Euro Capital Flight Results in European Silver Scarcity

May 19th, 2010 by

Amidst the panic surrounding the situation of the Grecian economy, the Euro and investments denominated in it having experienced capital flight. Global investors are understandably apprehensive about the future of these assets, and have recently sought the comparatively safer choice of precious metals.

Because silver is more affordable than gold, Europeans interested in investing in precious metals have chosen to buy silver. This increased demand however, has had effects over and above spurring an increase in global spot prices; Europe is starting to feel the crunch of silver scarcity. According to one U.S.-based coin broker, “[a] Swiss resident on May 11 tried to order 4,000 US Silver Eagle Dollars. Not only did he fail to find any in Europe that he could purchase, the best deal he found was for only 2,000 coins for delivery one week out at a price that was 32% above the silver spot price!”

This shortage of silver in the Eurozone has manifested itself primarily in two ways:

1)    There has been an increase, over and above the growth already observed, in the price of gold and other precious metals. Because they are not willing to pay the premiums over spot resulting from this decrease in supply, or because they are simply not able to find silver, investors have turned to other forms of bullion.

2)    U.S. demand for silver has risen. As Europeans have not been able to find silver locally, they have turned to foreign brokers, including many from the United States. Demand for silver bars, rounds, and coins have increased noticeably.

As should be expected, this global increase in demand for precious metals has driven higher spot prices. Gold closed at another all-time high yesterday, with silver close behind.