[photo] Mark Jeftovic

easyDNS CEO, Career Contrarian & AntiGuru

What is keeping the lid on the price of silver?

For anybody who isn’t living in a cave without electricity, the past few weeks have been in a word “eventful”. I have been delaying posting about what’s been happening because so much has happened and it’s been a long time since i wrote about it that penning one, comprehensive post to address it all just seemed a tad overwhelming.

So I’ve decided to just break it into chunks. Chunk #1 is called What is wrong with this picture?

  • The markets have cRaSheD
  • Governments are furiously pumping liquidity (money) into the financial system.
  • Greed has been completely supplanted by FEAR, the ^VIX, a reasonable gauge of the fear on the street peaked at all time highs
  • The US dollar has gone UP
  • Gold and silver have pulled back.

[Most Recent Quotes from www.kitco.com]

Well, there are two things wrong with this picture. Now that the US Treasury is directly creating new money, the value of the US dollar should, you would think, go down. But it’s up, and as a de facto exporter (Canada to US) I’ll take it. My bookkeeper keeps telling me “USD is up” and I keep telling her “Don’t get used to it”.

The other thing that is wrong with this picture is the price of gold and silver. Gold price softness could perhaps be explained by massive deleveraging going on, but silver is another story.

Simply put, there is no silver supply anywhere. You can’t buy the stuff at the banks anymore. A friend of mine put in his regular order with his bank for some 1oz silver maple leafs and got this response:

“Just talked to the bank. They have suspended selling silver maple leaf coins indefinitely because they can’t get any supply. The Canadian mint is all sold out and there is no word on when they will have new supply.”

This story is echoed all over the internet, including places like Kitco who were offering a significant premium last week to buy silver.

Normally I’d expect to be able to buy a 1oz silver maple leaf for maybe $1 or so over spot. So with the silver spot price in the area right now around $12.50 CDN, which means I should be able to buy some for say, $14/per. If there were any to be had.

One place we can find a relatively unfettered market is Ebay, where silver maple leafs are pushing over $20/each, and 100oz bars are selling for over $16/oz. This means that the “true” spot price for silver is at least about 33% higher than the quoted spot price. So why are silver prices going down?

I’ve always been hesitant to buy into “conspiracy theories” around gold and silver price manipulation. But having said that, now that world governments are actively pumping liquidity into equities markets and buying toxic waste from banks to “shore up confidence”, and now that “The Plunge Protection Team” has been more or less common knowledge for years, who’s playbook consists almost entirely of buying strategically timed futures and options to set off program trading; who’s to say part of their strategy isn’t to try and keep a lid on gold and silver prices as part of a “confidence building” measure?

Nothing says “drop everything and panic” like a crashing stock market coupled with runaway precious metals prices. But, again I find it hard to fathom this for the simple reason that any idiot could tell that it isn’t going to work.

What I do know, pretty near for certain, is that there is a serious disconnect between the price of silver and the demand for it. Lots of people would buy it at this price, there simply isn’t any to be had, which means one of the following almost assuredly has to happen or we’ve fallen down the rabbit hole:


1) There is an imminent glut of silver about to flood the market


2) The price is gonna go up.

Considering that there is a well known deficit in silver production world wide and has been for years, I know which one I’m betting on.

1 Comment to What is keeping the lid on the price of silver?

  1. MB's Gravatar MB
    October 25, 2008 at 1:38 am | Permalink

    Warren Buffet is probably selling his silver for twice what he paid for it to ride out the recession.

    Also, EasyDNS should consider joining MAAWG so you don’t need to ask NANOG for email contacts. 😉

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