Silver Enters Twilight Zone

Silver Defying Laws of Supply and Demand

Written by Nick Hodge
Posted March 13, 2013

You know silver is cheap right now.

It's down below $30 per ounce after nearly touching fifty in early 2011.

And there are many reasons silver just can't stay this low...

Bucking Supply and Demand

Silver is down about $5.00 since November when it was trading for $34.00 — a 16% drop.

Logically, one of two things must've happened:

  1. The supply of silver expanded; or

  2. Demand decreased

But the fact of the matter is the exact opposite is happening — meaning silver prices should be going up.

Silver Eagle sales last year were the third highest in history. Had the U.S. Mint not sold out, sales likely would've set an all-time record.

What's more, silver sales outpaced gold 50 to 1. And sales are off to the races again this year...

Demand is up, not down.

What about supply?

Well, the U.S. Mint is already rationing to its distributors, and we're only 11 weeks into the year. The total weight of Silver Eagle sales is now greater than annual U.S. silver production by several million ounces.

Both wholesalers and retailers are almost completely sold out of junk silver (pre-1965 coins), and are quoting wait times up to six weeks. And a report from Thomson Reuters shows industrial demand for silver could hit a record 511 million ounces by 2014.

Apple just delayed its new iMacs because of a silver shortage in China.

The supply is so thin, retail markups have risen sixfold in two months. They haven't been this high since 1980. Silver topped $50 that year.

So, if demand is up and supply is down... why is silver falling?

Welcome to the Twilight Zone

Given the laws of economics say silver prices should be rising, here's how SilverSeek explains their downward action:

... In the alternate universe of manipulated markets, insane derivatives, massive criminal fraud in both the banking and commodities markets, central bank machinations with currency handouts, and complete dereliction of duty on the part of regulatory bodies, it seems that the basic laws of economic price discovery no longer apply.

As we’ve reported several times over the last few years, the spot price of precious metals is set almost entirely by the bid-ask trading action in the world’s commodity pits, principally the COMEX in New York and the London Bullion Market Association.

These exchanges have been notorious for allowing massive naked short selling by large investment banks such as JPMorgan Chase and Goldman Sachs without these firms having to post either the normally required margin deposits or having adequate silver on deposit with these exchanges to satisfy delivery requirements for those traders who might wish to take physical delivery of the silver upon contract expiration.

Both of these activities are violations of the rules of the futures exchanges involved as well as federal requirements that are supposed to be enforced in the US by the Commodities Futures Trading Commission (CFTC). The CFTC itself has been repeatedly accused by the Gold Anti-Trust Action Committee (GATA) and many others of being derelict, if not outright complicit, in allowing these trading violations to continue. Link is here.

Basically, the paper price of silver is not reflective of what's going on with the supply/demand balance of the actual metal.

We're in the Twilight Zone of silver prices.

When reality comes back around — and it always does — silver prices will rise dramatically to reflect the true fundamental picture.

Consider what's happened to other commodities in similar situations...

  • Oil shot from $10 per barrel to around $140 – a 1,300% bounce

  • Corn went from $1 per bushel to $7 – a rise of 600%

  • Copper jumped nearly 1,500%

  • Uranium popped 1,300%

  • Cobalt rose nearly 1,000%

This is why Eric Sprott has called for silver between $100 and $200 per ounce.

In anticipation, I've been making regular trips to my local coin and bullion dealer. I believe it's the perfect time to fill your long-term coffers.

But you should also be taking advantage of ways to profit from silver's price disparity in the market...

There's no reason you shouldn't leverage this coming silver repricing event for all it's worth.

To help you do that as this plays out, we've developed a program designed to help you profit from silver from as many angles as possible. Some of them are even designed to move much higher than the actual price of silver.

We're calling these numerous investments “Silver Strikes,” and you can start using them today.

Call it like you see it,

Nick Hodge Signature

Nick Hodge

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Nick is an editor of Energy & Capital and the Investment Director of the thousands-strong stock advisory, Early Advantage. Co-author of the best-selling book Investing in Renewable Energy: Making Money on Green Chip Stocks, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.

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