Physical demand for gold is on the rise, but so is silver’s

By now, anyone who tracks the precious-metals market knows that physical demand for gold has jumped in the wake of the plunge in gold prices last month, but physical demand for silver has shown an impressive increase as well — just as the U.S. Mint gets ready to start selling its latest five-ounce silver bullion coin on Monday.
U.S. MintWhite Mountain coin

Year to date, the U.S. Mint has soldmore than 19 million one-ounce American Eagle silver bullion coins. For the four months ended in May last year, they sold about 14.5 million.

Anthem Blanchard, chief executive officer of Anthem Vault, a physical gold and silver bullion dealer, said that so far in May his company’s “physical silver sales to clients are currently outpacing physical gold sales by a large margin.”

“When large price movements occur that spur a rapid increase in physical buying — such as was triggered by the recent 10-15% dip in gold and silver prices — physical silver supplies become more difficult to obtain than physical gold as there is less above ground supply of physical silver than there is of physical gold,” said Blanchard. “This has caused more scarcity of silver bullion than gold bullion in the physical spot market.”

In a memo to authorized purchasers on Wednesday, the U.S. Mint said it will “allocate” the initial release of the 2013 America the Beautiful five-ounce silver bullion coin White Mountain National Forest. The coin, which is part of a multi-year release that began in 2010, goes on sale Monday.

“With demand for silver in the market continuing to be high,” said Michael White, a spokesman for the Mint, told MarketWatch, the allocation will “ensure an equitable distribution based on our long standing policy. The United States Mint does not set initial mintage limits for the bullion coins, but produces an initial production run and then monitors demand and manufactures more coins to respond to that demand.”

Here’s how the Mint describes the allocation process in its memo:

The allocation formula will mirror the formula that we use for silver Eagles, as follows:

• Each Monday morning, the inventory available for sale that week will be divided into two equal pools.

• The first pool will be allocated equally to all active Authorized Purchasers (APs).

• The second pool will be allocated based on each AP’s sales performance of 2011 and 2012 dated America the Beautiful Five Ounce Silver Bullion Coins.

• Each AP will be advised via fax Monday morning (or if a Government Holiday, Tuesday morning) of their allocation, and they will have until 3:00 p.m. Friday to place orders for their allocated coins.

• Any unordered coins after 3:00 p.m. Friday will be put back into the pool for allocation the following Monday.

The allocation process will remain in place until demand for the 2013 America the Beautiful Five Ounce Silver Bullion Coin – White Mountain National Forest can be met.

David Beahm, executive vice president at precious-metals investment firm Blanchard & Co., said that basically means that anyone who is an authorized purchaser from the Mint will have access to another addition of these five-ounce coins.

But Beahm said his clients would much rather invest in the one-ounce silver coins, or 10-ounce, 100-ounce, or 1,000-ounce silver bars.

Besides, Anthem Vault’s Blanchard pointed out that the five-ounce silver coin is currently priced at $179.95 per coin, or $35.99 an ounce, representing about a 40% markup over its bullion content. Given that, he’d consider it a “semi-numismatic” coins rather than a bullion coins — meaning that somewhere between 15% and 50% of a coin’s value is due to factors other than the coin’s metal content.

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