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European silver purchases collapse in 2023 while U.S. maintains record pace

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(Kitco News) - Following a massive year of physical silver purchases in both the United States and Europe in 2022, the two regions have gone in very different directions this year, according to analysts at Metals Focus.

“During 2020-22, exceptionally strong demand for silver coins and bars by western retail investors was an important feature of the global silver market; this in turn contributed to a widening physical deficit,” the analysts wrote in the latest Precious Metals Weekly report. “In North America (dominated by the US market), silver physical investment hit successive record highs over 2021-22, with last year’s volumes more than double that of the 2019 total. In Europe (led by Germany), investment also hit a new high in 2021 and then remained essentially unchanged at exceptionally high levels in 2022.”

The analysts noted that the two regions have seen a sharp divergence in 2023, however. “Demand in North America has remained robust, with the full-year total still on track to match 2022’s record level,” they said. “By contrast, European investment effectively collapsed in H1.23. Even assuming a recovery later this year, the total for 2023 is projected to be lower than in 2019.”

Much of this year’s change between North America and Europe is due to differences in demand for silver coins. “Starting with the US, the strength of investment is highlighted by how strong silver coin sales have been so far this year,” they wrote, and this despite restrained supply and high premiums. According to the results of the Metals Focus quarterly survey, “sales of newly minted silver bullion coins jumped by 23% y/y in H1.23, making it the highest first half performance in our survey starting in 2015.”

U.S. demand for silver was soft at the start of 2023. “Demand for silver bars and coins then burst into life in March when the regional banking crisis boosted interest in safe haven assets,” they wrote. “With fears about the safety of the money held in bank accounts, it is perhaps unsurprising that selling back of silver bars and coins has remained muted. The pace of buying meant that product shortages remained commonplace, keep wholesale and retail premiums elevated (this was most pronounced for coins). This lasted through to June, when the market finally slowed.”

The analysts said that the situation across the Atlantic was very different. “Silver bullion coin sales, for instance, dropped by 57% y/y in H1.23 in Europe, a level only marginally higher than that seen in H1.19,” `they said. “Meanwhile, after staying elevated for much of 2020-22, premiums on bullion products also eased back to pre-COVID levels.”

Most of the decline in European physical silver demand was due to the collapse of sales in Germany after changes to the tax regime. “It is worth bearing in mind that the German silver market is heavily biased towards bullion coins, with a retail market share of around 85%,” they said. “This stands in contrast to gold where bars account for a larger share. The key reason for the bias towards coins in Germany was the favourable tax treatment for non-EU silver bullion coins. This started in 2014, but was removed by the government at the start of 2023 (all silver bars and coins are now subject to the same 19% VAT in Germany). As a result, the German silver coin market effectively collapsed this year.”

The analysts also point to the rate hikes by the European Central Bank (ECB), the waning of safe-haven demand as markets adjusted to higher inflation and the Russia-Ukraine conflict, and the muted impact of the U.S. banking crisis on the region. “Finally, a lack of clear direction in silver prices has also discouraged buying,” they said.

Going forward, Metals Focus said that “retail silver investment will have to contend with higher interest rates on savings and improving sentiment towards equities in the short-term.” They expect the United States to perform better than Europe in the coming months, and see Germany needing more time to adjust to the new VAT regime before demand recovers in Europe’s number-one market for physical silver.

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