silver barsOne of the first things you learn when studying economics is the law of supply and demand, defined as follows: “In a competitive market, prices are determined by the interaction of supply and demand: an increase in supply will lower prices if not accompanied by increased demand, and an increase in demand will raise prices unless accompanied by increased supply.”  This is ECON 101 and it’s a fairly simply concept to grasp.

Now let’s take a look at the silver market with this concept in mind.  With regard to physical demand, we see that silver has been incredibly strong both on an absolute and relative basis.
Over the past 12-18 months we’ve witnessed the following:


Submitted by Gold Squeeze

So we can see that demand for physical silver is booming around the world.  Has this demand been accompanied by an increase in supply?  Let’s take a look.

According to the Silver Institute, the worldwide supply of silver has been flat over the past 10 years and in a steady decline over the last four.  I made this quick graph of their supply data for your viewing pleasure.

Picture

Not exactly a production boom I guess you could say.  So it’s easy to see that silver supplies have been in a very clear downtrend since 2010 and essentially unchanged year-over-year since 2004.

Now, on to the title of this post: Something doesn’t add up.  I hope that I’ve shown that demand for silver, particularly over the last 18 months has not only been strong, but to the “point of breaking records” strong.  I’ve also demonstrated that silver supply has been steady-to-slightly-declining over the same period.

According to our law of supply and demand, there should be a rise in the price of silver based on the factors above.  HOWEVER, we have seen exactly the opposite.  The price of silver has puked (as our friends at Barclays so eloquently stated) from $50/oz in 2011 to its current price of $20.50/oz.  I guess the silver market has done the impossible and figured out how to violate the single most
enduring concept in the field of economics.

What were the first four words in that definition again?


  1. That $50 is not really a fair starting point reference, but indeed, physical supply has not been an indicator for price moves the past 18 month. When was this most recently the case?
    But silver is very different than something like labor. It takes actual efforts and costs to come up with new silver. Labor only takes a worker, silver can only come into above ground existence if someone goes to the trouble of digging and refining it. Right now, for those focusing their professional efforts to silver mining, it’s a $3-4/oz hobby. They are throwing this away, it’s a loss after digging it up and selling it into the market at market price. Insane. How would this go without hopeful shareholders, and the futures trading game? If a baker decides to join the market by making $1.50 breads that cost $2 to bake, who’ll buy that bakery’s stock, who’ll offer loans to keep it going? 
    The silver miners keep on going. How long would the bakery continue if he could not get a fair price for his work? Much easier to hand out your losses to customers and sending them on their way to another bakery. You can get out of bed later, and feel better about yourself at the end of the day?

    Why is COMEX not being quizzed on their mechanism to obey supply and demand?

    We must create the demand to which there is no supply. But the way we are going about it now doesn’t give me reason to expect a change within 10-20 years or even longer. 
    Silver used to be monetary but the best we can come up with is “keep stacking”? I like to take this thing by the horn and create whole new source of demand. But can’t find a stacker, PM seller or PM guru to give it a look. Is this as retarded an asset class following as the main stream media makes it out to be? 

    • No need to sling mud XC Skater.  The REAL asset is being represented by paper that is printed on an infinite level.  As long as these worthless pieces of paper are allowed to represent the actual asset, there is no need to swap the actual asset is there?  This will go on until the fiat system collapses under it’s own weight. (which it has great momentum currently)  ONLY then, will the REAL asset come out under the smoke and mirrors to present itself, and only then will DEMAND be filled with ACTUAL metal. Not metal x 100 represented in notes printed in perpetuity.

    • Eagles dropping to $2.25 says nothing to me. They are still overpriced compared to Maple Leafs which are of superior fineness and made in smaller mintage.
      The US Mint is a treasury operation, I seem to remember? They can set premiums to negative if they feel like it. I’m not calling it manipulation, but I don’t see how their premium would have anything to do with free market pricing.
      Also, Doc could be trying to get rid of that junk they call Eagles, to free up cash to have new Heroes rounds minted. Or, the recent runs paid off whie they sit in stock selling too slowly. This doesn’t fly if many online PM retailers offer similar premiums.
      Oh, and retailers are free to play the speculation game themselves. Doc is a stacker, right? If he believes his guru contributors that we’re heading into a summer bottom, and the signs seeem to point that they may be right after all, he may like his chances to sell over $20 (increase income from being sharply prices, obtain market share), and then restock at lower prices. Can go well, can go bad. If your operation has capital, or when you’re a stacker, you can decide to do it such. Every ounce gained is worth a few hours of hard work IMO, as I’ll sell my silver when overpriced and by then it will be worth multiple hours of hard work. 

