Silver Eagles Soar!
In World War I severe material shortages played havoc with production schedules and caused lengthy delays in implementing programs. This led to development of the Harbord List – a list of 42 materials deemed critical to the military.
After World War II the United States created the National Defense Stockpile (NDS) to acquire and store critical strategic materials for national defense purposes. The Defense Logistics Agency Strategic Materials (DLA Strategic Materials) oversees operations of the NDS and their primary mission is to “protect the nation against a dangerous and costly dependence upon foreign sources of supply for critical materials in times of national emergency.”
The NDS was intended for all essential civilian and military uses in times of emergencies. In 1992, Congress directed that the bulk of these stored commodities be sold. Revenues from the sales went to the Treasury General Fund and a variety of defense programs - the Foreign Military Sales program, military personnel benefits, and the buyback of broadband frequencies for military use
American Silver Eagle
The American Silver Eagle is the official silver bullion coin of the United States. It was first released by the United States Mint on November 24, 1986 and is struck only in the one troy ounce size.
The Bullion American Silver Eagle sales program ultimately came about because the US government wanted, during the 1970s and early 1980s, to sell off what it considered excess silver from the Defense National Stockpile.
“Several administrations had sought unsuccessfully to sell silver from the stockpile, arguing that domestic production of silver far exceeds strategic needs. But mining-state interests had opposed any sale, as had pro-military legislators who wanted assurances that the proceeds would be used to buy materials more urgently needed for the stockpile rather than merely to reduce the federal deficit.” Wall Street Journal
The authorizing legislation for the American Silver Eagle bullion sales program required that the silver used for the coins had to be from the Defense National Stockpile. By 2002 the DNS stockpile was so depleted of silver that if the American Silver Eagle bullion sales program was to continue further legislation was required.
On June 6, 2002, Senator Harry Reid (D-Nevada) introduced the Support of American Eagle Silver Bullion Program Act to “authorize the Secretary of the Treasury to purchase silver on the open market when the silver stockpile is depleted.”
2002 - 10,539,026 Bullion American Silver Eagles were sold.
2003 - 8,495,008 Bullion American Silver Eagles were sold, silver averaged $4.88 an ounce for the year.
2004 - 8,882,754 Bullion American Silver Eagles were sold. For 2004 the average cost of an ounce of silver was $6.67.
2005 - 8,891,025 Bullion American Silver Eagles were sold. Silver averaged $7.32 an ounce.
2006 - 10,676,522 Bullion American Silver Eagles were sold. Silver averaged $11.55 an ounce.
2007 - 9,028,036 Bullion American Silver Eagles were sold.
2008 - 20,583,000 Bullion American Silver Eagles were sold. Silver averaged $14.99 an ounce and almost 80% more Bullion American Silver Eagles were sold then in any previous year.
The US Mint suspended sales of the silver bullion coins to its network of authorized purchasers twice during the year.
In March 2008, sales increased nine times over the month before - 200,000 to 1,855,000.
In April 2008, the United States Mint had to start an allocation program, effectively rationing Silver Eagle bullion coins to authorized dealers on a weekly basis due to “unprecedented demand.”
On June 6, 2008, the Mint announced that all incoming silver planchets were being used to produce only bullion issues of the Silver Eagle and not proof or uncirculated collectible issues.
The 2008 Proof Silver Eagle became unavailable for purchase from the United States Mint in August 2008.
2009 - 30,459,000 Bullion American Silver Eagles were sold
On March 5, 2009, the United States Mint announced that the proof and uncirculated versions of the Silver Eagle coin for that year were temporarily suspended due to continuing high demand for the bullion version.
On October 6, 2009, the Mint announced that the collectible versions of the Silver Eagle coin would not be produced for 2009.
The sale of 2009 Silver Eagle bullion coins was suspended from November 24 to December 6 and the allocation program was re-instituted on December 7.
Silver Eagle bullion coins sold out on January 12, 2010.
The average cost of an ounce of silver in 2009 was $14.67
2010
No proof Silver Eagles were released through the first ten months of the year, and there was a complete cancellation of the uncirculated Silver Eagles.
Production of the 2010 Silver Eagle bullion coins began in January instead of December as usual. The coins were distributed to authorized dealers under an allocation program until September 3.
