Silver Investors Hold Their Ground

Silver’s New York spot price dropped four cents on Monday, to $28.58. That loss amounted to more than half of the gains the metal posted before heading into the first weekend of March. These circumstances were perhaps foreshadowing that silver would once again spend the week bouncing around the range it has been frequenting.

On Tuesday, silver bulls flexed their muscles in an effort to drive the metal above $29, a task that has become increasingly difficult. Intraday, they were successful, but by the close of the New York spot market, silver’s price had been beaten back down. Still, the metal managed to end the day with a 16-cent gain, which perhaps served as a source of empowerment for the bulls. Wednesday, it was the bears’ muscle that was lacking as silver managed to not only rise above $29, but also to close at $29.04.

Likely of more interest than this range-bound price action is the divergence between gold and silver. That exists not because the metals’ prices are moving in opposite directions, but rather because sentiment is diverging among physical investors.

Gold investors have been fleeing their positions in physically backed ETFs. The SPDR Gold Trust (ARCA:GLD), the largest of the funds, has reportedly seen outflows of over $5 billion year-to-date. Standard Bank said that last week alone, investors sold over 59 metric tons (MT), a 12-month record.

Meanwhile, silver investors have been steadily stacking their metal, with ETF investors adding nearly 68 MT last week. That boosted holdings to about 20,253 MT, which is not too off from the all-time record of 20,362.1 MT, according to Standard Bank.

US Silver Eagle sales in February of 3,368,500 ounces did not match those in January, when 7,498,000 million silver coins were sold, but there was still clearly healthy demand.

Robin Bhar, head of metals research at Societe Generale, reportedly said there is a possibility that silver coin demand will outstrip gold demand. He cited “considerable interest in Silver Eagles in Europe as well as North America.”

Strong appetite for the metal is being displayed by retail and institutional investors, and Bhar believes their interest is sufficient to sop up the silver surplus.

Silver has fallen about $3, or more than 9 percent, over the past 30 days. In the futures market, the bearish attitude is clear as net speculative length has plummeted and speculative shorts stand at almost double the five-year average. But action in the physical markets reveals that sentiment in this sector of the investment community has not turned bearish.

Speaking of Silver Eagles, there has been speculation that the shortage experienced in January was due to a shortage of silver itself. In an interview with The Silver Institute, the US Mint’s deputy director, Richard Peterson, attributes the shortage to volatility and the challenge that it presents in forecasting the need for silver blanks.

Demand peaked in 2011, then dropped over 22 percent in the first half of 2012, he explains in the interview. The last quarter of 2012 saw a surge in demand, and January 2013 demand was 23 percent higher than it was in January of the previous year.

“Overall, we attempt to manage our supplies in a manner that ensures we have a sufficient number of coins to meet the weekly demand of our Authorized Purchasers. When that demand exceeds our ability to acquire a sufficient number of blanks, we then go on allocation until our inventories can be rebuilt again and the supply of blanks increased,” Peterson said.

The close

On Thursday, May silver on the COMEX ended floor trading at $28.78, near the session low and down $0.18. The closing New York spot price for silver was $28.88, a loss of $0.16.

Company news

Santacruz Silver Mining (TSXV:SCZ) added a fourth property to its portfolio. The company was able to acquire the 48,057-hectare El Gachi project, which hosts a historical producing mine, due to an August 2011 agreement with Hochschild Mining (LSE:HOC). Under the terms of the agreement, Santacruz has the option to retain the property by making a $3-million payment before or by October 2014. This will give Santacruz 100-percent ownership of the Mexican property.

Huldra Silver (TSXV:HDA) kicked off the month by announcing that it has received over $2.2 million in smelter payments from the concentrates shipped from the Treasure Mountain mine in BC, Canada. This sum does not include all payments due for shipments in February.

The company has also signed a contract for a 4,400-meter underground diamond-drilling program and expects drilling to begin on March 15.

Wildcat Silver (TSX:WS) plans to acquire Riva Gold (TSXV:RIV) in a deal that represents a value of C$0.17 per Riva share.

Riva has C$8.1 million and no mineral properties in its portfolio. The company has agreed to provide Wildcat with a C$1-million secured-term loan.

“This transaction is expected to provide Wildcat with sufficient funds to advance the Hermosa project [a silver project in Arizona, US] through prefeasibility and into the feasibility stage with the least dilution to our shareholders,” said Don Taylor, president and chief operating officer. “With this additional cash, we look forward to unlocking additional value and moving our project forward this year.”

Securities Disclosure: I, Michelle Smith, do not hold equity interests in any companies mentioned in this article.

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2013 Silver Eagles Already Sold Out