Silver-Coin Premiums Poised to Climb as U.S. Mint Supplies Ease

Increasing demand for U.S. silver coins was poised to send premiums to the highest since October even as banks including Goldman Sachs Group Inc. predicted more declines in futures after the biggest annual slump since 1981.

The premium charged by wholesale dealers for American Eagle coins from the U.S. Mint may rise to 17 percent from 14 percent yesterday, said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. The mint has said that weekly allocations will ease.

Goldman has said precious metals will slump 15 percent this year with silver dropping to $17.50 an ounce in 12 months. Yesterday, the mint said 89 percent of this week’s quota of 3.58 million 1-ounce silver coins were sold following a halt in sales on Dec. 9 because of a lack of supply. Futures have climbed 8.9 percent from a five-month low at the end of 2013.

“The market is tight,” McGhee said in a telephone interview. “The drop in prices has made silver coins very attractive.”

On Jan. 8, the mint said that the quantity of coins in weekly allocations “will be much lower” than this week. Michael White, a mint spokesman, declined to comment on a specific figure. In December, sales were 1.2 million ounces.

Last year, silver futures plunged 36 percent, the second-biggest slump among 24 raw materials in the Standard & Poor’s GSCI Spot Index. The MSCI All-Country World index of equities jumped 20 percent, while the dollar climbed 3.5 percent against a basket of 10 currencies. The Bloomberg Treasury Bond Index dropped 3.4 percent.

Tracked Gold

Yesterday, silver futures for March delivery on the Comex in New York rose 0.8 percent to $20.385, the highest settlement in eight weeks. In 2013, the plunge tracked gold’s biggest slump since 1981. Some investors lost faith in precious metals as alternative investments amid a U.S. equity rally to a record and muted inflation.

Demand for coins and jewelry climbed even as futures plummeted. Sales of silver American Eagles last year rose to an all-time high of 42.675 million ounces. Purchases jumped to a monthly record in January 2013, and the mint suspended business for a week because of a lack of inventory.

The premium surged to 25 percent in April, the highest since 2008, according to Richard Nachbar, a coin dealer based in Williamsville, New York. That month, futures entered a bear market. The premium rose as high as 55 percent in the two months ended November 2008, he said.

In October, the premium reached 18 percent, McGhee of Integrated Brokerage said.

Comex Inventory

Stockpiles of the metal on the Comex on Jan. 8 reached 176.88 million ounces on Jan. 8, the highest since July 1997. In 2013, supplies rose for the third straight year, the longest run in a decade.

Holdings in exchange-traded products backed by silver dropped in the four months ended Dec. 31, the longest slump since at least 2006, according to data compiled by Bloomberg begins.

ABN-Amro Group NV has forecast silver will be $16 by the end of June. Societe Generale SA says it remains underweight on the metal.

Yesterday, gold futures rose to a one-month high on speculation that demand for bars and coins will increase, boosted by Asian consumption.

Sales of American Eagle gold coins by the mint have reached 63,000 ounces this month, White, the spokesman, said yesterday in an e-mail. That topped 56,000 ounces sold in all of December.

On Dec. 31, silver touched $18.72, the lowest for a most-active contract since July 8. In 2013, the 40 percent plunge in corn led the declines in the GSCI Index, while gold slumped 28 percent, the third-biggest drop.

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Millie Munshi at mmunshi@bloomberg.net

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