A Modest Proposal For Price Discovery In The Silver Market

We know that price discovery is impossible until the paper exchanges in NYC and London blow up. Or is it?

by Dave Kranzler of Investment Research Dynamics

We know that price discovery is impossible until the paper exchanges in NYC and London blow up. Or is it?

There’s plenty of above-ground silver around the world. Yes most of it is “spoken for” by the owners of that silver. Silver producers can’t produce enough silver to satisfy demand at the current price. Just ask the SLV sponsor, who quietly implemented provisions in the Prospectus which are harmful to SLV investors because it is unable to source enough silver to back the shares issue from recent demand.

Price discovery is the process by which a free market uses price to balance supply and demand. But price discovery has been absent from the gold and silver markets for decades. This is why a shortage in physical gold developed in March 2020 and why an even more severe shortage in silver has developed currently.

I believe a push to impose price discovery on the entire market will come from the authorized purchasers pushing the various mints to raise significantly the price the mints will pay the refiners for silver.

Refiners can then turn around and give purchase orders to mining companies at much higher prices. This will require a very aggressive push from the APs to hammer on the mints. Perhaps even cc:’ing the refiners in the effort to make refiners aware that the market will bear a much higher price for silver.

If mints offer refiners considerably more than the current “market” price, refiners will divert production to the higher bidding mints and away from selling production of bars to the Comex and LBMA. This will force the players on each exchange to at least match the new market price for silver.

At the very least, the current holders of silver will sell some or all of their holdings if the price rises enough to induce selling. Proper price discovery will find the level that creates enough supply to fill demand. As an example, at a high enough price, I would sell some of my silver eagles back to bullion dealers.

JM Bullion is advertising an ASE “sale” but the 2020’s in stock are still more than $9 over spot. It’s unconscionable that there’s a $9+ dollar spread between the “spot” price per the March silver contract and the price the public is willing to pay for large quantities of silver. This means there’s plenty of room for APs to raise the ante with the mints and plenty of room for the mints to raise the bid shown to refiners.

Technically the US Mint is required legally to produce as many Silver Eagles as is demanded by the public. Yet, the Mint is on allocation for the foreseeable future. This specifically and unequivocally means that the “market” price for silver is far too low.

It’s up to the various large mints around the world (U.S., Canadian, Perth, etc) to make an effort to provide enough supply to meet demand. In the U.S. it’s a legal obligation.