    • @XC-Skater
      Whether you like eagles or not is really irrelevant.  Personally I don’t care for them either.  However, the fact that the premium is as low as it has been all year says that the demand for silver eagles is dropping.  Maybe that is a silver eagle thing, maybe it is a silver thing in general.  You study the premiums as much as I do and could draw your own conclusion.
       
      I actually believe the-doc is a hedger based on comments he has made in the weekend reports about not wanting to be long or short going into the sunday night open… that is phrasing a hedger would use when trying to manage his position.  Maybe not hedging on CME (though I think it is likely), but could just be back to back hedging.

  2. The silver dealers all say the same thing, and it makes sense.  Too bad the boys who manipulate the paper price of silver don’t have the profits of the silver dealers at heart.
     
    I’ve been getting a little cynical and agree it’s fixed and likely to remain so as long as the same Zionists control the markets and the banks.
     
    On the other hand, the funny thing is, I have continued buying and stacking silver instead of investing in stocks or real estate.

    • In that case, I applaud your idiocity.  See the comment right above from Mikey.  If there is a such a tight supply and shortages and all whatever you name shit, why are premiums so low on this site?  Oh, let me guess – manipulation!  Paper games!  Them vs. us!
       
      You are just throwing your money away, dude.  People that I talk to, who used to be stackers told me that they are not buying anymore physical.  Period.  I have stopped buying a year ago.  Get a life, we all got collectively lied to and WE got manipulated into throwing our hard earned dollars to places like this site.
       
      And, despite all that rant about the dollar being dead…  Well, it’s doing fine, regardless of whatever happening in the world.  In fact, if shit will completely get out control guess what’s gonna happen?  Everyone will pile into dollars.  That’s how it’s always been…

    • Volkssturm.  What’s the point of an “it’s always been this way so it will be this way in the future” when there are multiple fundamental circumstances in the market and the U.S. economy that have never been seen before? 
      U.S. Government encumbered with debt and unfunded liabilities to an extent never seen before.
      Private individuals indebted as much as or more than ever before.
      Municipal and state debt at unpayable levels never seen before.
      Other nations around the world moving trade out of dollars as never before since Bretton Woods.
      Other nations the buyers of actual precious metals in proportions dwarfing U.S. buying to a degree never seen before.
      But, hey, everything will be the way it always was.  Don’t bother with that ground shifting under your feet.

    • “You are just throwing your money away, dude.  People that I talk to, who used to be stackers told me that they are not buying anymore physical.  Period.  I have stopped buying a year ago.  Get a life, we all got collectively lied to and WE got manipulated into throwing our hard earned dollars to places like this site.”
       
      volkssturm if you think buying physical silver is so stupid, what are you actually doing on this site?
      The US accounts for ONLY 8% of global physical precious metals demand and Europe about 12%. Therefore 80% of demand is non-western. To try and claim that a low premium for US Silver Eagles somehow shows a lack of global physical demand is completely ridiculous. Retail investors in the west are generally completely stupid when it comes to investing, buying at market tops and selling at bottoms hence the low premium for silver eagles. However, in the East, silver stocks at the Shanghai Futures Exchange are now down from 1143 tons in March 2013 to 148 tons in July of this year. India imported over 5000 tons  (160 million ounces) of silver last year. There was a 263 million ounce supply deficit last year that had to be met through recycling. Therefore supplies are in fact very tight.
      The $5 trillion PAPER silver market is leveraged 250-300 times completely distorting supply/demand fundamentals. How much longer do you think that can last ?
      If anyone actually stood for physical delivery in size, say $2-3 billion worth, the whole rotten paper silver market would almost certainly collapse and everybody knows it. What better way for Putin and the gang (BRICS) to rid this world of this rotten to the core, incredibly corrupt US/UK financial system by demanding physical delivery in the so-called London “physical” silver market, where allegedly 164 million ounces of silver change hands daily.
       
       

    • @Fred Hayek
       
      Good points, Fred, and I agree.  Looking at the past as a way to discern the future is like driving forward by looking in the rear view mirror.  Yes, the future COULD be like the past.  That’s always an option.  But how would that have worked in 1929?  “Well, the 1920s roared, so the 1930s will too”?  Not so fast, folks… the 1930s were RADICALLY different from the 1920s… and that’s over a relatively short period of time.  Great events have a way of over-running the past and presenting entirely new and substantial challenges.  The future is unlikely to be greatly different in this regard.
       
