August 13, 2022

The Number One Risk of Owning the iShares Silver Trust SLV

Evaluating risk is a part of any investment decision process.  A quick look at the recent past reveals that every asset can fluctuate in value, sometimes very rapidly.  Housing prices declined around fifty percent during the financial/banking crisis that started in 2018.  Commodities are notoriously volatile, subject to wide swings in demand and supply.  Even stocks, which for the past two years have been on a nonstop upside ride can have long stretches without gains or sudden sharp downdrafts.  Stock returns for the decade 2000 to 2010 were just a shade above zero.

Gold and silver, the only currencies to retain value for thousands of years, will continue to shine but will also have periods during which pullbacks will occur.  Holding physical silver in large quantities can be problematic when considering the cost of storage and security.

One alternative to holding physical silver is to purchase shares of the iShares Silver Trust (SLV) which holds physical silver stored by a custodian.  The value of the SLV over time will correlate closely to changes in the price of silver which makes it a relatively good proxy for holding physical silver.

As discussed above, every asset class has risk and owning the SLV is no exception.  If you are of the opinion that the greatest risk to the SLV (and to your personal wealth) is the government, you would be right.

As discussed in the SLV proxy statement, among the various risks of owning the SLV, adverse and/or confiscatory actions by the government is the number one risk of owning the iShares Silver Trust.

Future governmental decisions may have significant impact on the price of silver, which may result in a significant decrease or increase in the value of the net assets and the net asset value of the Trust.

Generally, silver prices reflect the supply and demand of available silver. Governmental decisions, such as the executive order issued by the President of the United States in 1934 requiring all persons in the United States to deliver silver to the Federal Reserve, have been viewed as having significant impact on the supply and demand of silver and the price of silver. Future governmental decisions may have an impact on the price of silver and may result in a significant decrease or increase in the value of the net assets and the net asset value of the Trust. Further regulations applicable to U.S. banks and non U.S. bank entities operating in the United States with respect to their trading in physical commodities, such as precious metals, may further impact the price of silver in the United States.

The SLV currently holds approximately $12.25 billion in silver bullion.

American Eagle Silver Bullion Coin Sales Drop Sharply from Previous Month and Year

american-silver-eagleSales of the US Mint American Eagle silver bullion coins dropped sharply during February from both the previous month and comparable prior year period.

The US Mint reported total sales of 3,022,000 ounces during February which is down by 19.4 percent from the comparable prior year period and down by a considerable 45.4 percent from the previous month.  Due to strong January sales, however, total sales of the silver bullion coins is up slightly by 0.3 percent on the year.

There were four months during 2014 in which monthly sales of the silver bullion coins dropped below the 3 million level and yet sales hit an all time record high of 44,006,000 troy ounces.  Average monthly sales of the silver bullion coins during 2014 came in at about 3.6 million ounces per month while the average monthly sales year to date during 2015 is at 4.3 million ounces.  The silver bullion coins remain extremely popular with precious metal investors despite the decline in the price of silver since 2011.  Long term silver investors allocating a portion of their portfolio to physical precious metals view the current bargain price of silver as an opportunity to load up as evidenced by 2014 record breaking sales.

The chart below shows the trend of sales for the US Mint silver bullion coins since 2000.  Sales for 2015 are year to date through February 28, 2015.  Ever since the financial crisis when the banking system can close to completely imploding, sales of silver bullion coins have exploded by about 500 percent and remained strong despite the so called recovery in the economy and banking system.

While the sales of gold bullion coins has declined since the financial crisis, silver bullion coins remain as popular as ever with investors seeking a store of value in physical precious metals.

The price of silver has declined sharply since the highs of 2011 as investors have fled what seems like a losing proposition, especially in comparison to stocks and bonds which have been pumped up in value by the Fed’s easy money policies and zero interest rates.  Silver has seen volatile price action since the financial crisis but most investors who have made purchases since 2008 are now at about a break even price level or sitting with losses making this an interesting price juncture for silver investors.

