The Bullion Desk

European silver coin demand outpaces gold as economic insecurity underpins safe-haven buys

February 18th, 2009

By Melanie Burton

Demand for silver coins in Europe has outpaced gold as refiners struggle to keep pace with demand from investors wary of banks and currency weakness, looking to safe-guard funds, a leading bullion dealer said Wednesday.

Demand for coins remains strong but has calmed down somewhat from September last year when the collapse of Lehman Brothers left the global financial system badly shaken, due in part to difficulty in acquiring sufficient stock, Sonia Hellwig of Jewellers Trade Services Partners told

"Refineries and mints are still unable to build up stock -- they produce and sell immediately as the demand is still far greater than their production capacities," she said.

"This is particularly true for the one ounce silver coins. This lack of coins led to the production of new coins by mints that did not previously mint bullion coins of this type -- such as Andorra and their new one ounce silver Andorra coin," said Hellwig, recently returned from trade fair, the World Money Fair in Berlin.

Investors are particularly fond of silver one ounce coins which have a net cost of $13-14 such as Canadian maple leafs, US eagles, Austrian philharmonics, Mexican libertads, Chinese pandas and one ounce Australian coins. In gold, the same applies, plus gold Krügerrand and Australian nuggets, she said. Premuims for freshly minted coins now stand around 3 percent, to be sold from 4.5 percent to ten percent depending on the coin and the buyer.

A one ounce silver philarmonic coin, sold for EUR 10.50 last August would today sell for around EUR15. For gold, a one ounce bullion bar sold last August at £537.50, currently stands at £729.90.

Investment in bars and coins boomed 396 percent to 304.2 tonnes in the fourth quarter of 2008, from 61.4 tonnes in the fourth quarter of 2007, the World Gold Council said in a report released today.

Bar and coin shortages were reported across many parts of the globe, although the most dramatic surge was in Europe, where bar and coin demand increased to 113.7 tonnes from just 9 tonnes in Q4 2007, it said in a quarterly report.

"Most mints have increased their premiums as one cannot get sufficient stock from the mints the secondary market prices have gone up to $3.50 an ounce per silver coin and are paid without questioning," Hellwig said.

Blanks, metallic disks on which impressions are marked are in short supply and that's not expected to change soon, as mints are reluctant to invest in new machinery when questions remain over how long the current investment influx will last, she added.

Gold is traditionally seen as a safe haven in times of political and economic turmoil because of its perceived propensity to either hold its value or to rise in price when other investment assets decline. Consequently, investors tend to increase their purchases of gold and gold-related instruments in such times.

By association, silver is also regarded as a cheaper safe-haven tool, although silver prices have far underperformed gold due in part to a downturn in such industries as the electronics sector.

Gold prices saw out last year up some 5 percent and have since climbed to $965 an ounce on concerns that struggling European economies may unhinge the single currency. Gold remains less than six percent below its $1,032.60 an ounce all time high from last March. In contrast, silver prices finished last year down 23 percent. While today reaching a seven-month high of $14.34 an ounce, silver remains just two-thirds of last year's 28-year high above $21 an ounce.

Counterparty risk is not such a huge issue as with other members of the London bullion market, as payment is received before coins are dispatched, with its only exposure to smaller coin dealers who pay after delivery.

"The continued distrust in the banks and currency weakness means that more people invest a more substantial share of their money into physical (metal), said Hellwig.

"So far there is no end to the crisis/depression in sight and many people will certainly invest more carefully in the future and therefore prefer the physical to fund investment and the like," she added.

The Bullion Desk

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