      The problem these days is that a lot of people got into PMs for the wrong reasons.  Once they have purchased some, they fully expect and demand that their “investment” will rocket upwards and make them wealthy.  When it does not, they get disillusioned and come in here to vent their frustration.  The fact of the matter is that stacking is something that people should be doing with their LONG TERM capital that they will not be needing for several years.  They should not be borrowing money to buy PMs or going “all in”.  They should be building a stack over time by buying PMs incrementally at regular intervals.  When a price pull-back occurs, they can then buy a little more and average their per oz. costs downward.  If the price rises, they buy a little less or build their fiat in anticipation of lower prices at some point.  This is not about getting rich tomorrow.  It’s about saving money for the future in a form that won’t just melt away due to inflation and perhaps currency devaluation at some point.
       
      As to the US$, yes, it is doing OK these days.  So did the Zimbabwe dollar until it collapsed in a hyper-inflationary frenzy.  Immediately before the Zimbabwe collapse in 2008, their stock market was hitting all time highs.  But, when a monetary bubble pops, it goes very fast and with a tremendous BANG!  There is no time to do anything about it at that point.  One either owns real money or one does not.  In Weimar Germany, a US silver dollar was worth more than a billion Marks.  That is the nature of hyper-inflation… it is sudden and devastating.  One can either prepare for its arrival or one can suffer the consequences from it.  There really aren’t a lot of other choices.  
       
      The tricky part is that we humans often try to time such events as part of our planning.  That would be great IF we could do it but we cannot.  All we can do is look at the current state of the US and world economies, add in all of the geo-political info we can, try to figure out any trends that we can, and then take whatever action seems best to us.  We are all doing that, or at least we should be.  I have no argument with anyone who decides that their plan of action does not include PMs.  If that is their informed decision, so be it.  I have no real interest whether or not others decide to stack.  But we will all be living with the consequences of our acts and we’d best choose wisely.  If we stackers are wrong, then we simply will not make as much money as we might have in other assets.  If we are right, however, then those who do not have hard money will suffer grievously from their choice.  This is not an equal sharing, IMO.  If one is to err, then erring on the side of caution and having some percentage of our assets in hard money seems wise.
       
      A prudent person hedges their bets such that they can cover as many possible future scenarios as they can.  In my case, this means spreading my wealth over 5-6 different asset classes, including PMs.  It also includes some cash, real estate, stocks, commodities, and in more normal times, bonds.  For the past 7 years, however, I have been out of the bond market.  I do not see bonds as worthy investments these days, primarily because the coupon rates are abysmally low and unable to keep up with taxes and inflation, and the world being awash in debt.  
       
      At one time I had the usual faith in the “full faith and credit of the USA”.  But, with a debt that is spiraling out of control, an economy that is failing, and knuckle-headed “leaders” who continue to lie to us about practically everything, whether lies are needed or not, one cannot have faith in such an organization.  The US Gov is simply a lousy money manager and it is showing no signs whatever of improving with time.  If anything, it is worse today than it was even just a few years ago.  This is not to say that this or that individual is to blame.  MANY are to blame but especially the current system.  It is both unstable and unsustainable and that is not a combination that bodes well for the future.  We must consider ALL possible ramifications of this and a financial or economic collapse is not as far-fetched as many once thought.
       
      I would be among the 1st to admit that thoughts along these lines are painful and frightening.  I go to sleep most nights praying that what appears to be coming our way never comes.  But when the data seem to confirm it day after day, it’s hard to be very cheerful about the future.  I do not demand that all our problems be solved immediately but it sure would be good to have a process begun which could, over time, begin to address the hole we’ve dug for ourselves.  But that isn’t happening and won’t under the current regime and congress.  If we don’t have a collapse prior to the 2016 election, MAYBE, just maybe some new people will come in who take these problems seriously, are willing to treat American citizens as adults, and we can all have an honest conversation about our current situation and future.  If not, then the S will HTF and we will all be in a world of hurt.  Those who have prepared will hurt less… perhaps even a lot less… but we will all be feeling the economic and financial pain of withdrawal from an orgy of spending over the past 3-4 decades.  This is likely to last for at least a decade if not 2-3 decades.  We will not be spending less because anyone wants to but because circumstances have forced us to not spend more than we have.  In the long run, this will be a good thing but in the short run it is gonna suck BIG-TIME.
       

