* Graphic on silver coin sales: http://link.reuters.com/kuc75w
* FACTBOX on global mints: urn:newsml:reuters.com:*:nL1N11Y1F4
By Marcy Nicholson, A. Ananthalakshmi and Jan Harvey
NEW YORK/LONDON/SINGAPORE, Sept 30 (Reuters) - The global
silver-coin market is in the grips of an unprecedented supply
squeeze, forcing some mints to ration sales and step up overtime
while sending U.S. buyers racing abroad to fulfill a sudden
surge in demand.
The U.S. Mint began setting weekly sales quotas for its
flagship American Eagle silver coins in July because it can't
meet demand, and the Canadian mint followed suit after record
monthly sales in July. In Australia, the Perth Mint sold a
record of more than 2.5 million ounces of silver this month,
nearly four times more than in August, and has begun rationing
supply of a new line of coins this month, a mint official said.
"Silver coin demand is absolutely through the roof," said
Neil Vance, wholesale manager at the Perth Mint. "There seems
to be a bit of frenzy as people think there is a shortage of
silver. But in fact it is a (crunch in) manufacturing capacity."
While demand has risen in response to the slump in spot
prices to $14.33 an ounce in late July and its subsequent drop
to fresh six-year lows below $14 an ounce in August, mint
officials also said they were caught out by the sudden interest
in coins. In July, the U.S. mint halted sales for almost three
weeks after running out of "blanks", which are used to make
coins.
Some investors like to own physical metal to protect from
volatility in other assets, particularly currencies and stocks,
and to hedge against geopolitical and economic upheaval. The
CBOE Volatility index, or VIX, of U.S. stocks - popularly known
as the "fear index" - briefly jumped to its highest since
January 2009 earlier this year.
At the U.S. Mint in West Point, New York, where the American
Eagle is made, the plant is operating three shifts and paying
staff overtime, a spokesman said.
The Austrian Mint, which has begun allocating sales of its
Philharmonic silver coins, has increased production of silver
blanks after higher-than-expected demand in July and August, a
spokeswoman said.
In his 35 years of dealing precious metals, Roy Friedman,
vice president of sales and trading at Manfra, Tordella &
Brookes, one of the biggest U.S. wholesale coin dealers, said he
could not recall seeing a squeeze in supplies of North American
silver coins spilling over to coins made in Austria and the U.K.
to the degree seen this year.
MOM AND POP
Dealers and mints trace the supply squeeze to a burst of
buying by mom-and-pop investors in the United States, who
scrambled to scoop up coins they considered to be at bargain
levels after spot silver prices in early July sank to six-year
lows.
The spread between silver and gold, a closely watched gauge
for the precious metals markets, has risen to its highest in the
third quarter since a brief silver frenzy following the
financial crisis. Silver coins typically outsell gold anyway
because they cost less, but the wide spread meant the silver
price is 76 times cheaper than gold XAU= , making it even more
appealing than usual to investors.
The U.S. Mint sold 14.26 million ounces of American Eagle
silver coins in the third quarter, the highest on records going
back to 1986. The Canadian mint has been limiting sales of its
silver Maple Leaf coins since July after record monthly sales
that month, an official told Reuters. Sales were at all-time
highs in August and September.
With North American mints overwhelmed by orders, investors
and collectors were forced to look overseas for increasingly
scarce supplies, triggering a domino effect in Europe and Asia.
"We can only get a fraction of what we could sell," said
Terry Hanlon, president of Dillon Gage, one of the world's
biggest precious metals dealers, based in Addison, Texas.
Hanlon said he has seen premiums for coins, which are paid
on top of the spot price for physical delivery, surge to about
$4 to $5 per coin in wholesale deals, compared with $2.30 in
June.
While such buying binges are not uncommon in the coin world,
and the U.S. has allocated sales of silver coins several times
since prices of silver plummeted in 2013, this episode has
lasted far longer, and its effect more pronounced, than in the
past, dealers say.
The silver spree is also notably more intense than in gold
coins. U.S. Mint sales of gold coins had their best quarterly
performance since the second quarter of 2010, but mints aren't
yet straining to keep up.
PLUNGING SILVER
Still, the rush of coin buying has failed to offset a
years-long silver rout by institutional and retail investors
betting on further gains in the dollar, U.S. equities and an
improving U.S. economy.
Prices have fallen 7 percent this year, are on track for
their third yearly loss and down by 70 percent from all-time
highs of $50 hit in April 2011.
Holdings in the silver-backed exchange traded funds, which were popular with investors during the
financial crisis that followed the collapse of Lehman Brothers,
sank to below 518 million ounces this week, their lowest in
almost three years.
For now, however, coin dealers are riding the wave. Bullion
dealers around the globe who typically offer next-day delivery
are now taking silver coin orders several weeks out.
"I don't expect things to get better until next year," said
Gregor Gregersen, founder and director of retailer Silver
Bullion based in Singapore.