The year is coming to an end. Remarkably, gold is closing at the same price level as last year ($1,200 an ounce). By contrast, silver is closing the year much lwoer ($16,20 compared to $19,50 last year). The divergence in price is significant. As discussed last week, disinflationary forces are the key driver for silver’s underperformance.

One would expect a similar view in the physical market. However, nothing is further from the truth. The exact opposite is occurring in the physical market. Silver demand is “outperforming” gold significantly. That is a trend that started in 2013 and has strengthened in 2014.

Let us review two key indicators of the physical market, i.e. the physical holdings behind the gold and silver ETF’s, as well as the coin demand by the U.S. Mint.

The two charts below show the combined physical holdings behind all major ETF’s. Think of very large ETF’s like the GLD and SLV, but also smaller investment vehicles like GoldMoney or Sprott. Mind that the physical holdings in the COMEX are included in the figures. Chart courtesy:

In gold, there was an outflow in 2013 of some 30% while another 8% left the ETF’s in 2014. The amount of gold ounces are at the lowest point since 2009.

2014: Divergence Between Physical Gold And Silver Market Continues

In silver, however, there was a small increase in 2013 and a similar rise in 2014. The amounts are surely not spectacular. The point is that there was a clear relative strength compared to the weak price behavior.

Silver ETF holdings 2009 2014

Similarly, gold and silver coin demand at the U.S. Mint is confirming silver’s relative strength in the physical market. Mind the following year-on-year sales figures since 2008. Courtesy:

Gold coin sales

2014: 524,500 ounces (1,144,500 coins)
2013: 856,500 ounces (1,458,500 coins)
2012: 753,000 ounces (1,129,000 coins)
2011: 1,000,000 ounces (1,427,000 coins)
2010: 1,220,500 ounces (1,641,000 coins)
2009: 1,435,000 ounces (1,815,500 coins)
2008: 860,500 ounces (1,172,000 coins)

Silver coin sales

2014: 44,006,000 coins of 1 oz
2013: 42,675,000 coins of 1 oz
2012: 33,742,500 coins of 1 oz
2011: 39,868,500 coins of 1 oz
2010: 34,662,500 coins of 1 oz
2009: 28,766,500 coins of 1 oz
2008: 19,583,500 coins of 1 oz

The divergence in these figures is clear. Silver sales have reached an all-time high, while gold sales have declined, especially in 2014.

What this is telling us is that investors are finding sufficient value in silver at these price levels. That is another message than the one we hear in the mainstream media. Silver could go lower in 2015, and it probably will in the first half of the year. But at a certain point there should be enough buying interest because silver is truly undervalued. That is where we could see the restless character of silver, as prices have to get back in line with what is happening in the physical market.