10 year silver

Whether it be stocks, bonds, or precious metals, it is classic psychological behavior for investors to pile in at the top as prices are reaching bull market highs and then refuse to buy at the bottom when everyone is bearish.  No one can predict the timing of future price moves, but with silver prices in the bargain bin and little interest by investors, this is probably an area that deserves additional investment by long term buy and hold investors.  Silver has been considered money and a store of value throughout the ages and this is not likely to change, especially as desperate and over indebted governments rely upon printing press money from the central banks to keep the wildly over leveraged financial system from crashing again.

The sales of silver bullion coins by year since 2000 is shown below.  The figures for 2015 include year to date totals as of February month end.

American Silver Eagle Bullion Coins

               YEAR

OUNCES SOLD

2000

 9,133,000

2001

 8,827,500

2002

 10,475,500

2003

 9,153,500

2004

 9,617,000

2005

 8,405,000

2006

 10,021,000

2007

 9,887,000

2008

 19,583,500

2009

 28,766,500

2010

 34,662,500

2011

 39,868,500

2012

33,742,500

2013

42,675,000

2014

44,006,000

2015

8,552,000

             TOTAL

 327,376,000

 

American Eagle Silver Bullion Coin Sales Up From Previous Year and On Track For Record Breaking 2014 Sales

silver eagleThe US Mint American Eagle silver bullion coins remain more popular with investors than ever, despite the decline in the price of silver.  Apparently there are plenty of long term silver investors who prefer to hold the physical metal and are viewing the decline in the price of silver as an opportunity to load up at bargain prices.

The latest report from the US Mint shows that November sales of the silver bullion coins totaled 3,426,000 ounces, down from the previous month but up by 1,126,000 ounces or 49% from the previous year.  October 2014 was the highest selling month of the year with total sales of 5,790,000 coins.

Sales of the American Eagle silver bullion coins year to date through November 30 now total 41,547,000, just shy of the all time record sales year of 2013 when the Mint sold 42,675,000 coins.  If December sales of the silver bullion coins surpass 1.1 million coins, which is very likely, 2014 will be another record breaking sales year.

Gold and silver investors can only shake their heads and wonder at investor confidence in central banks as an orgy of money printing continues worldwide and leveraged debt piles up at a rate and amount never seen before in history. The attitude seems to be “who cares – my stocks and bonds and real estate are going straight up.”

At some future point that no one can predict you can count on another financial accident on par or greater than that of 2008-2009 that will destroy confidence in paper money and the ability of governments to repay debt with sound money.  At that point the exchange rate between dollars and precious metals will amply reward the investors now buying bargain gold and silver.

Silver has now given back the bulk of its gains from the highs reached in early 2011 and could well go lower given the bearish sentiment and declining price pattern.

Since 2000 investors have purchased over 300 million American Eagle silver bullion coins.  Below are the sales by year with the 2014 total through November 30.

 

Gold Plunges After Swiss Voters Reject Central Bank Gold Buying

SNBGold can’t catch a break lately as Swiss Voters Reject Measure Forcing SNB to Acquire More Gold.

Swiss voters rejected a measure in a referendum requiring their central bank to hold a portion of its assets in gold, a measure its President Thomas Jordan termed an “invitation to speculators” that could have hurt the economy. Bullion tumbled to a three-week low.

The “Save Our Swiss Gold” proposal stipulating the Swiss National Bank hold at least 20 percent of its 520-billion-franc ($540 billion) balance sheet in gold and never sell any bullion was voted down by 77 percent to 23 percent, the government said yesterday. Polls had forecast the initiative’s rejection. Two other initiatives on tax privileges for foreign millionaires and immigration limits also were rejected.

SNB policy makers estimated they would have needed to buy 70 billion francs worth of gold if the referendum had passed. Some economists estimated the SNB wouldn’t have had to sell euros to meet the requirement, given its dollar holdings. At the end of the third quarter, it held 45 percent of its 460 billion francs of foreign currencies in euros and 29 percent in dollars.