In 2010 the US Mint sold 34,700,000 Bullion American Silver Eagle Coins.
2011
According to the USGS’s most recent Silver Mineral Industry Survey, silver production fell to 37 tonnes in October - compared to 53 tonnes year over year (yoy).
In 2011, the United States produced approximately 1,054 tonnes of silver – down from 2010’s production of 1,154 tonnes and down from 2007’s production of 1,163 tonnes.
The US imported 6,600,000 oz of silver for consumption in 2011 – up from 2007’s imports of 4,830,000 oz.
In 2011 the US Mint sold 39,868,500 Bullion American Silver Eagle Coins.
2011 was the first year in which official coin sales will surpass domestic silver production.
Jeff Clark of Casey Research writes “For the first time in history, sales of silver Eagle and Maple Leaf coins surpassed domestic production in both the US and Canada. Throw in the fact that by most estimates less than 5% of the US population owns any gold or silver and you can see how precarious the situation is. A supply squeeze is not out of the question – rather it is coming to look more and more likely with each passing month.”
The US Mint is required by law to mint the bullion Silver Eagles to meet public demand for precious metal coins as an investment option. The numismatic versions of the coin (proof and uncirculated) were added by the Mint solely for collectors.
2012
United States Mint Authorized Purchasers (AP’s) ordered 3,197,000 Bullion American Silver Eagle Coins on January 3rd, the first day they went on sale. That opening day total catapulted January Bullion Eagle sales higher than half of the monthly totals in 2011.
As of January 25th 2012, 5,547,000 Bullion American Silver Eagle Coins had been sold.
Bullion Silver Eagles are guaranteed for weight and purity by the government of the United States and because of this the US government allows bullion Silver Eagles to be added to Individual Retirement Accounts (IRAs).
Conclusion
The twin policies of zero interest rates and the continual creation of money and credit being enacted today, by all governments and central banks, means that the purchase of precious metals is the only way to protect the value of your assets.
“Mark my words, if the interest rates on U.S. government debt truly reflected both the real level of inflation in this country and the rising risk of some form of default, rates would already by sky-high and the U.S. would resemble a massive Greece.” John Embry, Chief Investment Strategist, Sprott Asset Management
Investors are currently risk adverse and mining stocks are not well understood by the general investing public, but at least one thing is going to become very apparent to most - the best way to hedge yourself against inflation could be owning silver.
Junior resource companies offer the greatest leverage to increasing demand and rising prices for silver. Junior resource companies are soon going to have their turn under the investment spotlight and should be on every investors radar screen. Are they on yours?
If not, maybe they should be.
*Post courtesy of Richard Mills at Aheadoftheherd.com where he covers the junior resource sector.
China Buying Silver to $100 Plus an Ounce
Chinese demand to Buy Silver for solar panel manufacture will push the price to three digits, says this fund manager…
MANAGING big-cap growth stock market funds since 1999, Stephen Leeb ,chairman and chief investment officer of Leeb Capital Management, has recently been a big proponent of silver, calling for the Silver Price to rise above $100 an ounce, despite its record price being half that.
Here Stephen Leeb talks to Hard Assets Investor’s managing editor Drew Voros about why he believes demand to Buy Silver, particularly from China, will push the commodity up to three-digit prices.
Hard Assets Investor: You have declared that silver is a “three-digit” commodity. Why?
Stephen Leeb: I think there are two crucial fundamentals. One, silver’s a monetary metal, although not as widely recognized as a monetary metal as gold right now. But it certainly has a history of being a monetary metal. People will price it for that. You have a race to the bottom in terms of all the current reserve currencies, like the Euro and the Dollar. The action in gold is certainly evidence of that. The fact that silver’s price [has been] holding in the upper 30s is pretty good. There’s a lot of downside protection in silver because of its monetary component.
On the industrial side, silver is critical. Silver has properties that cannot be duplicated on many levels. It is the best thermo-conductor of anything that’s found. It conducts heat better than anything else. It conducts electricity better than copper or anything else. And, it’s one of the best reflectors. Is it really surprising then that silver is a critical component on most solar applications? China right now is spending about $1 trillion a year on alternative energies. China controls the solar industry. They have at least 50% market share. They’ve been underbidding, undercutting everybody in the development and acquisition of polysilicon. After which comes silver. In order to build these solar panels, you need silver.