    • I am not as knowledgeable as most of the people who comment on this site but I did want to make a comment on the thought from Ed_B who said “The problem these days is that a lot of people got into PMs for the wrong reasons.  Once they have purchased some, they fully expect and demand that their “investment” will rocket upwards and make them wealthy”. I admit this is the reason I started to purchase silver back in 2009. But I did not come up with the idea by myself that silver was going to make me wealthy, it was carefully crafted and fed to me by sites like this one and many others who without a shadow of a doubt kept driving home the point that silver is the best investment of the age. That silver will skyrocket and go parabolic soon. I followed and listened to the silver gurus religiously, daily watching as silver started to go up, thinking I made a wise choice.  As silver started to go up the silver gurus applauded themselves for calling it correctly and put forth ideas that silver could go to $200 or more. I was smitten by the constant barrage of silver gurus who promised that I would be wealthy beyond imagination. They changed their comments as silver fell but never ever or at least not very often did they have a shortage to sell at any quantity, which then I realized that they make a living on selling silver and of course they are going to tell us that it is the best investment of the century. They are just salesmen and give a great pitch that many fell for. I fell for the same story with stocks, get out while you can they will go down fast they said. So I exited all my positions and now looking back stocks have gone up 175% since 2008. Silver is right where I bought it. So for me I was expecting to get rich or at least make enough to retire with some money, now I have gained nothing, would have been much better off staying in stocks. Live and learn I guess.

  3.  
     
    In a competitive market… is very difference than our COMEX where parasites can sell an infinite amount of paper nothing silver and bring the price of real physical silver down as low as the parasites want silver. When the real physical silver well runs dry the parasites’ party running miners out of business comes to a screeching halt. The question becomes what do the parasites not want the world to know that they are hiding behind a low silver price? What would happen to the parasites’ hegemony plans if silver jumped to $50 pr oz? Get screwed up. Peeps would be scared and start questioning the Defense contractors agenda and why the parasite/Fed led US wants W3 so badly. So what can we expect the parasites must have before physical silver moves up? The parasites laid on us MH17 which they zapped with a laser to make it come down in the middle of the combat zone for Ukraine in NATO? A must before silver moves up is Ukraine in NATO. Fed/Jesuit/Nazi/NWO whatever you want to call the bad guys, parasites… will mass murder every East Ukrainian separatist, hit every commercial airliner with a laser, and drop oil to $8 per barrel, whatever it takes. A must is Russia attacking Ukraine so the world has a reason for Ukraine in NATO. And this must be done with silver $20 pr ounce or Peeps start worrying/feeling get on to the parasites’ latest scam. There are many other things the parasites may demand before the price of silver moves up. Gun confiscation. 30M illegals US citizenship. US under Martial Law via Swine Flu, HAARP causing LA earthquakes that drops Los Angeles in to the Pacific. But all these arranged accidents must catch Peeps by surprise, and no surprise if silver is $50/oz. Something always happens a month or so before and/or after Rosh Hashanah. A 911 type event for Rosh Hashanah is like a New Year’s resolution. The event alerts Jews as to what to expect and work towards during the next year. So if something happens that may put the US on the road to Martial Law around Rosh Hashanah, horrible earthquakes that kill a couple million, disease causing pandemic… Its a signal, like all is well, this is parasite planned so don’t worry be happy do what you can to make it work. The parasites/Fed have had their free ride in the wagon for a 100 years, and the parasites will do anything, including making Earth a Mars type place, to keep their free parasitic ride in the wagon. Parasites simply cannot envision/ live in a fair honest world. 

    • Dad-Gum AG,  didn’t know you were an uber-zombie racist. Yea big deal with JPM. Boys will need to bring sack lunches for at least three, maybe four days because that $650 million fine throws a wrench in their drawworks!

  4. No. It adds up. When the disparity between physical and virtual PMs passes a critical point, where real (sizable) demand isn’t met with supply, the rivets will begin to pop out and the edifice will unzip like the hull of the Titanic.

