wore gold color in the old days.
This love of gold will not change for the next 500 years.
Europeans too, they love gold, that's why they almost took over
the whole world during the early centuries.

Feb 07 01:23 PM

[highlarche:]

I have only one thing to say, remember the Fed. cant print silver or gold. During the great depression gold stocks went up 600%

Feb 07 05:11 PM

[5142152-337:]

Any AMERICAN that isn't a-c-t-i-v-e-l-y buying physical gold and/or silver is either living in a cave or is not in full control of his/her senses. Why? Because IMHO there is no safety in the fiat dollar therefore, its quite apparent where to put one's money.

When the manipulation ends--and it will--then gold and silver will rule! Joe Sixpack will have a legitmate opportunity to be comfortably numb if he has a stash of PMs.

Feb 07 08:38 PM