This is part II of Jeffs Silver Paradox Trilogy.
The world of investing is ruled by a single principle: “buy low, sell high” – or at least it should be. In order to squeeze as much money as possible out of the Chumps (i.e. small retail investors); the predatory Corporate Media has turned these “investors” into momentum-chasing traders, and the principles of investing have been thrown out the window.
Nowhere is this more apparent than through an examination of the silver market, and the perverse parameters of investment in this sector. In order to put the Golden Rule of buy low/sell high into action, we need to know how to determine when we are buying low – because once we have bought low, selling high is simply a matter of patience.
This presumes (of course) that as an investor we have done our “due diligence” in researching companies/sectors; and identified an investment opportunity with strong (future) fundamentals. We would not have been following the Golden Rule had we bought shares in Kodak as the world was in the process of switching from camera film to digital photography. We would have been buying low and (eventually) selling lower; or in relative terms buying high and selling low.
Conversely, referring back to Part I of this series; we have already ascertained that silver has large/growing demand, and it was conclusively demonstrated that silver is priced well below its fair-market value. On this basis alone, the silver sector would seem like a good destination for one’s investment dollars, but we have not completed our due diligence.
That still only covers demand and price parameters of this market. To get a more clear/complete picture of fundamentals we also need to focus on supply. Again referring to the first installment, we learned that silver is alone among major commercial/industrial metals in that the majority of supply is produced not via “primary mining” but as a byproduct of other metals mining.
As I also explained in that previous piece, that fact alone provides a near-conclusive argument that silver is under-produced. Unequivocal empirical evidence that silver is grossly under-produced can be found merely by looking at the total collapse in inventories. As I have frequently pointed out in previous commentaries, between 1990 – 2005 alone; silver inventories plummeted by 90%. Since 2005, inventory numbers have been falsified through a transparent, record-keeping sham, presumably to cover-up even further erosion of inventories.
Those who have any understanding of markets will realize that this alone is further proof of the long-term/severe under-pricing of silver, since price is the only mechanism which can restore equilibrium between supply and demand.
We have a second way of demonstrating that silver is under-produced apart from the collapse in inventories. Also mentioned in the first part of this series is the fact that gold and silver exist in the Earth’s crust in roughly a 17:1 ratio to each other. This suggests we should also see these metals mined in similar ratios.
However, if we obtain supply numbers for silver (from the Silver Institute) and for gold (from the World Gold Council), we see that over the past decade silver has only been mined at roughly a 7:1 ratio versus gold. This would indicate that silver is currently being mined at less than half the rate it would be mined if the metal was priced at its fair-market value.
And for the REST of the Story: