Increase in silver prices may turn consumers into metal detectors

It’s hard to imagine someone beating a hammer against a precious object. Especially when it’s a silver proof coin, encased in a protective plastic case — a case designed to protect the mint coin from dust, smudge prints and the ravages of time.

But that was the scene in front of Pacific Jewelers on Main Street on a recent morning: A stack of Australian mint silver coins, cracked from their protective plastic cases with the smack of a hammer’s blow.

It’s something that Norbert Anderson, owner of Pacific Jewelers, is doing more often these days as customers tote in stacks of silverware, coins, jewelry, hollowware and more to sell.

“Anything made of silver,” Anderson said.

The reason for this seeming desecration of once-precious objects? A surge in silver prices has made the precious metal, in some instances, more valuable than the object it was crafted into. And that has folks digging out — and digging up from backyards — long-forgotten silver caches to sell for cash.

The surge in silver sales at stores such as Pacific Jewelers, which also buys gold and platinum, started in earnest in 2010, when silver prices spiked to $30.79 an ounce and finished the year with an average selling price of $20.19. It was a price jump of 38 percent for the year. Silver hadn’t traded at that level since 1980, when it spiked to $49.45 and finished the year with an average selling price of $20.98. By comparison, silver traded for an average of $4.83 in 1990 and $4.95 in 2000. In the past week, it averaged about $40.

But Joshua Abramson, owner of Vault Silver in Vancouver, an international precious metals dealer, says the increased demand for silver — and other precious metals — stretches back at least three years, to the banking crisis that rocked the economy and shook consumer confidence.

“People aren’t really speculating on the price of silver. They just want physical metal for the peace of mind it gives them,” Abramson said.

A number of factors

Driving the price uptick, according to Michael DiRienzo, executive director of The Silver Institute, an international association of silver miners, refiners, fabricators and dealers: Political instability in a number of nations; economic uncertainty and instability both domestically and abroad; the recent creation of exchange-traded funds; a silver- or gold-back fund, something like a mutual fund for silver or gold; and industrial demand, especially in solar panel applications.

“There are a whole host of factors,” DiRienzo said.

The industrial use of silver has surged in recent years. In 1990, total industrial demand for silver was 273 million ounces, which represented 39 percent of total silver fabrication. By 2007, industrial demand for silver was 465 million ounces, or 55 percent of total silver fabrication. In 2010, industrial usage was 487.4 million ounces. The Silver Institute forecasts industrial demand for silver to hit 666 million ounces by 2015.

Industrial applications include electrical contacts, especially in vehicles, solar panels, cellphones, water purification, even textiles (silver has antibacterial properties, and is sometimes infused into socks; it’s also used in the production of polyester).

In countries with a growing middle class, such as China and India, the demand for electricity, cars and cellphones drives the demand for silver used to create the products.

The uptick in silver prices even impacts teeth.

Kent Firestone manages Laboratory of Dental Arts in Vancouver, a lab that crafts crowns for area dentists. Firestone said that, when possible, the lab tries to avoid using precious metals in crowns, although gold and silver are both sometimes used.

“When you make a crowns that have (precious) metal in them, what we have to do is weigh each crown, (comparing) it to how expensive the metals are. Then, we have to weigh them out, and if the prices of metals go up, we have to adjust our prices.”

Firestone said crown prices are adjusted monthly to reflect precious metal costs.

Beyond industrial and dental applications, some individuals are still buying. Abramson of Vault Silver said that many of his customers are from China and other countries with emerging middle classes, and they want to physically own precious metals. Still, other buyers have a survivalist bent or are preparing for religious predictions of calamity, Abramson said.

But owning the metal comes with its own set of issues.

“One of the hardest issues to deal with when you buy precious metals is how to store it,” Abramson said. “A lot of people dig a hole in the backyard.”