The Stealth Gold Bull Market is Back

(But Americans Love Silver!)

Silver Stock Report

by Jason Hommel, September 17th, 2009


One trouble with Americans is that we think we are the center of the world.  We do have about 5% of the world's population, and use up about 25% of the resources.  That's mostly a function of being significantly "wealthier" than the rest of the world.  But that's mostly paper wealth.  Will it last?  Only if we buy at least 25% of the world's silver and gold.  Do we?  Not in gold, but we do in silver!  Let's get to the facts.

Worldwide, the world buys about 80 times as much gold as silver, for investment.  The world annually purchases gold worth $80 billion (about 80 million oz., or 3500 tonnes).  If American-led Central bank selling did not help meet demand and add to mine supply, then the gold price would go up faster than it already has.  Remember, central bank selling is a manipulative and unsustainable supply source.

The annual silver investment market is only $1 billion.  Annual production is about 600 million oz., but only about 50-100 million oz. is purchased for investment.

These figures show that the world is buying 80 times as much gold as silver, for investment.

American investors seem to buy more silver than the rest of the world.  Why?  I would guess that we seem to know more about the supply/demand statistics, and know that the silver market is much smaller, and know that the silver/gold ratio shows that silver is cheaper.  Maybe it's because we recently used silver in our currency as late as 1964, and many other nations don't have such a recent history of using silver as money?

Sales of American Gold and Silver Eagles show that Americans are purchasing about only 3 times as much dollar volume of gold Eagles as Silver Eagles per year.

Production figures:
http://www.usmint.gov/mint_programs/american_eagles/index.cfm?action=sales&year=2009

Show that for 2009, from January to September, the US Mint has produced:
903,000 Gold eagles, and
19,364,500 Silver Eagles. 

At an average price ratio of 60 to 1, at about $15 for silver and $900 for gold, we have dollar volumes of:

Silver Eagles: $290,467,500
Gold Eagles: $812,700,000

The last figure, the ratio of 812/290 shows that Americans buy about 2.8 times as much dollar volume of gold Eagles, than Silver Eagles.  That's dramatically different than the world ratio of 80 to 1, and thus, heavily skewed towards silver!

But do Americans buy 25% of the world's gold and silver?  Not in gold.  Gold Eagles are about 1/100th of the overall world gold market.  Silver Eagles are just over 1/5th of the world silver investment market (20/100 million oz.!)!

Wow, I never realized that American investors favored silver that heavily.  Congratulations, America!

And many silver buyers buy silver other than in Silver Eagles!  So, perhaps Americans are buying up to 1/2 of all silver investment demand.  Fantastic job America!  That implies great news for the future wealth for America.

Unfortunately, the $300 to $600 million that Americans spend on silver is only a tiny, tiny, tiny fraction of the overall investable wealth of Americans.  If the word gets out about silver to the majority of Americans, silver prices have no choice but to explode.  Imagine if Americans spent ten to one hundred times as much money on silver each year!  It's possible, and perhaps even likely, as the truth about every thing tends to be exposed and get out at some point.

Nevertheless, given current national actions, I tend to think that the average coin shop would carry 3 times as much gold as silver, to match overall market demand. 

But knowing what we know about silver, we do the opposite, fortunately, for our own future capital gains, and for our customers.

We carry about 3 times as much silver, as gold!  And fortunately, our customers buy about the same dollar volume of silver and gold.

Americans are not driving this bull market in gold.  In a sense.

What I mean is that Americans are not buying enough gold in significant quantities, as Gold Eagles are 1/100th of the gold market.  But rather, American politics, which requires massive printing of US Dollars (Sorry, Federal Reserve Notes), is, indeed, driving gold prices higher.

Americans are not buying enough gold to drive gold prices up. 

Americans, over the past decades, have elected politicians whose policy decisions require printing more paper money, and that's driving gold prices up, as other nations see our foolish action of printing up too much money, and other nations are wisely buying gold.

Since I have started dealing silver and gold, maybe I have better observations about the silver and gold markets, and perhaps less time to write about them. 

Over the last 6 weeks, we have bought and sold about the same amounts of precious metals to and from our customers, and we have accumulated a bit more gold from the public selling gold for silver.  We have not had to order very much from our wholesalers, or other mints.  Enough people been cashing out their silver and gold, enough to balance out our trade.

Americans buy less gold than other nations (1/100th of the world market?), and much more silver (40% of the world market?), but could still buy much, much, much, much, much, much, much, much, much, much more of both.  This bull market in precious metals is barely getting started.
Sincerely,

Jason Hommel