As noted in today’s earlier post, the U.S. Mint is allocating Silver Eagles to its distributors. Also as noted in the post, I speculated that the Mint may find that it does not have to allocate because demand may be much lower than it was in March. Still, premiums were up as renewed trading in Silver Eagles began.

One distributor kicked premiums .55/coin; another increased premiums only .15/coin. The increase in premiums necessitates that CMIGS raise its premiums .15/coin on Silver Eagles. As long as we can get Silver Eagles at the lower premium, we will maintain the lower price increase. If premiums fall back to where they were before the Mint ceased production, CMIGS will lower its premiums.

The Mint did not raise costs to the distributors. However, the distributors raised premiums because they expect to sell out quickly. (The distributor that raised premiums .55/coin expects to sell his allotment today.) Indeed, if investors eagerly pay the jacked-up premiums, we may see two developments.

One, the distributors may decide to make their premium increases permanent. Two, the Mint may note what’s happening and increase its premium. (The Mint has increased premiums on Silver Eagles only once in about the last six years.) Either way, a lot of eager Silver Eagles buying this week may cause a permanent increase in the Silver Eagles’ premium.

Although today may see brisk trading in Silver Eagles, I still believe there is a good chance that demand over the next week or so will be a lot less than what it was in March, when the Mint ceased production. If so, we can expect Silver Eagles premiums back to where they were before the ceased production, or at least close to where there were.

Good alternatives to the 2008-dated expensive Silver Eagles are backdated Silver Eagles and 1-oz silver rounds. As this is written, we have a good supply of Engelhard Prospectors, generic silver rounds and even some circulated Silver Eagles. Circulated Silver Eagles are treated as are silver rounds, usually packaged in bags and are priced the same as Engelhard Prospectors.

Late last week, the U.S. Mint notified its distributors that it will again take orders for its American Silver Eagle bullion coins on April 21, 2008. Interestingly, the Mint further said that it will be allocating coins to its distributors because of “the unprecedented demand for American Silver Eagle Bullion Coins.”

At first it may appear that Silver Eagles will again be in short supply considering the Mint disclosing the need to allocate. However, the Mint undoubtedly decided to allocate based on the brisk demand for the popular 1-oz silver coins at the time the Mint ceased production. Since then, the demand for all forms of silver has subsided as the price of silver has fallen.

Typically, steadily rising prices, such as the silver market enjoyed from the middle of December 2007 through the middle of March 2008, causes increased interest, which results in increased sales. With the drawback in silver prices, interest in all forms of silver is reduced. Consequently, I do not expect the demand for Silver Eagles this week to be anywhere near what it was when the Mint ceased production. In fact, the Mint may find that it has no need to allocate.

Although the Mint will start taking orders today for Silver Eagles and CMIGS will take retail orders, I do not anticipate shipping to retail customers until the end of the week, and maybe not until early next week. By the time anyone reading this places an order, CMIGS should have a better idea when shipping will actually begin.

In announcing that it was again accepting order, the Mint did not reveal why it shut down production in March. It’s our guess that the Mint had production problems or could not get the blanks from which Silver Eagles are stamped. Some dealers speculated that the Mint diverted its resources to other areas, such as collector coins, but I doubt that.

The U.S. mint American Eagle Bullion Coin program has been a tremendous success, with more than 160,000,000 Silver Eagles and 11,000,000 1-oz Gold Eagles being turned out. Interruptions in the production and sales of Silver Eagles and Gold Eagles have been infrequent since their introduction in 1986. The U.S. Mint has virtually a lock on the market for new 1-oz silver coins and new gold coins. There is no reason to believe that the Mint would open the door for competition from other government mints by diverting resources to other areas.

As noted on the Silver Eagles page on the cmigs website, the U.S. Mint is not now producing Silver Eagles. One of the consequences of the Mint not disclosing why it had stopped turning out its popular 1-oz silver coins was widespread speculation that the Mint was discontinuing its Silver Eagles program due to a shortage of silver.

