The Elephant Wearing a Silver Necklace It's no secret that demand for the U.S. Mint silver eagles coin has been unprecedented. It is a walk back through memory lane following the 1986 confirmation of the growing (exponential) popularity of the legal tender coin program. Many are left these days scratching their heads about who is buying all these coins. Retail demand seems soft at best, with stable coin premiums relative to times of relative shortage. Speculation has ranged from steady domestic demand to JPM Morgan or some other large entity quietly or surreptitiously stockpiling silver eagles. However, the real elephant in the room for silver demand may be the oldest form of silver - the demand for silver jewelry. Various reports confirm that silver jewelry demand has experienced its fifth year of growth. Indeed, one survey published earlier this year published that 73% of silver jewelry wholesaler report increase sales. At just over 40 million ounces in 2013 (and a record pace this year) the silver eagle program as a percentage of overall physical silver demand is actually quite small. Compared to the approximately 40 million ounces sold by the silver eagle program, the 200 million ounces used for fabrication demand is a massive footprint that should not be overlooked. Is (increasing) jewelry demand more important than coin demand? Perhaps. In the aftermath of two conflicting silver market reports, both sponsored directly by those in the best position to profit from the paper market (thus, by definition, making them politically influenced to the point of uselessness), we can look back to the Jewelry Associationâ€™s report earlier this year. In an interview with me earlier this year, silver analyst, David Morgan, pointed out the potential impact of silver jewelry demand versus the well publicized demand for the U.S. silver eagles product. That interview can be accessed here. In essence, jewelry demand is the proverbial elephant in the room. It's easy to blame higher silver jewelry sales as a reflection of the underlying economy. What should immediately stand out for observers is that physical demand across all categories rose considerably in the past year, despite considerable lower prices. Maybe artificially induced deflation in the silver market will save the world economy? The silver users have pulled one over on us again. Cheaper silver costs go straight to the bottom line, much like cheaper energy prices.
Why the shift to silver jewelry? Mainstream industry spokespersons are quick to point out improving economic conditions as the primary reason for this. That would be fine - if it were true. But a cursory review of any all real economic indicators shows that the world organic economy is barely alive under the refuge of massive finance. Partially, the switch could be an effect of a declining economy and, therefore, a cheaper alternative to gold. Fashion is nearly a necessity in perhaps a similar way as that of food and energy. The resurgence of the victory garden is a welcome breath of fresh air in a culture that takes so much for granted, but especially where food comes from. When economically strapped, combined with a desire to change dietary standards, a return to the earth is fueled, regardless of the difficulty for many. This is especially true for those who live in urban centers to produce enough of a percentage to make major differences. The small car (and to a certain degree) the hybrid/electric car movement has been motivated by saving on energy costs. In turn, and for better or worse, these vehicles become a social statement for the drivers, regardless of the actual savings or contribution. Regardless of the truth behind these movements or whether they spring from natural phenomenon, they create a social wake - or an awakening of sorts. No one denies the beauty of the white metal, so it should come as no surprise that it would be re-adopted so quickly. What is interesting is how it becomes incorporated into the wholesale to retail marketing matrix. If silver wasn't so far below normal price based on real supply and demand, it would almost seem natural. As Ted Butler has pointed out over the last few years, inventory movements in and out of COMEX warehouses have been furious. This is most likely the off-take from just in time inventory practices stretched to the point of snapping. These unsuspecting recipients of silver charm bracelets will some day surely find that the gift grows in value as well as sentiment. And for the long term bullion investor, jewelry has always been another way to diversify the monetary emergency kit. Old gold or silver jewelry could be used for smaller, incremental barter, so long as sentimental value is neutral. But it's bigger than that. Fashion follows necessity, where form follows function. The switch to silver jewelry may actually reflect an unconscious aspect of physical demand. Jewelry consumers could become the original stackers.
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