Paul Tracy

Demand is soaring nearly out of control. Investors can't get enough silver bullion.

The most popular form of silver bullion is the American Silver Eagle. The coin contains one ounce of pure (99.9%) silver. It has a face value of $1, but right now that single troy ounce of silver is worth $32.

For years now, the United States Mint has been striking these coins as fast as they can. The U.S. Mint facility in West Point, New York, has been solely responsible for minting these coins since 2001. But even the mint facility known as the "Fort Knox of Silver" can't handle the soaring demand.

In fact, multiple times in 2008 and 2009 the U.S. Mint had to suspend sales...

"The government rationed food during World War II and gasoline in the 1970s. Now, it's imposing quotas on another precious commodity: 2008 dollar coins known as silver eagles.

"The coins, each containing about an ounce of silver, have become so popular among investors seeking alternatives to stocks and real estate that the U.S. Mint can't make them fast enough. In March, the mint stopped taking orders for the bullion coins. Late last month, it began limiting how many coins its 13 authorized buyers world-wide are allowed to purchase."

-- The Wall Street Journal, May 23, 2008

But the interesting thing is that sales in 2008 were only about half what they are today. You can see the annual sales of American Silver Eagles in the past 10 years in the table below...

In the past five years, demand has grown at a 31% annual pace. The government has even authorized the San Francisco Mint to start producing the Silver Eagle coins for the first time in more than a decade to catch up.

So what's driving this mountainous demand, and should you be buying silver yourself at these prices?