Now, though, I have been told by a reliable source that the U.S. Mint will again be shipping Silver Eagles about the first week of May. If so, by the middle of May Silver Eagles should be available for delivery to investors.

Meanwhile, 2008-dated Silver Eagles are not available through normal channels. Further, because of the unavailability of 2008-dated Silver Eagles, buyers are eagerly snapping up backdated Silver Eagles, making all Silver Eagles virtually unavailable at this time. However, as often is the case, an entrepreneur has stepped into breach with a “solution.”

Hearing that CMIGS still had supplies of 100-oz silver bars, a dealer called and asked if we would also like to make available sealed boxes of backdated Silver Eagles to our clients. The dealer specializes in sealed boxes of backdated Silver Eagles. However, his prices are high.

He wants about $2.00 a coin more than what would be the going price for 2008-dated Silver Eagles if available. I told him that if any clients couldn’t live without buying Silver Eagles before the U.S. Mint renews production, I’d call him. My recommendation is investors who like Silver Eagles wait until 2008-dated coins are available.

Anyone who would like to be notified when Silver Eagles are again available need only email shannon@cmigs.com and ask to be put on the list. Or, you can call 800-528-1380 and ask to be put on the list.

John Lee of goldmau.com posted some observations about the silver market that should be of interest to silver investors, despite Lee’s website being dedicated to commodities traders, not investors. I will comment on some of Lee’s observations, but time does not permit me to comment on all of them.

Lee started by noting that in August 2004 he laid out four reasons for preferring silver over gold. At CMIGS, we have long told our clients that in precious metals bull markets silver turns in bigger percentage gains than gold. Lee’s observations for silver’s and gold’s price increases since 2004 back up our claim. We assert that silver remains the better investment. However, silver has its drawbacks.

Silver’s bulk and weight make it unsuitable for some investors. If you’re storing your silver at a depository, silver’s bulk and weight are not issues. (Lee dismisses costs of up to 2% a year, but I consider 2% a year a significant cost.)

But, for those investors who take delivery of their precious metals, silver’s bulk and weight have to be considered. Think about this: $20,000 in 1-oz Gold Eagles can be carried around all day in your pants pockets. However, $20,000 in silver is about seventy pounds. For some investors, silver’s bulk and weight make it prohibitive, and especially for investors putting large sums in the metals.

However, for investors that have elected to put precious metals in their IRAs, silver’s weight and bulk are not considerations because the silver is stored in precious metals depositories and does not have to be handled by investors.

Lee knocks the criticism that “Silver is an industrial metal and not an investment.” I agree, and for reasons in addition to the ones he notes.

The main reason for buying silver (and gold) is to get out of dollars. A quick glance at a graph of the dollar’s decline against a basket of currencies sends shivers down the spine. Except for a few rebounds, which lasted only a few weeks, the dollar’s decline over the last year can only be described as precipitous.

Is there relief in sight? Not from any of the presidential candidates likely to be the next occupant of the White House.

John McCain is dedicated to a military “solution” in the Middle East. And, by his own admission, economics is not his strong suit. The war in Iraq is now expected to have total costs of up to $3 trillion.

Neither Obama nor Clinton, despite attempting to establish themselves as some sort of peace candidates, has put forth realistic plans for exiting Iraq. And, if either of those two win the White House and in some miraculous way get us out of Iraq, each has massive welfare spending programs that will continue to put downward pressure on the dollar.

Wars have been the biggest destroyers of currencies thought history. Welfare states have been second. Considering these facts, the outlook for the dollar is dismal.

The primary reason silver outperforms gold in precious metals bull markets is that the masses overwhelmingly opt for silver over gold. The masses are not yet in this market. The masses are the people on the street, most of which are presently oblivious to what is happening in the financial world. When the masses wake up, they will buy silver instead of gold simply because they will get more pieces of metal for their money.

