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U.S. Mint sells 5 million ounces of silver in January, best start since 2017

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(Kitco News) - The silver market has started 2022 on a reasonably volatile note as prices swung in a $3 range in January; however, despite the volatility, the precious metal is seeing strong physical demand, according to January sales data from the U.S. Mint.

The U.S. Mint's sales numbers show that it sold $5 million ounces of silver last month, its best start to the year in five years. According to the data, silver coin sales are up 4.6% from 4.78 million ounces sold in January 2021.

January is traditionally the busiest month for the U.S. Mint; however, analysts have said that it's not surprising to see investors jump back into the physical market as consumer price pressures continue to rise along with growing geopolitical uncertainty around the world.

"Overall, we continue to see strong demand for all retail precious metal products, so long as inflation remains a concern, and as we move closer to a contentious U.S. midterm election," said Nicky Shiels, precious metals strategist at MKS PAMP.

Shiels added that a subsidiary of MKS PAMP in the U.S. shows that premiums for silver coins are around $8 an ounce, an indication of how robust demand for the precious metal has been.

Ole Hansen, head of commodity strategy at Saxo Bank, said that silver's underperformance against gold continues to make it an attractive metal for investors to physically own.

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After a sharp fall in 2020, the gold/silver ratio climbed steadily higher last year and is hovering around 80 points. This means it currently takes about 80 ounces of silver to equal one ounce of gold. The historical average for the ratio is around 50 points.

Ole added that he had seen renewed interest in physical demand for gold and silver as investors started to worry about the global economy's health in the face of growing uncertainty.

"We have no idea where monetary policy is going to lead us and there is a lot of fear around the geopolitical situation with Russia," he said. "If you think things are going to get worse, then it might make sense to hold some physical assets."

Looking at silver's long-term potential, many analysts remain solidly bullish on the precious metal as it sees growing support as a monetary metal and an essential industrial metal as nations look to develop more green energy.

Silver is a critical metal in the use of solar panels. Last year the solar sector represented about 11% of total industrial demand for silver, consuming more than 100 million ounces of the precious metal. Consumption is expected to grow to approximately 140 million ounces this year.

Silver is expected to remain volatile this year as investors navigate rising expectations of aggressive monetary policy action from the Federal Reserve. However, Jonathan Butler, head of business development at Mitsubishi, said in a recent report that rising consumer prices and industrial demand should provide some support through 2022.

"Silver will continue to be supported this year as both an inflation hedge and an industrial asset with exposure to the key growth areas of infrastructure and energy," he said. "Industrial silver demand will continue to benefit from the race to net-zero carbon emissions, especially with growth in offtake in the solar P.V. sector and greater usage of silver in electrified vehicles."

Butler said that he sees silver prices averaging the year around $23.50 an ounce.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.