from the CPQ boardThe situation with silver in smaller bars is similar to silvercoinage. There were once millions of coins in circulation which wereabout 90% silver content. As the price of silver increased, the silverin the coinage was replaced with copper and base metals alloys. Thesilver coins began to be hoarded and they have now disappeared out ofcirculation.
One must ask, if all those millions of silver coinscan be taken up by retail 'investors', how long will the remainingstockpile of physical silver bullion last? While the issue simmeredunder the radar, supply was largely balanced as retail selling matchedthe retail buying at bullion dealers. As awareness has grown regardingthe drawdown in stockpiles of silver, plus the rising price of themetal, along with inflationary concerns, people are no longer in ahurry to sell their physical bullion, and more buyers are stepping upwith the intention to own silver.
The predictable result has beena shortage of physical silver in smaller bars. Now it should be afairly simple shift for the refineries to begin minting more of thesmaller bars to match this demand. There is a margin built into the barcharge that makes smaller bars more profitable than larger bars. So whydo we not have production shifting to meet this demand, months afterthe shortage became evident?
I think silver investors are wayahead of the curve. The CFTC wants everyone to believe that silver isabundant and in a surplus. However, I believe that silver production isnot keeping up with demand, and the deficit has been masked through thedrawdown of multi-billion ounce stockpiles which are now almostexhausted, and through the price suppression of paper futures contracts.ETFs were approved as a vehicle to divert investors from owning thereal metal, under the illusion of bullion pools which are in realityjust more paper silver. People who think they own silver just own apiece of paper with a promise of silver, which unfortunately is not thesame thing.
The bottom line IMO, is that the failure to meetmarket demand for smaller bars is the canary in the coal mine. It is asymptom of more serious shortage than the silver analysts will admitto. The illusion of a silver surplus, plus the scorn and ridiculedirected towards anyone that questioned this myth, have done well tokeep the problem from surfacing. The buying presure of physical silverwill finaly expose the shortage for all to see. Thereafter, we will seesilver reach new highs along with all of the other metals.
I donot know how long it will take to arrive at this new reality. It isonly just now dawning on analysts that we do not have infinite suppliesof oil, and the price discovery on the oil spot market has begundiscounting this in. It will happen for silver too. Even if investment demand did not expose the situation, commercial demand was going to outstrip production in time.
Silveris finite and it has been artificially priced well below the true priceas would have been established in a real balanced market. Thedisincentive to mine silver and the inability of most mines to produceit at a profit have undermined the price suppression. You can foolstupid people for some of the time, but economic inputs will not bedenied.