Let’s say the masses start buying silver and gold when silver hits $55 and gold $2,000. (I’ve lowered the gold/silver ratio because it will shrink as gold and silver move higher; however, the ratio chosen is not a prediction but was used to illustrate a point and at the same time acknowledge that as prices move higher the ratio will shrink.) At $2,000 gold, a person with only $20,000 to invest would get a mere ten ounces of gold (premiums ignored).

However, at $55 silver, $20,000 would fetch some 360 ounces of silver. Ten 1-oz Krugerrand gold coins or 360 one-ounce silver rounds? For the guy on the street, the choice will be silver.

Finally, in the aggregate, the masses have much more money than the wealthy. Although the gold/silver price ratio will shrink as precious metals prices march higher, it will be in the third and final phase that the price of silver will outperform the price of gold the most.

For me, silver’s supply/demand fundamentals are bonuses. But, the real reason for buying silver is the steady, and increasingly fast, destruction of the dollar. When the masses come to the precious metals, the dollar will be in its final days. Then there will even be talk of a new currency for the United States, but that’s a topic for another time. Meanwhile, make your choice: silver or gold, depending your circumstances and what you think the future holds. Both remain the ultimate hedges against currency debasement.

Yesterday, when we emailed the mineweb.com’s article Silver supply seen as in surplus to our Articles of Interest list, I suspected we’d get comments from investors who objected to our “spreading negative information about silver.” Right I was.

The article was a summary of the second issue of The Silver Book, which was compiled by research house VM Group, (formerly Virtual Metals Group), London. VM Group says that the silver market was in surplus in 2007, and they expect the silver market “to remain in surplus this year.” They do not expect a big surplus, but a surplus nonetheless. Read the article for the details.

By sending the article in no way did we endorse its conclusions. Frankly, we have no way of knowing whether the silver market was in surplus or deficit in 2007 and certainly no way of knowing if silver will be in surplus or deficit in 2008. We rely on such annual surveys produced (and sold) by firms as CPM Group, New York, and Gold Fields Minerals Services (GFMS), London. VM Group is new to producing annual silver surveys, and this was only their second effort.

As a side thought, I find it curious that VM Group released their survey shortly after the close of 2007. CPM Group usually does not release its survey until about May, and GFMS usually a few weeks earlier. No doubt about it, the survey released the earliest eats into the sales of the later surveys and usually gets more publicity.

CPM Group, despite having the longest history of doing silver surveys, probably sees reduced sales of its report because the GFMS survey, the other established and anticipated survey, is released a few weeks early. Now, VM Group is publishing a silver survey only weeks after year end. CPM Group takes until May to release their report probably because it takes that long to do a thorough job.

Frankly, we suspect that the VM Group survey has less credibility because of its quick release. CPM Group takes months to compile, assimilate and publish its survey; VM Group does it in weeks. I think the VM Group survey will become less credible than the CPM survey if VM Group continues to publish so quickly after year end.

Still, we sent the article because we believe that our clients are entitled to as much information about the silver (and gold) market as possible, even if that information is negative. All year long, we send articles with positive spins on the silver and gold markets. So, despite our suspicions about the VM Group’s work, we sent the article. (If we had proof that the VM survey were faulty, we would not have sent it. The mineweb.com website, an important source for information about all metals, believed the survey worthy of an article, so we sent it.)

Is the silver market really in surplus?

Frankly, I could care less if the silver market is in surplus. I own gold and silver—and advocate investing in silver and investing in gold as the right moves for the times—because the dollar is in surplus and is never likely again to be in deficit. Practically, there are no limitations on how many dollars the Fed and the fedgov can get together and create.

As this is written, many market analysts are speculating that the Fed will lower its discount rate a half-point today. That, of course, would be on top of the ¾-point cut January 21. The Fed is in full printing mode; rising inflation and a sinking dollar are not today’s problems.

Admittedly, the silver market being in deficit is positive of the metal, but I haven’t stayed in this business for 34 years because of the developing shortage of silver but because I believed that the day would come in my life time that the federal government would attempt to solve all problems by printing more and more dollars. I think that we are there.