The Silver Market Basket
By Dr. Jeffrey Lewis
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:
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.
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.
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
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
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.
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