Even though the Swiss gold referendum was expected to be defeated gold prices plunged by over $38 per ounce in late Sunday trading and silver was pulverized with prices down almost 8%.

As stocks and bonds continue to soar on liquidity provided by central bank quantitative easing investors have been dumping gold by the tons from their portfolios.  The Swiss Gold Rejection simply gave investors another reason to stay away from gold which has been in a vicious bear market.

Gold has lost 19 percent since peaking in March and investor holdings of exchange-traded products are near a five-year low. While prices probably won’t be affected too much by the “no” vote of the initiative called “Save Our Swiss Gold,” approval would have improved sentiment and increased prices by as much as $50 an ounce, HSBC Holdings Plc estimated in November.

“Gold had received some support in the last couple of weeks” before the vote, Georgette Boele, an analyst at ABN Amro Bank NV in Amsterdam, said by phone. “We’ll get more pressure on gold. The overall outlook is not looking great.”

2014-proof-gold-eagle

Even the surprise news that India had ended curbs on gold imports did nothing to support prices.  In a bear market all news is bad and gold can’t seem to find a support level.  The irony of it all is that the massive euro holdings of the Swiss National Bank were purchased with Swiss francs manufactured out of thin air by the SNB to prevent its currency from appreciating against the euro.  Governments world wide have turned an experiment with quantitative easing into  national policy and are churning out trillions of dollars of printed fiat currencies.  Last I heard the value of anything depreciates as the quantity increases.  Although it’s a tough market right now, long term I’m betting that it’s a smart move to have some gold on hand.

Bargain Gold and Silver Prices Boost Worldwide Coin Demand

feature-300x200Bargain prices for gold and silver is fueling global demand for bullion coins.

During September sales by the U.S. Mint of American Eagle gold and silver bullion coins increased dramatically.  Sales of the American Eagle gold bullion coins during September rose to 58,000 ounces, up from 25,000 in August.  Sales of the American Eagle silver bullion coins rose to 4,140,000 ounces in September, more than double the 2,007,500 ounces sold in the previous month (see also Must Know Facts Before Buying American Eagle Silver Bullion Coins).

The increased demand for gold and silver coins seen in the U.S. was mirrored at other major world mints which have seen steadily increasing demand during the third quarter.

The Perth Mint of Australia, one of the largest mints in the world, has also experienced a sales spike in demand for gold and silver bullion.  During September The Perth Mint sold 756,839 ounces of silver bullion up from under less than 450,000 ounces earlier in the year.  The Perth Mint actually sold more gold bullion during September than the U.S. Mint with sales of 68,781 ounces.

The Perth Mint

The Perth Mint – ounces of gold and silver sold

The Perth Mint sells gold and silver bullion as both coin and minted bars and has a much wider product category than the U.S. Mint.

Further declines in the overextended and over-leveraged financial markets due to economic worries is likely to accelerate the recent trend into safe haven assets such as gold and silver.

Courtesy: yahoo finance

Courtesy: yahoo finance

American Eagle Silver Bullion Coin Sales Soar 100%

silver eagleSales of the US Mint American Eagle silver bullion coins has been extremely robust ever since the financial system can close to collapse in 2008.  Prior to the financial crisis sales of the silver bullion coins averaged about 9 million coins per year.

Over the past five years, despite the large correction in the price of silver, yearly sales of silver bullion coins have run well over 30 million coins per year with sales reaching an all time record high of almost 43 million coins in 2013.

Purchasers of physical silver bullion coins buy for the long term to diversify their wealth and hedge against ruinous monetary and fiscal policies fostered by both the government and the Federal Reserve.  While the financial system has been held together over the past five years by the Fed’s zero interest rate policy and money printing, the long term financial health of not only the United States but the world is beginning to look increasingly fragile as debt levels continue to explode world wide resulting in a financial system leveraged beyond comprehension.

