It appears physical silver sales are quite robust...

Regards - VHF

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Silver coin sales hit record pace

Frank Tang

January 30, 2012

(Reuters) - Less than one year after silver's breathtaking collapse from its record-setting rally, investors are again snapping up coins at an unprecedented pace, suggesting the white metal could leave gold in the dust.

Even before the U.S. Federal Reserve's promise of further stimulus rejuvenated interest in precious metals last week, U.S. retail investors were already buying up freshly minted coins in droves, undaunted by last year's painful volatility. Gold coin sales, while rising, have been far less robust.

At Dillon Gage Metals, a leading U.S. precious metals dealer, dollar sales of silver and gold products reached parity in January for the first time in its history - even though bullion costs 50 times more. Some hedge funds are now interested in silver coins, a top executive said.

Rival Blanchard & Co said it was selling now more 500 one-ounce Silver American Eagle "Monster Boxes" than ever. Last week, one client bought 17 of the $18,500 boxes at once -- a more than $300,000 purchase, said vice president David Beahm.

While January is normally a strong month for sales as collectors rush to get the newest models, retailers say the current tone of demand is far beyond the norm. The persistent euro zone crisis, the threat of a declining U.S. dollar and simply a fear of the unknown are putting silver back on investors' radar.

"We are breaking the record of past Januaries and it's not an accident. People are showing a much higher comfort level with silver in wealth preservation," said Terry Hanlon, president of Texas-based Dillon.

At the U.S. Mint, sales of the 1-ounce silver Eagle bullion coins - sold to investors only - were at 5.7 million as of Friday, within striking distance of its monthly record of 6.4 million set in January 2011.

Gold Eagle sales were at 250,000 ounces, double last year's monthly average but nowhere near the levels seen during the 2008 economic crisis.

Strong physical buying has helped silver outpace gold so far this year; silver is up 21 percent versus gold's 10 percent year-to-date gain. In 2011, silver notched a loss after it had sharply outperformed gold in 2010 and 2009 with double-digit percent gains in each year.

Silver, often used by speculators due to its relatively high volatility and thin volume, soared to a record $49.51 an ounce in April 2010, only followed by an almost $20 crash in just two weeks' time. On Monday, it traded at $33.50 an ounce.

The closely watched gold-to-silver ratio, which measures how much silver an ounce of gold can buy, narrowed to around 50 after a one-year high of 57 set in December. Some traders adjust their holdings if they think one is "cheaper" than the other.

RECORD MONSTER BOX SALES

Blanchard & Co, one of the top retail coin dealers based in New Orleans, said it is now selling more of those 500-coin monster boxes than ever.

"Not only do we have new silver investors coming in, we also have gold investors coming back to put more money in silver," said Beahm, vice president of Blanchard.

Hanlon says Dillon's $2 billion annual 2011 sales in dollar terms was fairly split between gold and silver products.

"It's equal, which says a lot about how much more silver coins were sold. It was never an even-keeled measurement between the amount of silver and gold," he said.

Hanlon also said that a growing number of small hedge funds have been buying the highly liquid silver coins because they allow them to readily meet client redemption.

SPROTT SILVER ETF'S BIG MOVE

Growing investor appetite in silver was evidenced by an unusually big $350 million offering by Canadian fund manager Eric Sprott's physical silver trust (PHSu.TO) last week to meet demand.

Even though Sprott's trust was only one-tenth the size of top silver ETF iShares Silver Trust, his trusts offer investors a unique option to redeem physical metals.

"A lot of people thought they owned gold and silver before MF Global went bankrupt. And all of a sudden they found out that they didn't own anything at all," Sprott said in a recent interview.

However, overall silver ETF buying measured by the top six silver funds has not shown a significant spike in January. It was only 2 percent higher compared with levels in December 2011.

There's one caveat with early sales data. Retail investors tend to favour the new year's edition, and buying is often stronger in Januarys and could "smooth out over the year" similar to what happened in 2011, said Philip Newman, research director of Thomson Reuters GFMS.

Blanchard's Beahm disagrees that silver Eagle sales are skewed upward by investor preference in Januarys.

"An ounce of silver is an ounce of silver, and most of our investors don't care what the date says," Beahm said. "In fact, some people are still buying coins that have Santa Claus on it."