-- Posted 27 January, 2011 | | Discuss This Article - Comments:

There is no more silver!  Really, there isn’t any left.

There is a danger lurking in the shadows of the COMEX silver market.  Prices are (generally) rising, but the supply of silver is falling, and it’s falling quickly.  Why, you ask?   Unfortunately, there has been confusion in the paper and physical metals market…as if silver investors hadn’t already noticed. 

Silent Market in Control

With the rise in silver prices came new speculative interest from bankers, average investors, and even the next-door neighbor.   The problem is very simple:  the supply of silver for the investing class is imaginary—a product of the banking system and fractional reserve silver.

In order to supply investment demand, investment banks (JP Morgan and others) have been selling off paper silver in droves, hedging their bets on the futures market, and hoping that no one ever bothers to take delivery.  It has become evident, especially in this most recent move toward $30, that the price of silver and the supply of silver are no longer related. 

What we have now is a market where the real, physical silver is flying out of the COMEX (since few seeking to buy real silver are interested in certificates or exchange-traded funds), and the tangible stocks are replaced with paper silver. 

What happens when the market realizes that the well is tapped, there is no remaining silver, and that the positions most hold are diluted to a point that they hold only a small percentage of what they believe they hold?

Future Surge in Silver Prices

It has become commonplace for analysts, investors and others to forecast higher and higher silver prices.  These analysts, investors, and analysts are 99% wrong. 

Most of them are playing the fool’s game, buying and selling paper silver to accumulate paper.  The remainder sees opportunity for silver that brings silver prices higher, and they’re wrong as well. 

Silver prices are not technically rising, but they’re becoming realistic.  The current pricing structure is dependent on a supply of silver that does not exist.  When this realization comes to life, silver prices will rise, but in truth, prices have already exploded. 

Those trading the COMEX are paying $25-30 for the CHANCE at taking delivery of an ounce.   If we put the current, real supply of silver at 10% the open interest, then prices are already $250 per ounce.

How Disconnects Happen

In a previous article, we discussed the divergence and growing crevices in the silver market.  Prices from the COMEX trickle to the NYSE where the SLV ETF is traded, which then trickles back to the futures market, and then to the average investor, who through his or her own market action, sends that information down to the retail coin shop.  Thus, the physical markets on the local level are selling silver based on a price that flows from a crooked market.  Is it any wonder demand is high, and supply (individual investors are the only ones who can actually prove ownership) is shrinking?  I think not.

Dr. Jeffrey Lewis

www.silver-coin-investor.com