-- Posted 29 December, 2010 | | Discuss This Article - Comments:

While it has become a bit of a meme that “the revolution (in currency) will not be televised,” at least one mainstream news outlet is starting to focus some attention on the improving metals market. All across the world, the headlines from the Wall Street Journal read “Price of Silver Soaring,” as two journalists document the explosion in investment interest in the metals markets.

Dissecting the WSJ Article

Though largely positive, especially for such a mainstream release, there were a few shortcomings in the WSJ article.  For one, the article focused mostly on the growing “investment” interest for silver bullion, noting that there was no real growth in industrial demand for the economy, and that in fact, the markets had expected a surplus of the shiny metal in 2010.

As with most media outlets, the Wall Street Journal has made the very commonplace mistake of tracking silver's investment interest.  Frankly, among those flocking to the metal, there aren't many, at least those that I can tell, who are invested for a solely speculative purpose.  From local coin shops to online wholesale vendors, silver buyers across the US and around the globe are buying silver as a new currency, not as some speculative investment.  This error, though, may be more permissible than the next.

Only a few paragraphs from the introduction are the silver exchange-traded funds introduced, mostly the iShares Silver Trust, which according to the article, has attracted more than $1.1 billion in new interest in 2010, at an average rate of $100 million per month.  If only the reporters knew the numbers were actually far greater than that!  At a very minimum, these Silver Trust positions are double counted, with shares of this popular fund now interchangeable for real, tangible silver at the COMEX.  The article does, however, go on to reference the total $4.5 billion annual inflow of 2010.

Growing Popularity

Those intimately familiar with the silver markets can agree that rising prices can only persist with greater interest from new people.  While that may seem like doublespeak from a silver proponent, it shouldn't be much of a stretch to realize that there needs to be new blood, and more cash, flowing into the silver market to move it higher.

That necessity, however, has been easily filled.  More and more people are subscribing to the notion that it will be silver and other precious metals, not paper, that protects their savings.  A smaller, though growing, portion of the market is realizing that it won't be allocated silver that protects them, but honest, physical metals.  And an even smaller group, but perhaps the fastest growing segment of all buyers, is purchasing silver for future use as a barter currency.

High prices only temporarily bring new investment and only temporarily persist in markets where these high prices shouldn't.  After more than a decade of rallying and years of higher highs followed by even higher lows, it should be more than clear to most any investor that the industrial uses of silver are almost irrelevant. 

Above all else, silver is a currency.  The fact that a great portion of the annual production is used in industry just makes for an interesting footnote.

Dr. Jeffrey Lewis

www.silver-coin-investor.com