Scutify All-Star Michael Haynes who is also the CEO of The American Precious Metals Exchange (APMEX) talks about Gold and Silver and how it may be time to diversify due to uncertainty in the world.

1. S E C T I O N N A M E | Story Name
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B
oth Gold and Silver have been up and down in the first half of
2014, but what is the time, what is the season for Gold and
Silver for the second half of 2014 and beyond?
While no one can predict the future, we can look at recent data
along with the current economic “tea leaves” and provide some
interpretation and perhaps some insight.
How Silver is Biding Time in 2014
Physical Silver has recently been in a market where the supply and
the demand have been very close with virtually no surplus or deficit
in ounces since 2006, except for slight increases in 2009 and
2010. As shown in Table 1, global Silver inventories have decreased
approximately 784 million ounces since 2000.
Because the net position in Physical Silver has been edging
downward since 2000 and because in recent years, physical Silver
supply and demand has been so close to a net zero change in
inventories, the overall market for physical Silver has been very
reactive to price changes. For example, the United States Mint, since
the second half of 2013, has limited the authorized purchasers
from placing orders to an amount based on an allocation of the
production of the Mint up until May of 2014.
When examining the supply of
physical Silver since 2000, the
Secondary market supply has annually
provided between 24% and 30% of
the aggregate supply and in 2013,
the portion provided by Secondary
sources was a 13 year low of 24%. In
fact, the 2013 Secondary market
supply was approximately 230 million
troy ounces, approximately the same
level as in 2004, nine years earlier.
The issue in the Secondary market
supply seems to be the market
price of Silver. In Chart 1, the annual
Secondary supply is shown relative to
the price of Silver per ounce and falling
By Michael Haynes, ceo apmex, inc
It may be time for diversification because of uncertainty.

2. www.ahametals.com American Hard Assets | 13
Metals Market Report | H A R D A S S E T U P DAT E S
Silver prices in 2012 and 2013 seem to be having a significant effect on
the decisions in the Secondary Silver market to submit Silver for refining.
Although there are many factors in the supply of Silver, it appears that
Silver prices may have an impact on the inflow from Secondary sources
and perhaps may cause mining activity to slow.
Chart 1.Annual Secondary Source of Silver and Silver Price per Troy
Ounce, 2000-2013.
in 2000 to a record level of over 136 million troy ounces in 2013,
an increase of over 260% and an increase of 43% from 2012 to
2013. In Chart 3, it appears that lower Silver prices in 2013 did
not inhibit investment coinage demand, but on the contrary, such
demand increased to record levels.
Chart 3. Annual Physical Investment Demand in Silver Coinage
and Price perTroy Ounce, 2000-2013.
From the demand side of Silver, there is evidence of rapidly increasing
demand in Photovoltaics (batteries and solar devices), increasing in
demand by 46% in 2013 over 2012. Shown in Chart 2 are the major
segments of fabrication demand in Silver since 2000. Generally
speaking, lower Silver prices should have a positive effect on demand
from the largest segment of demand in Jewelry/Silverware as lower
prices should stimulate more demand.
Chart 2.Annual Fabrication Demand for Silver in Troy Ounces by
Segment, 2000-1013.
The final section of demand is from investment measured by Silver
bullion coin production in the six main issuing countries of the United
States, Canada, Austria, Germany, Mexico and China along with other
countries consuming physical Silver in coin production. The investment
coin Silver demand has grown from approximately 38 million troy ounces
Will the alarm go off in Silver?
With Silver prices hovering around $20 per troy ounce, the
historical data would indicate that supplies of Silver, especially from
the Secondary markets, will be constricted. On the demand side,
industrial use of Silver will not be inhibited by lower Silver prices and
perhaps fabrication demand may increase in the Jewelry/Silverware
segment as prices remain relatively low compared to the prior three
years. Also affecting Silver demand, investment coinage does not
appear to be negatively impacted by lower Silver prices, but on the
contrary, investment coinage demand rose in 2013 to record levels
and the year to date mintage by the United States Mint seems to
be approximately the same pace in 2014 as 2013.
Accordingly, will Silver prices rise given the pressure applied by
lower supply and potentially rising demand? While no one can
predict the future, it appears that the clock is ticking on physical
Silver.
Gold May be Waiting for the Bell to Ring
Gold supply is proportionately more reliant on mining than
secondary sources over the last nine quarters with mining providing
on the average 67% of the market supply for the entire period,
but in the last four quarters ended March 31, 2014, mining has
provided a higher portion of total market supply of 73%, 70%,
72% and 69%, respectively, of total market supply. The converse
of this Gold supply is secondary sources which have been, not
surprisingly, below recent historical levels. Chart 4 shows that for
the last five quarters ended March 31, 2014, secondary sources
of Gold have consistently fallen below levels established in the
previous four quarters ended December 31, 2012. This means that
physical Gold supply has been hindered for the entire year of 2013
and continuing in the first quarter of 2014.

