Often overlooked, the precious metal has seen its price rise steadily in recent months
Something is brewing in the silver market. It has been brewing for a long time, nearly fifty years in fact.
Silver hit a nominal high of $50 USD per ounce in January 1980. Adjusted for inflation would see it at around the $200 mark today.
Ranging in between $57-58 per ounce this week, it would need roughly a four-fold increase to achieve a similar parity.
It has had an incredibly successful year. From just under $30 per ounce, it has very nearly doubled. Much of that rise has come since late August when it was around the $38 mark, adding $20 in just over three months, passing its all-time high in early October.
So what is going on and is it worth investing in at all-time highs?
Price repression
There are many who suggest that the price has been artificially suppressed by exchanges such as the London Bullion Market Association (LBMA) and the United States COMEX, which have kept the price low by keeping very large short positions (basically a bet that the price will fall) in the silver futures market.
This involves the trading of paper contracts in quantities that far outweigh the actual amount of silver they represent in a process called hypothecation. Simply put, the act of selling the same ounce of silver to multiple buyers.
Large sales of these futures contracts very conveniently have been seen to occur when the price looks like it could be about to break out by whatever mechanism is driving the price. The huge amount of selling naturally kills any break out, these sales being quite aptly known as “tamps” or “slams”. The point of this is to keep control of the liquidity and where it flows – ie, into their coffers.
Why the break out now?
Listening, as I do every day, to a variety of financial analysts and experts, it would seem that the LBMA and COMEX have lost control of the price as people are now standing for delivery.
Many investors are waking up to the fact that they own a piece of paper that says they have some silver, but there are, as mentioned earlier, lots of others investors who also have bits of paper telling them that they, too, own the same piece of silver.
Exchanges industry running dry
Armed with this knowledge, it doesn’t take too many brain cells to figure out that should there be some kind of global financial crisis, perhaps when the US defaults on its eye-watering $38 trillion of national debt, then there will be the most violent and deranged game of musical chairs between the hundreds of people who don’t want a piece of paper any more, they want the actual silver.
The fundamentals of this precious metal have been overlooked for years. The last coins with any actual silver in them went out of production in 1964 in the US, and 1947 in the UK, so it has been out of sight and out of mind as a monetary metal for over 60 years. This does not mean it hasn’t been a monetary metal though. Most Western countries have their own denominations of silver in monetary form, including the Britannia, Eagle, Maple and Kangaroo.
Furthermore, the industrial use of silver is demanding more and more every year for applications such as electric vehicles, data centres, solar panels and modern ordinance such as tomahawk missiles among others. Demand is far outpacing supply – a supply now estimated to be somewhere in the 700 to 800 million ounces a year ballpark. Most large economies now have it listed as a critical mineral, and there is speculative talk of the US creating a national reserve.
Upwards pressure
There is very little going against silver as an investment at the moment. Some analysts are predicting a move to an ounce being worth triple figures in very short order with longer-term predictions running into four figures given the right market conditions.
As always, I like to make it clear I am no way attempting to purvey financial advice, but I don’t think it can hurt to have some silver in your possession in these very volatile times.
NOTE: This article is the opinion of this columnist and should not under any circumstances be taken as independent expert financial advice.