You have a potential, utter squeeze coming on silver, a monetary metal with critical industrial applications. The Silver Price is trading around $39 and hasn’t even come down 10% since the market started sliding. It’s a great hedge in deflation. You’re going to have demand for silver coming from two places, which I don’t think you’re going to be able to satisfy, given that silver production today is rising at a much slower rate than it was in 2010, despite the fact that Silver Prices are higher. That dictates dramatically higher prices for silver.
HAI: Do you think the solar element is something that is being overlooked in terms of the demand?
Leeb: Totally. China will start Buying Silver much more aggressively and start accumulating it. There’s very little doubt in my mind that China will be accumulating massive amounts of silver.
HAI: For silver to achieve three digits in price, would it be a slow, steady march, or something that would rocket up?
Leeb: I don’t think it would be a single event. I wrote a book, The Oil Factor, and in it I made the call for $100 [a barrel] oil. I said “three digit oil”. When the book was published in 2004, oil was around $30 or so, about the same price as silver is now. It took about three years to get to three digits. But there was no event that triggered the big jump in oil prices. There has been no event that has triggered the big jump in Euros, other than the gradual realization that there are no reserve currencies in the world that are worth a darn. The same realization will keep silver in a strong, long-term uptrend. I think people are going to be very surprised, very surprised, when the Silver Price just goes past $50.
HAI: Is $50 the figure that, once it breaks through that, it can take off, or is it further up the line?
Leeb: No, people make too much of these breakout points. If it goes to $50, it’s likely to go to $51 pretty quick. I’m sort of being funny. I don’t think that it’ll tick at $50, and then the next tick will be $80. If it goes to $50 it will likely get a little pop, maybe low $50s or mid-$50s and walk around there for a while and then go up again.
HAI: Do you think that that would happen independent of gold?
Leeb: It will be independent of gold. I think all commodities are going to have to go a lot higher. I just don’t think there are enough commodities out there to build out renewal or alternative energies. I don’t think China realizes it. I mean, you’ve got peak [price] coal, you’ve got peak oil, peak everything. Silver, even without the monetary component, would make it into three digits.
HAI: You seem to have a bullish sense of growth; global growth as well?
Leeb: I wouldn’t say global growth. I’m bullish on Chinese growth. China’s a wicked enemy of ours. They’re monopolizing resources. They’ll continue to do that because I think they’re looking out for their own. It’s hard to have a totally bullish outlook on growth when you’re looking at resource scarcities that are going to affect China as well.
HAI: Do you think that gold and silver are in the same asset class?
Leeb: They’ve never been in exactly the same asset class. There’s no industrial use for gold. It’s become ever-more recognized as a possible reserve currency. Silver does have industrial uses. It’s industrial vs. nonindustrial. They’re totally different classes. But silver overlaps. In a diagram, you would have silver in both sets: the industrial set as well as the monetary set.
HAI: What fundamentals of silver do you worry about? What would change your opinion?
Leeb: A lot of it has to do with China. What would change my opinion? If we found other ways of creating solar energy that did not involve silver, and I don’t see any on the horizon, that certainly would merit reconsideration. If China collapsed, then the calculus surrounding the world totally changes, including silver, but not just silver.
HAI: How should a retail investor approach silver as an investment?
Leeb: I would approach precious metals as an asset class in and of itself. As an asset class, you try and diversify within the class. There are the commodities themselves, which you can buy through an ETF or you can buy through coins. There are lots of ways of participating. There are senior miners. There are junior gold miners, like NovaGold, which happens to be one of my favorites. Not only does it mine gold, it has a lot of copper. There are going to be seniors like Goldcorp., like Barrick.
HAI: What would you suggest for an asset allocation in precious metals?
Leeb: It makes sense to weight it at least on the same level as you would weight stocks. Whatever your highest allocation is, precious metals should be higher than that allocation.
