March 12, 2009 – Silver Bullion

The worldwide market for silver bullion has been booming in the first month of January. This builds upon a very steep increase in demand at the end of 2008, as the full-scale of the economic crisis was unfolding. As nervous investors keep an anxious eye on daily gold and silver spot prices, the generalized trend for 2008 was generally up. However, this is largely due to a massive demand at the end of the year that offset earlier losses.

After starting the year high, at over $14 per ounce, the spot price of silver rose to over $20 per ounce in March. Aside from a small rally in late September, the trend was downward for the rest of the year, though it finished only about $2 lower than the January price. Looked at in a larger historical perspective, however, this volatility at the top could very well be a stepping stone on the way to even higher levels in 2009.

Even with a temporary shortage of silver bullion coins in February of 2008, the year finished very strong in terms of sale numbers, mining and related industry investment, market interest and price. Proof sets of silver bullion coins, intended for the collectors market. Nearly twice as much silver was sold in 2008 with respect to the previous year.

Though the price finished the year up far higher than other types of investments, it was significantly lower than it’s historical high in early 2008. This represents a high price for the commodity that hasn’t been seen since the 1970s. The question remains whether gold will continue to increase in value or decline as the price of both gold and silver did in the early 1980s.

Historically, the price of silver has been somewhat more volatile than that of gold. Demand varies considerably from one month to the next. That is partly due to the small number of large investors in silver as compared with gold. This allows this small group to rally together in a more coordinated manner than the more diverse forces that act upon gold. Gold has been marching along in late 2008 and 2009, as well. Both gold and silver spot prices experienced a progression upwards after October of 2008.

For investors who buy silver bullion for its numismatic value, the rationing of proof sets may prove to be a lucrative investment for the long-term. The government does require the mint to keep up with public demand for bullion products, but it has no such directive for the production of coins for collection purposes. However, should demand for silver bullion coins slow down or the lines of production be fortified to keep up with the increased demand, it is likely that there will be significantly fewer proof sets of Walking Liberty silver dollars and silver Eagles.

Increased demand for physical silver will be competing with a decrease in the industrial and jewelery demand for silver. The movement of currency markets will certainly impact the price of silver over the year. The serious investor will want to track both gold and silver spot prices and compare them with movements in relevant sectors.

Joseph Morton

March 12, 2009

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