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The Silver Market Basket Case

Tuesday November 13, 2012 15:01

Silver bullion investors often feel as if they have become a basket case. As an investment class, they are increasingly growing weary of the suppressive manipulation that characterizes today’s silver market. To the outside observer, the situation in the silver market could seem even more confusing and grotesque.

What is a basket case, you might ask? The term “basket case” is typically applied to someone or something that is in a completely hopeless or useless condition.  It apparently originated during the First World War to describe fighters whose arms and legs had been removed by explosions or surgical amputation. A basket could be used to carry the torso and severed limbs of such unfortunates.

The Silver Market’s Severed Limbs

When you define the term “basket case” and apply it to the silver market, it actually does seem to fit the current situation. Each of the four characteristics below represent the severed limbs of the silver market:

  1. Price Suppression: A multi-decade long mispricing due to blatant and now overt price management that reigns over short to medium term silver valuations. This policy causes counter-intuitive silver price moves and further baffles the innocent investors seeking safety from long term inflation due to loose monetary policy and an un-backed paper currency.

  2. Supply and Demand Fundamentals:Given the long term effect and substantial degree of mispricing on the silver market, real supply and demand factors are almost impossible to digest and price into the market. Very few people, even those who specialize in the sector, can wrap their price analysis around the fact that there exists less above ground investment grade silver than gold available in bullion bar form.

  3. Industrial Demand: Just in time delivery policies and a cheap price for silver has created a high-risk situation for the world's industrial users of silver. These concerns are ill-prepared to 'make the switch' to other metals in time to keep production lines going if silver’s price were to move dramatically toward fair value. It is also worth noting that not all industrial silver is used for consumer electronics by a long shot, since a very significant amount of silver is used in the military industrial complex - which is alive and well today.

  4. Regulator and Miner Capture: As past articles have noted, market regulators like the CFTC are now complicit in the manipulation as a result of their notable inaction. Silver has been “investigated” for market manipulation longer than any other commodity in history. Furthermore, silver miners are not only beholden to their shareholders — they also depend on financial support from the very same bullion banks that effectively control the price of silver.

The Beating Heart of Silver Demand

Still, you cannot take away the beating heart of ongoing demand for physical silver from the equation. Private investment and industrial demand for silver just will not go away no matter how long its price remains suppressed.

Using the basket case analogy when comparing silver with how distorted the pricing of equities, bonds and currencies have become, one can still find flesh at the center of the physical silver market and not simply a computer-generated virtual representation of a torso.

At least you can still use a basket to carry your silver away in. So the analogy fits.

For more articles like this, and to stay updated on the most important economic, financial, political and market events related to silver and precious metals, visit http://www.silver-coin-investor.com

By Dr. Jeff Lewis,
Editor, Silver-Coin-Investor.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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