22 August 2011 hardassetsinvestor.com
Gold and Silver Imports in India Surge 222% Amid Worry Over Currency Devaluation
Gold was marginally higher in most currencies Tuesday and on the verge of making new nominal highs in dollars, euros and pounds.
It is holding near record highs as there is no quick end in sight to economic turmoil in Europe after Greece was told to approve brutal new austerity measures to avoid defaulting on its debt. This would threaten the solvency of many western banks and the European Central Bank’s Fernandez Ordonez (member of the ECBâs governing council) warned Tuesday morning that the Greek crisis could have “transcendent consequences”.
Further evidence of continuing very significant and robust demand from Asia and from China and India in particular was seen in massive Indian gold and silver imports. The figures released overnight showed a huge surge of 222% in May 2011, compared with May 2010.
Cross Currency Rates
Imports of gold and silver were a staggering $8.96 billion in May, a growth of 500% over the previous month and 222% over last year.
Official inflation rates in India have surged to 8.65% and people on the Indian sub continent are concerned about the devaluation of the rupee and the erosion of the purchasing power of their savings.
While the rupee has maintained its value against the beleaguered U.S. dollar it has fallen sharply against gold and silver and against oil and the other food and energy commodities.
Gold has always been seen as a store of value against currency debasement, inflation and hyperinflation in Asia. This is especially the case in India and we appear to be witnessing an acceleration in the recent trend of Indians opting to buy gold and silver bullion in order to protect their savings.
India’s central bank, the Reserve Bank of India, bought 200 tonnes of gold from the IMF in the months preceding an announcement in November 2009. Given its huge dollar reserves it is likely that it is continuing to diversify foreign exchange holdings and further announcements of increased gold reserves are likely in the coming months.
Despite the increase in reserves its gold holdings remain paltry when compared with the U.S. and European gold reserves.
Most creditor nation central banks in the world are now diversifying out of the major currencies, the dollar and the euro, and into gold. These include the People’s Bank of China, the Russian central bank and central banks in Sri Lanka, Bangladesh, Mauritius, Mexico, Iran and Saudi Arabia.
News came Monday that Russia’s central bank again increased its gold holdings to 26.7 million troy ounces last month, from 26.5 million at the end April. The Bank of Rossii said its gold reserves were valued at $41 billion as of June 1, compared with $40.7 billion a month earlier.
It is interesting that the Reserve Bank of India has granted licenses to seven more banks to import gold and silver bullion and this is indicative of the favorable view of gold and silver in India â both amongst the public and at the official level.
Indian banks are thus likely contributing to the massive increase in demand for gold and silver. Chinese banks are also catering to the increased demand of Chinese people for gold bullion for investment and savings purposes.
This is in marked contrast to their western banking counterparts, the vast majority of which, do not offer gold or silver investments at all.
As of the start of 2011, some 30 banks in India have been granted permission to import gold and silver. New additions to the list were Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore.
Since the start of 2011, India’s benchmark stock index, the Bombay Stock Exchange Sensitive Index, is down by more than 14% while gold in rupee terms is up 9%. The Sensex is essentially flat in the last year and the last 3 years despite soaring inflation.
The increased demand from India and wider Asia is sustainable and one of the fundamental reasons that gold and silver’s bull market remain very much intact.
Importantly, China was expected to surpass India as the world’s largest gold importer this year. After the most recent Indian import figures this is now not certain.
Chinese investors more than doubled their purchases of gold during the first quarter in 2011, compared with the same period last year. China invested $4.1 billion into gold bars and coins during this first quarter of 2011.
China’s investment demand increased to 90.0 metric tonnes (40.7 tonnes in the year prior), compared with India’s 85.6 tonnes.
Gold in Australian Dollars Breaking Out?
In a report Tuesday, the Australian Bureau of Agricultural and Resource Economics and Sciences conservatively estimated that bullion may average $1,500 an ounce this year. The metal has averaged $1,445 so far in 2011.
“Uncertainty about the ability of many developed economies to stimulate economic growth and control growing budget deficits is expected to encourage investment demand for gold as a lower risk, or safe haven, asset,”, the Canberra-based agency said.
Despite some calling the Australian dollar a “safe haven” currency, the Australian dollar has been sold recently and gold appears to be in the early stages of breaking out in terms of Australian dollars.
This is another indication of the global nature of gold’s bull market and the fact that all fiat currencies are now vulnerable to currency debasement and devaluation. Focusing on gold solely in U.S. dollar terms remains simplistic and misleading.
Gold’s consolidation in recent months in all currencies and gradual gains since late January suggest that we may be on the verge of a break out in all currencies and a powerful move upward in the next leg of the precious metal bull markets.
Piling Back Into Silver for the Long Haul
The silver market has been even more spectacular on the way down as it was on the way up. Since I claimed that silver was in a blowoff top on April 25, silver has lost 25% of its value. However, due to long-term fundamentals as well as shorter-term technical considerations, we believe it is time to begin scaling back into silver long positions.
Here is a link to a chart of silver with aggregate open interest on silver futures on bottom.
Note how open interest swells and peaks during silver rallies, and bottoms during the bottom of corrections. The reason for this is that the open interest on silver futures rises or falls with the amount of speculators in the market. For example, the recent sharp dropoff in open interest indicates that many long speculators were liquidating their positions, causing a sharp fall in the number of open contracts.
However, silver’s rally on Friday brought a renewed uptick in open interest, which we believe may mean a return of Managed Money to silver. As denoted by the white dotted line, the aggregate open interest in silver futures appears to be in a long-term uptrend, albeit with a bumpy ride along the way. We have been waiting for Managed Money to return to their previous high of net length, but the recent silver rally was fueled almost entirely by retail ETF and physical buyers. Managed Money’s prescience in staying away from the silver rally after September 2010 was uncanny, but we believe the long-term fundamentals of the silver market will eventually draw them back in.
Fundamentals
Ironically, while commodity markets sold off this week, bullish fundamentals for commodities actually strengthened. Jean-Claude Trichet’s dovish statements indicating that further rate increases were unlikely is further affirmation that developed economies have extremely limited ability to raise interest rates. The fact that even Trichet, the most hawkish developed economy central banker, is unwilling to raise rates more than nominally indicates the growth dilemma that the world’s major economies face: either maintain low interest rates, fuel speculative asset bubbles and fan inflation, or raise interest rates and risk renewed recession.
The US dollar’s recent weakness against the euro provided much of the last legs of the upward surge in commodities, but the unexpected US dollar rally on Thursday was too much for commodities to bear. The euro falling by 2% against the dollar unleashed the floodgates on selling by weak longs. However, going forward I firmly believe that both commodities as well as the dollar index will rally. While the dollar will continue to lose value against commodity and emerging currencies such as the Australian dollar, Canadian dollar, and Brazilian real, the dollar should do well against the euro, pound and yen due to the superior economic position of the US. In such a manner, the dollar as measured by the dollar index can rally along with strengthening commodity prices.
If further dollar index rallying causes more short-term pain for commodities, I would advocate being a heavy buyer of commodities, as fundamentals are only getting more bullish. As the market realizes that long-term fundamentals of commodities are unrelated to the dollar index, both can rally in tandem.
Trade Recommendation
We would recommend scaling into a long futures position in silver, as well as the sale of put options. However, due to the extreme volatility inherent in an ongoing correction, investors should not take out their full position at once, but instead be ready to buy more in case of further correction. We view $30/ounce as a hard floor on the price of silver, and the purchase of silver futures anywhere between 30-35 as an attractive long-term entry point.
As a trade, an investor could buy the July silver futures contract for 36.145 and sell the June 40 call for $1. The net effect of the trade would be an entry price on silver of $35.145. The $30 strike price puts should be sold on silver during corrections, going out as far as the December 2011 expiration. The purchase of bull call spreads can also be explored by traders who wish to gain greater upside leverage to silver prices.
We continue to favor investment in SLW as the premier silver equity. Due to the high implied volatility of SLW and recent massive underperformance of SLW compared with silver, we view the sale of put options against SLW as a highly attractive trade. The January 2012 $35 put options could be sold for $6.25, giving an investor the effective entry price of $28.75 for SLW stock. On a long-term basis, $28.75 is an excellent entry point for SLW stock, and the investor will profit handsomely if SLW is above $35 upon expiration.
May 11th, 2011
By Anathan Thangavel
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