Let’s begin with a definition. Investopedia defines the Law of Supply and Demand as follows:
“The effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.”
A solid definition, agreed? The Law of Supply and Demand should be the core premise of all economic studies, as it has proved itself to be true historically through the centuries.
How then can we possibly explain what has been happening recently with the price of silver? In a little over two months, silver has declined from its mid-December price of $33.50 per ounce to its current price of $28.56 as of today’s close (2/28/13). That’s a drop of $4.94, which equates to a decline of over 14% in just sixty days. Any trained economist having a solid grounding in the supply and demand theory, when viewing this decline would have to conclude one of two things. Either the supply of silver had recently rapidly expanded or the demand for the precious metal had substantially decreased over the same period. These could be the only two possible logical explanations for this situation.
However, 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 somehow no longer apply.
We need to ask ourselves at this juncture how it is possible for the price of silver to undergo a substantial draw down in price while simultaneously experiencing extremely tight supplies in addition to burgeoning demand. In order to be able to make a professional inquiry regarding this conundrum, we will have to dispel all the blather from the CNBC crowd that keeps ranting about the precious metals being in a bubble (they are NOT; both gold and silver remain firmly in a ten year upward channel of growth) and adopt an attitude like Dragnet’s Sergeant Friday, “Just the facts, ma’am, just the facts.”
Here are those facts:
In 2012, silver sales soared. The US Mint reported that the sale of American Eagle silver bullion coins topped off at the third highest annual total in the twenty-seven year history of the series. Just past mid-December, the US Mint told its distributors that it had “sold all remaining inventories of 2012 American Eagle Bullion Coins,” adding that “no additional coins will be struck.” Until the sell-out, Silver Eagles were easily on pace to eclipse the second best annual sales in history. Even more amazing was the ratio of sales of Silver versus Gold Eagles – over fifty to one. In total dollar amounts, the sale of Silver Eagles almost matched that of Gold Eagles, nearly 98%.
In January of this year, the sale of Silver Eagles was tremendous. So strong was the demand that the US Mint notified all its distributors shortly past mid-month that it had halted all new orders because it had run out of bullion supply. Despite two production shutdowns in January, the US Mint sold a record breaking 7.13 million Silver Eagles in ONLY TEN BUSINESS DAYS, shattering the previous monthly record set in 2011. Currently, the US Mint is on allocation rationing to its distributors – and we’re into this year only eight weeks!
Another instance of extreme silver shortage that has seen little to no reporting is the near total annihilation of the availability “junk silver” (pre-1965 US silver coins). As of the beginning of this week, almost none could be found anywhere in the country, except in extremely tiny amounts. Nearly every wholesaler and retailer in the nation was completely sold out. Waiting time for orders is at least a month out at best, with six weeks being quoted as a reliable delivery date.
Just a week ago, it was reported that Apple will be delaying its new 21.5 iMacs because of a shortage of silver in China. Silver is used extensively in iMacs. The production delays are already up to three months and counting.
On the demand side of this equation, wholesale premiums over the silver spot price have risen as much as six-fold in the past two months. Retail mark-ups for these coins have never been greater since the 1980 high, when silver topped $50.
What is one to conclude with this incredible contradiction of drum-tight silver supply and record breaking demand weighed against a silver price decline of nearly 15% in the last seven weeks? It is difficult not to conclude that there must be some type of market intervention and/or price manipulation occurring.
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 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. (source:www.zerohedge.com/
In addition, silver prices, to a lesser degree, are also influenced by activity in various exchange traded funds (ETFs). For some time now, rumors have been circulating that these funds may be severely short the billions of dollars of physical silver upon which their share value is based.
What we’re seeing here is a big disconnect from silver’s physical paper price and its actual availability. It is not inconceivable to us that what is actually occurring is similar to what happened to markets in the old Soviet Union. The communist ruled markets quoted cheap prices for products that were chronically in short supply. The real market, the “black market,” was where you could purchase real goods with fair price discovery. When this dichotomy completely broke down, so did the Soviet Union. In the same fashion, it is not too hard to foresee that a breakdown and growing distrust in the paper silver markets could well cause a price explosion in physical silver.
We have been warning for years that paper markets in general, and paper precious metalsmarkets specifically, should be viewed with suspicion, as they all contain counter party risk, which cannot be honored. The only sure way to fully protect oneself is to own physical coins and bullion. Do it today while the “paper price” is still low.
To learn more about the rewards of precious metals investing, including how to fund your existing IRA with gold or silver, call Liberty Gold and Silver seven days a week at 888.751.3330. To learn about the most generous referral program in the precious metals industry, please visit the Liberty Gold and Silver Referral Program.
We’re happy to spend as much time as you need to discuss the details with you.
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14 thoughts on “Silver Prices Defy the Law of Supply and Demand”
Watch this to happen to gold next.
its already happened. gold is down nearly $400. from its high of $1930.
what does peter schiff , celente, alex j, lindsey williams etc say to all of this? silver is even more scary, since real world shortages in industry of the metal are being claimed by manufacturers. still it drops.
they will either strip it of value or criminalize its use- i see both.