Silver has dipped below $17 per ounce this year, off 13% on the year after plunging by 36% in 2013.  While this decline has obviously been painful for silver investors, it has put silver in the bargain bin and silver bullion coin investors are responding accordingly.  If silver bullion coin sales continue at the current pace, sales for all of 2014 could hit an all time high.

Courtesy: Kitco.com

Courtesy: Kitco.com

The US Mint reports that September sales of the silver bullion coins for September 2014 totaled 4,140,000 ounces, double August sales of 2,007,500 and up 37.4% from September sales of the prior year.

Due to a slump in sales during the summer months, year to date sales of silver bullion coins through September are running behind comparable prior year sales.  Year to date sales of the American Eagle silver bullion coins through September 30, 2014 totaled 32,251,000 down from 36,088,000 from the prior year.

Since 2000 investors have purchased over 300 million of the one ounce US Mint silver bullion coins as shown below.

Silver American Eagle Bullion Coin Sales in Summer Slump

silver eagleLet’s face it – no one likes to invest when prices are falling, whether it be stocks, bonds, gold, or silver.  Nonetheless, history has shown time and time again, across all asset classes, that investing after prices have collapsed and when there seems to be little reason to buy is usually the exact right time to buy.

This is something that investors in gold and silver may chose to ponder as demand for precious metals continues to decline.  The demand for both gold and silver has fallen as precious metal prices decline and investors turn to other rising asset classes such as real estate and stocks.  According to BullionVault which buys and sells physical gold and silver for its clients, precious metal demand  retreated to a four year low during August.

The weak demand for precious metals was reflected in the latest report from the US Mint which showed lower sales for both gold and silver American Eagle bullion coins (see Gold Bullion Coin Buyers Go On Strike).

Sales of the US Mint one ounce American Eagle silver bullion coins during August continued the sales slump that has lasted throughout the summer.  Although August sales of 2,007,500 coins increased slightly from sales of 1,975,000 in July, sales during August were off almost 45% from August 2013.

Sales of silver bullion coins during 2014 have declined substantially during the June to August time period compared to the prior year.  Total sales of silver bullion coins during the summer months of June through August 2014 totaled 6,674,500 ounces compared to 11,306,500 ounces during the previous year for a decline of almost 41%.

Earlier this year it appeared that the ever popular silver bullion coins would rack up another  record breaking year, above the record sales of 42,675,000 ounces during 2013.  Although sales of the American Eagle silver bullion coins have been robust during 2014, breaking last year’s record may remain an elusive goal.

Silver American Eagle Bullion Coin Sales Plunge in June

silver eagleSales of the one ounce American Eagle silver bullion coins plunged in June from both the previous month and previous year.  After hitting sales of almost 4 million ounces during May the US Mint reports that sales of the silver bullion coins for June totaled only 2,682,000.

June sales plunged by over 32% from the prior month and by almost 18% compared to June 2013  when sales were 3,275,000 ounces.  Monthly sales of the silver bullion coins can show dramatic month to month changes based on supply and demand so it is difficult to read much into the current month’s sales figures.

Reflecting the drop in current demand the US Mint recently suspended its allocation program which had been implemented a year ago in the face of soaring demand for silver bullion coins during 2013.  Sales of the American Eagle silver bullion coins reached a record during 2013 with sales of 42,675,000 ounces, up 26 % from 33,742,500 ounces during 2012.

The American Eagle silver bullion coins remain extremely popular with small investors and sales have remained extremely robust ever since the near implosion of the financial system during 2008.  Sales of the silver bullion coins prior to 2008 ran from eight to ten million ounces per year compared to yearly sales of 30 to 40 million ounces per year after 2008.

Sales of the American Eagle silver bullion coins could easily hit another all time record high during 2014 if sales continue at their current pace.  If sales for the next six months match the first six months, sales of the silver bullion coins for 2014 could come in at close to 50 million ounces, shattering last year’s record high sales of 42,675,000.

The American Eagle silver bullion coins cannot be purchased by individuals directly from the U.S Mint.  The coins are sold only to the Mint’s network of authorized purchasers who buy the coins in bulk based on the market value of silver and a markup by the U.S. Mint.  The authorized purchasers sell the silver coins to coin dealers, other bullion dealers and the public.  The Mint’s rationale for using authorized purchasers is that this method makes the coins widely available to the public with reasonable transaction costs.

Shown below is a graph of sales of the silver bullion coins by year since 2000.

Soaring Gold and Silver Prices Should Not Be a Surprise to Anyone

bars-of-goldThe precious metal markets caught on fire in a big way today.  Gold prices surged the most in nine months by over $40 per ounce and silver closed in on $21 per ounce.  After losing 28% last year as short term hot money investors sold out their holdings, gold and silver were ready for a huge rally from both a fundamental and technical standpoint (see Why Gold and Silver Could Outperform Every Other Asset Class in 2014).

Precious Metals June 19, 2014

METALS PRICE CHANGE PER CENT GAIN
GOLD $1319.00 +40.50 3.17%
SILVER $20.89 +0.88 4.45%
PLATINUM $1472.00 +24.00 1.66%
PALLADIUM $841.00 +12.00 1.46%

The reasons for today’s huge gains in precious metals varied in the mainstream press but soaring prices should have been no surprise to long term investors who understand why gold and silver should be a part of every portfolio.

Gold and silver constitute a fundamental defense for wealth preservation against the rapidly eroding value of paper currencies backed by broke governments which is Why All Governments Hate Gold.

The various governments of the world and their central banks produce and distribute a product – paper currencies. Those currencies are backed by confidence, faith, and credit, but not by gold, oil, or anything real. Those currencies are digitally printed to excess, since almost all governments spend more than their revenues. The UK, Japan, and the USA are prime examples.

Politicians want to spend more money, but they also need to maintain the illusion that the money is still valuable, that it will retain most of its purchasing power over time, and that inflation is under control. The illusion weakens when food, gasoline prices, and other consumer goods are wildly rising in price. At a more abstract level, gold indicates the same lack of confidence in the printed pieces of paper that our central banks distribute.

If last year’s price correction shattered your conviction in owning gold and silver please consider The Fundamental Reasons for Owning Gold and Silver Are Stronger Than Ever.

One of the best methods for protecting wealth against a constantly depreciating paper currency is to own precious metals.

The bull case for precious metals remains intact as central bankers worldwide have become the lenders of last resort for nations that have exhausted their borrowing capacities.  Very little has changed since 2008 when the world financial system stood at the abyss of collapse.  Unsustainable debt levels continue to increase even as the capacity to service the debt diminishes.

Virtually every government in the world has taken on debts and liabilities that are clearly unsustainable.  Governments “don’t go broke” is the sustaining mantra for those with faith in paper currencies but governments do and will continue to print money that accelerates the loss of purchasing power of fiat currencies.  Please consider the following charts courtesy of John Mauldin Economics.

Eventually, as people realize that the central bank emperors have no clothes it will become clear Why There is No Upside Limit for Gold and Silver Prices.

The increase in the value of gold and silver is due to the fiscal and monetary policies of nations struggling to deal with massive levels of debt – policies that virtually guarantee a continued rise in the price of gold and silver.  Central banks, having exhausted all conventional means of monetary easing, have moved on to the last resort option of quantitative easing and currency debasement.

Government officials argue that unprecedented deficit spending and quantitative easing are necessary to stimulate economic  growth, but this theory has not worked in the real world.  Despite trillions in stimulus spending,  job creation and economic growth have been extremely weak and are likely to remain so according to economists Kenneth Rogoff and Carmen Reinhart who wrote This Time Is Different: Eight Centuries of Financial Folly.  According to Rogoff and Reinhart, economic growth is subpar when public sector debt exceeds 90% of GPD which the U.S. and many other developed nations have already surpassed.  In addition, a recovery of the job and housing markets after a financial crisis take many years due to the burden of excessive levels of debt.  Ultimately, Rogoff and Reinhart predict that austerity measures will need to be imposed along with some type of debt restructuring.

