Catalysts That Will Drive Silver Prices Higher
Jeff Uscher: Silver prices are up nearly 8% in the past couple weeks as investors increasingly load up on the white metal.
In fact, the U.S. Mint has temporarily suspended sales of its 2013 American Eagle silver coins because it has none left.
Reuters reported today (Friday) that the Mint plans to restart sales in the last week of January after it has had a chance to restock.
The U.S. Mint generally sees a big influx of demand when it releases new coins at the beginning of the year. This year, however, investors seeking a safe haven for their money added to the usual collector demand leaving the Mint’s vaults bare.
“It is easy to infer that some element of the fear trade may be at play,” Joni Teves, an analyst at UBS AG in London, wrote today in an e-mailed report cited by Bloomberg News. “We view the chunky sales of American Eagle coins more a function of seasonality than anything else. It is important to keep an eye on U.S. coin sales in the coming months to see if volumes remain elevated as the debt ceiling showdown plays out.”
Coins Not the Only Silver Play to Soar
The news from the Mint coincides with a report that the iShares Silver Trust ETF (NYSEARCA:SLV) saw the biggest inflows of any exchange-traded fund (ETF) this week, adding $600 million to its assets under management.
IShares manager BlackRock (NYSE:BLK) confirmed to Bloomberg that this was the largest increase in the silver ETF’s assets ever.
Demand for silver as a safe haven comes amid increased turmoil over the debt ceiling in the U.S., the ongoing crisis in Europe and an aggressive attempt to create inflation in Japan.
Precious metals investors have also been disappointed by the performance of gold in recent weeks and may be looking for an alternative investment. Certainly the gold/silver ratio has been in decline since late December, falling from 56 to nearly 53, a decline of about 5%.
All these factors combine for investor sentiment that’s bullish for silver prices.
More Catalysts for Higher Silver Prices
Another major reason for higher silver prices is the outlook for improved economic activity, particularly in China, which reported better than expected quarterly gross domestic product (GDP) numbers on Friday.
“With silver, you can benefit from both sides: its safe-haven status and the fact that it’s also an industrial commodity,” Frederique Dubrion, the Geneva-based president and chief investment officer of Blue Star Advisors SA told Bloomberg. ”Given some positive leading indicators, especially in the U.S., investors would probably prefer turning to silver rather than to gold.”
In that sense, silver has a more direct link to global industrial activity than gold. As the global economy recovers, demand for silver will rise at a time when supplies are tight because of financial demand from investors looking for a safe haven.
Silver is used in a number of automotive applications, and global automakers have forecast increased demand for cars and light trucks in the world’s major market, including China and the United States. This should provide some underpinning in the demand for silver in 2013.
So, whether you are optimistic about the economy or pessimistic about how Congress will handle the debt ceiling, given the metal’s dual roles as both an industrial commodity and as a store of value, you should be betting on higher silver prices.
Related Tickers: iShares Silver Trust (NYSEARCA:SLV), ProShares Ultra Silver (NYSEARCA:AGQ), SPDR Gold Trust (NYSEARCA:GLD), Silver Wheaton Corp. (NYSE:SLW), ETFS Silver Trust (NYSEARCA:SIVR).
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