A Tale of Two Markets……
Don’t worry about this, and don’t sell your silver. When they beat down the price with naked shorts, it’s your opportunity to buy more. The COMEX price is only relevant in the world of media make-believe, which is where you have to go to buy the stuff, priced in U.S. Dollars, which is also part of the same illusionary world.
In the real world silver is in high demand, and short supply, and as the article states, is worth a lot more in U.S. Dollars than it’s presently selling for. The illusion will be maintained for as long as possible, because it’s a function of the Dollar’s fictitious value. When the Dollar collapses, the make-believe world collapses with it, and silver will trade for it’s real value in a real market.
For a glimpse into the real market, we can look back to the Wiemar Republic, and the collapse of its currency. When their hyper-inflationary world of make-believe collapsed, a German grocery shopper would need a wheelbarrow full of cash to buy a loaf of bread, but a silver quarter fed the entire family for a week.
And the more silver we have to facilitate trade, the less likely we’ll fall victim to accepting another fiat currency to buy what we need, and it’s the illusionary fiat currencies that keep the Zionist bankers in control of our real world. Enough silver in the hands of the people can prevent that.
Your analysis is great, but i gotta complain about something (bad mood or whatever?).
Using upper case letters to refer to comex, usdollar, and zionist, in my mind , is a show of respect for these irritants. Degradation is how these things should be treated, and a good start is not using upper case terms, even when spellcheck prescribes it. We have no “President”; we have a whitehouse resident. There is no “Israel”; there is only the zionist entity, occupier of Palestine. There is no “COMEX”; there is only a gambling club for wealthy manipulators. There used to be a “US”, but now its just us against them. “Dollar”, used to get you a decent meal, but now gets you a pink slime sandwich with artificial cheese.
Sorry for piggybacking on your comment JR, but it seemed like a chance to get some yayas out.
Be well man, Rob
I have no respect for the “irritants”, as you’ve described them, but I do have respect for the proper use of the English language, which also makes it easier to read.
I understand this JR; but does the constantly changing acronym, political correctness, and buzzword dictionary properly describe the proper use of the English language? Is “dollar” a word requiring capitalization? The words democrat and republican don’t require capitalization, its only done as a grandiose gesture, so why zionist? Enough said on my part. Thanks for the reply.
I don’t know what constantly changing acronyms you’re talking about, or what “buzzword dictionary” you’re referring to, and there’s certainly no “political correctness” present in anything I said, so most of your comment makes no sense to me. I didn’t use anyone’s dictionary.
“Dollar” is capitalized when it’s used as the name of a currency. COMEX is capitalized because it’s an acronym, and Zionist is capitalized because it’s also a name. Republican and democrat should also be capitalized when used as names (or in the beginning of a sentence, as you see here).
If you didn’t just swim across the border, maybe you should have spent a little time in school, because these things are taught to everyone in the country, and I really don’t have the time or inclination to be your English teacher.
If you don’t have the time or inclination, why respond? I’m no troll; you maybe just took my comment the wrong way. Be well, Rob
Now Mr. RobW, are you really interested in what I wrote, or are you just another Zionist troll sent here to annoy me with your petty little Jew bickering?
The reality is, I’ve seen three generally different types of commentors:
1) The Genuine – They are sometimes fervent Patriots, not Patriots at all, or just waking up and still don’t fully understand the true reality they are experiencing now.
(Think Neo from, “The Matrix”,.. “Why do my eyes hurt?”,… Morpheus – “Because its the first time your using them”)
2) The Stupid – These are typically people who just have very little intelligence, no critical thinking skills, or suffer from an inability to understand the obvious intent of the article they are commenting on.
3) The Trolls – These come in a varity of flavors and varieties and can sometimes be difficult to distinguish from the genuinely stupid, to the genuinely sarcastic that simply need to put in their worthless two cents.
Kind of like, “The Good, The Bad, & The Ugly” I guess….
I got what you meant,.. and you are correct.
JD – US Marines Fighting Tyranny
I admit to being genuinely sarcastic, and don’t comment often, because comments like the first by JR either make perfect sense (as his did), or aren’t worth responding to, because of their stupidity. Was just funning around about paying respect to things that are detestable, and capitalization is a sign of respect. If I weren’t in a bad mood caused by an issue, (all the fawning over the resigning pope), would never have made the comment in response to JR. Be well, Rob
What is the price of war?I want to see a rationale chart alongside of the consequences of peace.Secret societies do not kill or spy for national security.They are in a fight for the accumulation of your stolen wealth.There’s a lot of fear talk about war between U.S. and Iran.Why not just take out the Rothschild bankers and have peace?
What I don’t get is why the premium for physical silver is not through the roof?
Pretty simple , don’t complain about the price of silver . Just shut up and buy more .
Like asking why we import 20 % less oil than 2005 yet the price is not around 2 dollars again .
Shortages of junk silver ? Try checking out what refiners are paying and do the math. After paying off extortion bay , you end up with less money . Than you do selling too melters . Or try craigs list people buy all the time at 25 x face. Plus there is no paper trail . So if your panties are in wad cause no one is buying your 29 times face value junk , or selling it too you at 20 x face . Then you should perhaps go home and rethink your life , yer not smart enough to play with metals.