May 112015

Each month The Perth Mint releases its minted coin/bar sales for gold and silver (see here for the latest). Data hoarder Nick at Sharelynx takes those figures and produces the chart below, which converts the ounces into dollar amounts (using a month end rate as an approximate).

Perth Mint Au:Ag Ratio

On average, our minted coin/bar customers spend between 20%-25% on silver as they do on gold . Contrast that with the US Mint, which as you can see from the chart below, often spend dollar for dollar on gold and silver.

US Mint Au:Ag Ratio

The¬†average ratio for the US Mint over the same time period as The Perth Mint chart is 74%. The Royal Canadian Mint’s customers spent 62% on silver compared to gold in 2014. The difference between the mints is probably due to a different mix of customer preferences – for gold, silver, or for both.

Trying to establish the ratio for other precious metal businesses is difficult, because few report sales volumes in such detail. However we can work it out backwards for those who do report their total holdings of gold and silver.

To get a reliable figure we need a business which offers both gold and silver to the same customer base over the same time period. To eliminate the effect of the different price peaks in gold and silver and any reductions in holdings thereafter, I also think we need to compare the period March 2008 to March 2011, which is a period where inflows into gold and silver were strong and consistent. The ETFs are a potential source of inflow information, but the data I think is unreliable as the ETFs have different mixes of customers (individuals vs institutional) so we aren’t comparing like customer with like customer.

From Nick’s data there are three businesses that fit these criteria: Gold Money, Bullion Management Group and Central Fund of Canada. The respective ratios of dollar amount of silver bought to gold bought over those three years are: 103%, 99.4% and 99.8% – surprisingly consistent.

I also found a note from Eric Sprott in late 2012 that observed that the “last Gold Trust issue in September 2012 raised US$393 million and the last Silver Trust issue raised US$310 million”, which is a ratio of 78.8%, close to the US Mint ratio.

This prevalence of equal dollar investment in gold and silver is something that we see in the Perth Mint’s Depository business. When we segment our Depository customers by the metal they buy, around 35% buy equal dollar amounts of gold and silver. However, there are also clear groups of customers who either only buy gold, or only buy silver. There aren’t many who have mixes outside of those three groups.

So it seems that precious metal investors are either goldbugs, silverbugs, or balancedbugs.

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  • Victor Fantastico

    Silver seems to act as a magnet to less cerebral and highly emotional wannabees, often on the basis that it is “cheaper” than Gold. This is perhaps borne out by the fascination with the specific appeal of coins such as “ASE'” as opposed to Maple Leaves, whereas you don’t tend to see the same cult loyalty to e.g. Heraeus over PAMP Gold bars. Perhaps it’s not really the metal they are interested in, but misplaced patriotic shinyness as a proxy for personal identity

    In a similar manner, Silver also seems to appeal to a broad spectrum of New Agers, who evangelise its miraculous benefits, which apparently range from anti-bacterial properties through life-enhancing Colloidal infusions to the supposed inevitable surge in demand which will one day occur due to its (continued) use in chips powering mobile phones and computers

    In addition to partially-inbred rednecks and bordeline fantasists, there is a worrisome cohort of Religious-cum-faux-Nostalgic fundamentalists, for whom the Industrial Revolution apparently never occurred, and who appear convinced that the Gold:Silver exchange rate employed in Ancient Greece, Imperial Rome or indeed present in the Earth’s Crust is somehow a material determinant of what the current COMEX price ratio should be (low single digits, apparently).

    Without wishing to speculate about why those skewed perceptions persist when it is equally possible (and arguably more sane) to invest retail-sized amounts of money in Gold, it is readily apparent to anyone who checks the prices quoted by online bullion dealers that the commission margins are far larger in Silver – often a multiple of the bid-offer spread quoted for an equivalent value of Gold – and in times of dwindling sales volume, it would surely be unnatural if the dealers themselves were no even slightly biased towards pushing their stock of Silver in preference to anything else. Try these for example: & & (all of which are charmingly upbeat, but woefully misguided)

    Most Silver is produced as a waste product from the extraction of other metals; the same can’t be said of Gold.

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