Is the U.S. capable of reducing spending and  instituting austerity measures? Cutting deficits means cutting payments to a long list of incomeless recipients who really don’t care where the entitlement money comes from.  Those still actually paying taxes will object strongly to any proposed tax increase to fund government spending.  Unable to cut spending or raise taxes leaves the Government with one bad option – print more money.

Politicians, who value getting elected above all else, are likely to strong arm the reliably compliant Federal Reserve to “come to the rescue” again with additional printed dollars.   In the minds of politicians and Federal Reserve officials, there will always be very compelling reasons to continue borrowing and money printing.

A nation that has reached the limits on taxation and borrowing has few viable policy options other than a continuing series of quantitative easing programs.  Current government policies, if left unchanged, virtually guarantee a continued increase in the price of precious metals.

 

A Must Buy Silver Miner That Is Adding New Reserves at Just $0.38 Per Ounce

PAAS silverSilver and gold mining stocks have been indiscriminately sold off during the correction in precious metal prices.  While the sell off has been painful for investors in precious metal mining stocks it also presents profitable opportunities.  The price of gold and silver will not remain at bargain levels forever and now is the time to establish positions in selected mining stocks that offer solid long term capital appreciation.

Investing in precious metal mining stocks has recently been a minefield for investors due to a variety of reasons including poor management decisions, overpriced acquisitions, increased production costs, increased government taxation, and falling gold and silver prices.

One silver mining stock that has rock solid finances, pays a dividend, owns substantial silver reserves, and has excellent price appreciation potential when silver prices go back up is Pan American Silver Corp (PAAS).

Although no one can predict when silver prices will head back up, both PAAS and silver appear to be forming bottoms.  Pan American Silver recently made a multi-year double bottom in the $10 per share range and silver stubbornly refuses to break below the $18 per ounce level despite wide ranging bearish commentary on the metal.

paas

Courtesy: Yahoo Finance

Courtesy: Kitco.com

Courtesy: Kitco.com

Moving beyond technical analysis there are also many fundamental factors in place that could easily send the price of PAAS to much higher levels.  Here’s my list of the top 7 reasons why now is a good time to buy the common stock of Pan American Silver.

  1. According to the company website, over the past ten years PAAS has added almost 270 million ounces of new silver reserves at a cost of just $0.38 per ounce.  The new silver reserves more than replaced the 225 million ounces of silver mined since 2004.
  2. During the first quarter of 2014 PAAS increased its silver production by 5% to 6.61 million ounces.
  3. In order to maintain a strong financial position in the face of declining silver prices PAAS implemented cost cutting measures while improving operational efficiency.  The all-in sustaining cost per silver ounce sold dropped by 20% in the first quarter of 2014 to $15.54 per ounce while cash costs dropped to $8.25 per ounce from $11.33 in the comparable prior period.
  4. Pan American Silver was just upgraded by Charles Schwab from “avoid” to “neutral” and added to the firm’s trigger stock list which identifies PAAS as a buy candidate if the price closes above $13.81.  The reasons listed by Schwab for upgrading the stock include a rising 50 and 200 day moving average which is bullish, an up/down pattern that indicates the stock is under accumulation, and a bullish trend as indicated by the moving average convergence/divergence (MACD).
  5. PAAS is in a strong financial position with ample liquidity.  As of March 31, 2014, the company held cash and short term investments of $394 million and working capital was over $680 million.
  6. The Company pays a current quarterly dividend $0.125 per share or $.50 annually which works out to an annual yield of almost 4% which is about 4% higher than what a saver can currently get from a bank due to the Federal Reserve’s zero interest rate policies.
  7. PAAS sells below its book value of $14.33, has only $40 million in long term debt, and generates operating cash flow of over $123 million.  The Company does not engage in price production hedging so any increases in the price of silver flow right to the bottom line.

A strong financial position, long life low cost silver reserves, a 4% annual dividend, and a currently depressed price of silver all form the perfect recipe that should make the purchase of PAAS common stock a rewarding experience.