  5. @ranger   Yes indeed,  some of my best friends are zombies  Doc just posted the JPM  COT rigging story from Kransler too.
    The COT seems to be the holy grail of trading information given as  often as it’s thrown around as the be all and tell all of trading sentiments.  
    Until we find out it’s a crock too.
     JPM?  $650 million   pocket change   Dimon craps bigger than that
    I’ve come to the conclusion that the only honest brokers of truth are here on SD and a few other sites.
    I just read that B of A has paid out $55 billion in fines in the last few years including some $20 billion for their phony baloney mortgages. Dimon’s way behind the curve on fines and penalties.
    Heck, I had a B of A mortgage.  Maybe some simoleons will flow my way as an aggrieved borrower after Holder and his homies take their cut. I’ll buy silver with my settlement.
    Fat chance.  I’m more likely to see zombies dance in the street . Kind of like Michael Jackson’s Thriller.

  6. It amazes me that people with such obvious contempt for stackers would waste their precious time coming into their forum to try to help them by dissuading them to buy. Either these people have no life whatsoever, or they have an agenda. I have contempt for the global warming fear mongerers that have utilized doctored ‘science’ to promulgate their agenda, but I havent once sought ought a climate change supporting web forum to initiate debate on the subject. It just defies human nature. So, Id like to thank all the folks that are here bashing silver buyers. Your heroics are truly extraordinary, so thank you. And, if you have any physical malinvesment left on your hands, Ill take it at spot as an additional act of gratitude to return the kindness. Hit me up!

  7. I’m not so sure that people are ‘bashing silver buyers’ here when they express their disillusion with the way things stand.
    It’s at least just as likely that they are expressing their frustration with the kind of attitude that this article is chock-o-block with – giving off the impression that what they ‘learned’ in fool-school about ‘economics’ has to be correct – and if things in the real world fail to correspond to that ‘knowledge,’ it can’t possibly be that the theories they throw around may be suspect!
    In fact, whoever wrote this piece is unintentionally ironical in their choice of wording for the title and the closing line:
    “One of the first things you learn when studying economics is the law of supply and demand, defined as follows: “In a competitive market, prices are determined by the interaction of supply and demand: an increase in supply will lower prices if not accompanied by increased demand, and an increase in demand will raise prices unless accompanied by increased supply.”  This is ECON 101 and it’s a fairly simply concept to grasp”
    Because that choice lil bit of condescension demonstrates that it will never EVER occur to the writer that the something which doesn’t add up might be their own presupposition about the way things are ‘supposed to’ work!
    The supposedly immutable “law” of ‘supply n demand’ was written by be-ings other than “GOD” “gods” or whatever ‘higher powers’ might be expected to be in charge of such weighty matters. It has about as much ‘immutability’ in other words, as a beach towel. But rather than just get rid of it and replace it with something more fit for explaining the situation as it actually exists, a whole raft of pretend “experts” in “economics” – 101 or otherwise- make careers of dosing readers daily with the same ol same ol prescriptions.
    “we all got collectively lied to and WE got manipulated into throwing our hard earned dollars to places like this site” – a lit bit ingenuous – and much too much victimized a presentation; but nevertheless containing a kernel of truth. The ‘law of supply and demand’ as applied at least to the precious metals has been a total flub for explaining and predicting the course of events over the past decade. If it were possibly otherwise, we would doubtless see the effects of what are steadily diminishing rates of ore quality being extracted, and lower production. So something else must be going on. But no – let’s discount that possibility and carry on screaming!
    Robert Blumen has written a number of excellent pieces explaining why this whole subindustry of analysts ‘explaining’ via supply and demand factoids miss the mark without fail. “Misunderstanding Gold Demand” is the best and most pertinent of them for describing the why and how of that miserable failure. Easy to locate on the net for those interesting in going a step beyond the mundane in search of answers to what should be the question highest in pm investors minds.
    Whether one chooses to describe it as having ‘been lied to’ or ‘misled’ or simply carried along in the rush to get in on what was supposed to be the ‘immutable’ moonshot of the metals – fact remains that indeed – sum thinG has not added up in the metals world for some time, and until theory gets trashed in favor of empirical truths, that is going to be the SUM TOTAL of why people are not so happy to wait and let their ship come in. Articles like this one are proof of the puddin!

  8. Have you just woken up from a three year nap?  We’ve been telling you supply and demand no longer have an effect on gold and silver prices for at least that long.  Demand is more than offset by the number of unhedged naked shorts they allow in the paper markets.

    • Whenever I may have woken up. it must have been considerably in advance of your own narcoleptic adventure.
      I had assumed I could skip the obvious with my comment, and deliver it without any obvious resort to the usual ‘paper markets’ etc., etc, ad nauseum appearing. Faint hope indeed.

      Please just carry on screaming. Some never wake up from their nightmares.

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