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Note that the Net Investment Demand did contract for the four
consecutive quarters ended December 31, 2013, however, this was
caused primarily by the liquidations from the Gold ETFs. The data
shows that the Physical Gold Bar and Coin investment demand was
more than sufficient to offset the ETF liquidations. In fact, Physical
Gold Bar and Coin demand increased each quarter for the four
consecutive quarters ended June 30, 2013, with physical investors
in contradiction to ETF investors during most of this period. Many
believe that the Gold ETF has more investors with short term trading
windows, perhaps a day up to a month in duration, while Physical
Gold Bar and Coin investors have a longer term outlook, perhaps
three to five years.
When will time strike midnight and awake the
Gold market?
From the supply side, Gold is meeting the demand with a decreasing
contribution from the secondary sources, which sources are unlikely
to increase without a price rise to attract more of the Gold product
ready for recycling.
From the demand side, all of the segments of Gold demand, except
for Investment demand, are relatively stable for the last nine quarters.
Investment Gold demand recorded a net contraction in recent
quarters but only as a result of Gold ETFs shedding ounces which
were readily absorbed by the Physical Gold Bar and Coin demand.
With the supply and demand for Gold appears to bring on the
two factors, (1) secondary market supply influenced by current
Gold prices, and (2) Investment demand influenced by relatively
strong long term oriented Physical Gold Bar and Coin demand and
short term oriented Gold ETF demand. Accordingly, the it appears
that the time for Gold awakening may be an event in the global
economic markets or a global political event that causes the short
term investors to expand Gold ETF demand which would also likely
increase the long term investors demand for Physical Gold Bar and
Coin demand.
For those awaiting such an event, look to the European Union and
the Euro and to the upcoming United States Congressional elections
in November 2014, which in both cases may provide evidence of the
coming economic course.
H A R D A S S E T U P DAT E S | Metals Market Report
Chart 4.Quarterly Secondary Source of Gold and Gold Price per
Troy Ounce, Q1 2012 – Q1 2014.
Chart 6.Quarterly Net Investment Demand for Gold in Troy
Ounces, Q1 2012 – Q1 2014.
When examining the demand for Gold, it is evident in Chart 5 that the
demand in Jewelry, Technology and even in Central Bank purchases
is relatively consistent, quarter after quarter for the last nine months.
However, the Investment demand seems to expand and contract,
expanding during the three consecutive quarters ended December
31, 2012, yet contracting for the four consecutive quarters ended
December 31, 2013. For the quarter ended March 31, 2014,
Investment demand expanded by 47% over the quarter ended
December 31, 2013.
Chart 5.Quarterly Demand for Gold in Troy Ounces by Segment,
Q1 2012 – Q1 2014.
Even though the Investment demand has both expanded and
contracted, Chart 6 shows the breakout of Investment demand
between the Gold ETFs and Physical Gold Bar and Coin. (For the
sake of clarity, according to the World Gold Council, the data for
Physical God Bar and Coin demand relates only to the investor
demand for the physical Gold and does not include any Gold Bars
for any of the future exchanges.)