(Kitco News) - Sales of the U.S. Mint’s American Eagle silver bullion coins since the start of the New Year have not only set a monthly record with a third of January still to go, but demand is so strong that dealers say they could be selling even more if not for limited allocations.

Some report that interest in silver coins appears to be outpacing gold coins at the moment, with many favoring the grey metal as a more affordable investment.

The U.S. Mint’s Web site currently shows that 4,588,000 one-ounce coins have been sold so far this month. This is higher than the previous monthly record of 4,260,000 set back in November, said Mint spokesman Michael White.

“It’s insane,” said Jim Hausman, president of The Gold Center, one of the authorized purchasers of Mint coins, which in turn makes them available to the public. “I just can’t believe this demand just keeps growing for Silver Eagles.”

Back in 1996, coin sales for the entire year bottomed at 3,466,000 ounces, the Mint’s Web site shows. “And they do that now in 20 days,” Hausman said.

David Morgan, independent precious-metals analyst with Silver-Investor.com, pointed out that the demand for silver coins has skyrocketed in the last few years, in particular. “Silver Eagles have become kind of the premier silver investment,” he said.

Mint sales for 2010 are listed at a yearly record of 34,662,500 ounces. This tally is more than triple the 9,887,000 sales from 2007, when precious-metals were already well into a decade-long bull market.

“Whatever comes in goes out the same day,” said Terry Hanlon, president Dillon Gage Metals Division, another Mint authorized purchaser. “We’re moving massive quantities, with noticeably bigger interest in silver than gold right now.”

Some of the interest in silver is because one ounce, around $27.70 as of mid-afternoon Thursday, is more affordable for many investors than one ounce of gold around $1,350. “In general, people are becoming more comfortable owning silver and recognizing silver as a good alternative to buying gold,” Hanlon said.

American Eagle gold bullion coins so far in January have totaled 75,500 ounces, which is down from 85,000 in the same month a year ago, according to the Mint Web site.

January naturally tends to be a strong month for silver-coin sales as the government starts minting coins for a new year, Morgan and Hanlon said.

“There is always a big surge from not only investors but also collectors,” Morgan said. They then store coins “untouched” in “pristine condition” as they wait for silver prices to rise or for the collector value of the coin to increase. This includes secondary dealers who obtain boxes of 500 coins.

“But this (current strong sales) goes way beyond the normal seasonal buying,” Hanlon continued.

Gold and silver both rose during 2010 on investment demand due to factors such as sagging confidence in paper currencies, European sovereign-debt issues, worries that fiscal and monetary stimulus efforts will eventually lead to inflation, and geopolitical concerns such as tensions on the Korean Peninsula. Silver has the added benefit of increased industrial use whenever the economy recovers.

Hausman said the allocation he has been able to obtain from the Mint has been declining in recent weeks, adding that his full allocation for this week was “snapped up in a heartbeat.” In “normal conditions,” he said, he can order whatever he needs, up to a few hundred thousand. However, his most recent weekly allocation was 135,000, in turn down from roughly 175,000 the week before, in turn down from approximately 260,000 the prior week.

“We have no idea next Monday morning whether we’ll be offered 150,000 coins or 50,000 coins,” he said. “If it keeps dropping like it is, there will be a major shortage again and you’ll see the premiums skyrocket.”

Dealers could be selling more 2011 coins if they were available, although it’s hard to quantify just how much since it also hinges on factors such as whether other distributors are sold out.

“If you just took the Silver Eagles, we could probably be selling a minimum of 50% more than we are doing right now,” Hanlon said.

He also said his company also has been asking the world’s other major Mints for more silver than it can get. “I don’t know that there is a real shortage of silver, but there certainly is a shortage of fabricated silver,” he said.

As it is, his company’s coin and bar sales this month are double what they were during the same period a year ago. “It would be an even bigger number if we could get more coins and bars,” he added.

The U.S. Mint explained that the coin allocations are occurring because sales have been far greater than had been anticipated, meaning the private-sector fabricators did not carry a large enough inventory of the blanks, or planchets.

“Demand is just very high,” said the Mint’s White.

Hanlon said there has been limited supply from the secondary market to help meet general silver-coin demand. This is selling by those who already own silver coins in order to capture profits. “We have seen way less of that than we hoped to or normally do,” he said. Instead, investors are opting to hang onto their coins.

Concluded Morgan: “I’m glad to see that the investing public is waking up to the fact that silver is a very good investment. And, I still think it is a better opportunity long term than gold is.”

By Allen Sykora of Kitco News; asykora@kitco.com

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