Gold loses luster as retail investors look to silver

finance.yahoo.com

As the price of silver bounces around four-year lows, retail investors are diving in. Money is pouring into silver exchange traded funds and silver coins, according to a report in The Wall Street Journal.

The U.S. Mint said last week it had temporarily sold out of its American Eagle silver coins pointing to "tremendous" demand in the past several weeks. In a statement sent out to its largest U.S. coin wholesalers, the U.S. Mint said it will continue to produce 2014 coins but no additional inventory is currently available.

According to Bloomberg News, American Eagle silver coin sales jumped 40 percent in October, selling 5.79 million ounces worth of the coins. That was the most since January 2013, when the silver coin sales reached an all-time record of 7.5 million ounces.

Individual investors are also diving into the largest silver ETF, ishares Silver Trust (SLV), which buys silver bars. The Wall Street Journal reports that the ETF has accumulated 345 million ounces of silver, the largest amount in more than three years.  Shares are down almost 20% year-to-date.

Why silver, why now?  Gold is also trading around its lowest level in four years.  Shares of the gold ETF (GLD) have performed better than ishares Silver Trust, year-to-date. Analysts at Blanchard, a precious metals and rare coin dealer, put out a note this week recommending investors sell gold and buy silver "because the price ratio is so disconnected between the two that silver is that much more attractive right now.”

In the accompanying video, Yahoo Finance Editor-in-Chief Aaron Task notes this is "something that happens not with great frequency for a gold dealer—a coin dealer – to say 'sell your gold coins'. But they’re saying silver looks very attractive right here.”

Retail investors typically play a bigger role in silver than in other precious metal markets. The main reason is because it’s cheap compared to gold on an absolute price basis.  But as the dollar continues to strengthen, plays in silver and gold aren’t looking so strong. Institutional investors know this, but retail investors are usually late to the game.

Task says this gets into the psychology of retail versus institutional investor. “Retail investors get wedded to an idea,” he says. They attach to "the idea that the Fed is going to destroy the dollar even in the face of the fact that there is no or very little inflation as far as economists or the Fed measures it. And the dollar is rallying very sharply. [But they] still believe it.”

ETFs are a way for retail investors to own silver in a “paper” way, Task says. “But if you really believe that the dollar isn’t real money then you should buy the coins, buy the actual silver.”