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FOCUS: Little Scrap Silver Seen On Market After Run To $50
by Debbie Carlson | June 9, 2011

When silver prices nearly hit $50 an ounce in late April there were anecdotal stories that people were raiding their drawers and china cabinets, pulling out flatware and old tea sets they no longer wanted to polish.

Silver had not traded to those heady levels since the 1980s, when the Hunt Brothers attempted to corner the silver market and sent prices to just over $50. With prices returning to those high levels, there were media stories that people saw an opportunity to cash unwanted metal and take profits.

The trip to near-$50 for silver was very short-lived for the metal, which saw a severe sell-off to about $32 and is now trading around $36.

But it seems those stories were just that – talk.

The fall in silver's price came on a reduction of investment demand, said Erica Rannestad, commodities analyst at CPM Group and rolling of positions on the futures market ahead of a contract expiration.

Investment demand as seen in exchange-traded funds has fallen sharply, with heavy outflows from the main ETFs, analysts have noted. Physical coin demand remains strong, with the U.S. Mint noting record sales for silver coins.

Rannestad said it's hard to quantify how much scrap might have moved out of people's homes and safety-deposit boxes to refiners. "There might have been a little release (of supply) once silver hit that point and a little (movement) in India. Whenever you hit a price point you see it happen. That said, it might have been limited overall because people expect prices to move higher," she said.

Market analysts said the metal will eventually take out the all-time nominal high of over $50, with $70 a price target. Others have suggested that silver could eventually target its inflation-adjusted high of around $135, depending on calculations.

Peter Thomas, director of business development, PFG Precious Metals, said the interest in selling silver at its April high price was nowhere near the zeal there was to unload metal 30 years ago when prices first flirted with $50.

"I was there when silver hit $50 the first time. I was at a friend who owned a silver foundry and traded cash metals in the 1980s. He would literally open the door at 8 a.m. and there would be 30-40 women standing outside holding their tea sets. He'd appraise them and his son would go up and down the line serving them ice tea and coffee. He ran double shifts (at the foundry) in those days," Thomas said.

That didn't happen this time, he said.

"This time it (sales) was just willy nilly…. We didn't get the deluge we had before…. People would say to me, when it's $75, I'll call you. The old women weren't selling their tea sets. The 'cash-for-gold' places, I'm sure saw some (sales). But the talk of a flood of people – I didn't see it happen," he said. Jim Pavlakos, president of Golden State Mint, who has been in the precious metals business since 1974, said whenever prices spike he sees business to buy and sell metal increase, but overall business itself has increased dramatically.

"There are a lot more people who are coming in – a lot more people are educated on metals and tangible assets as a hedge against inflation. The internet helps in that way," Pavlakos said.

Pavlakos is attending the 35th International Precious Metals Conference in San Antonio, which runs June 11-14.

One trend he has noticed is his customers want to convert silver objects into pure silver in an effort to make them easier to value. Recently his firm began converting scrap silver, whether it is jewelry, flatware or old coins such as pre-1964 U.S. quarters into pure silver.

"We can melt them into small amounts – one ounce, one-half ounce, one-quarter ounce and people are thrilled. We never used to do it, but we started it three years ago. What it does it puts their silver in a form that when they sell it they get a higher percentage of the value. As prices go up, you get less of a percentage of the value because refining costs. It takes time to refine and that is factored into the price," he said.

There's also interest by his customers to melt large bullion products like thousand-ounce bars into these smaller amounts. Pavlakos said sometimes the larger bars get discounted, versus the smaller denominated coins.

PFG's Thomas said the anecdotes about silver scrap sales also don't ring true to him because physical silver supplies remain tight. Supplies he receives that should last a week are usually dried up in one to two days. If the scrap sales were real, more physical silver would be starting to become available, he said.

"We're not a small time player and we're running out of silver. We're calling older clients to get a few boxes from when they bought it at $12. They might let a few loose for us. But demand is that strong. Even on flatware we're seeing bids last week with more than a $35 premium," he said.

Rannestad said refinery times vary on scrap silver, with jewelry being the easiest to refine and silver recouped from electronics the longest. The time it takes to refine dore silver bars, which are a semi-pure alloy and usually created at the site of a mine, are somewhere in the middle of jewelry and electronics. Metal taken from electronics generally won't be triggered by price spikes – it's usually reclaimed because the device is unusable, she said. Jewelry sales can be sensitive to price spikes. But even then it might not come to market immediately.

"In the west, people hold on to jewelry longer because it is sentimental, although more so gold than silver. And with silver at $50, (and gold at $1,500) why sell silver if you have gold," she said.

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