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TheStreet Open House

Silver Supply Crisis Looms, Part 1

It is because of the vast uses for silver in a nearly infinite number of current and future industrial applications that the second, different dynamic exists in the silver market: Most of the world's refined silver has been effectively "consumed" and is gone forever.

Because silver is so truly "precious," in many of silver's industrial uses it is used in trace amounts. In such tiny quantities, there is no practical/economic way to recycle this silver. It is because of the enormous industrial demand for silver that decades of price-fixing by the anti-gold cabal of Western bankers has had a much greater impact on the silver market than the gold market.

It is elementary economics that any good that is underpriced will be overconsumed. The more radically undervalued the good, the more extreme the overconsumption. The consequences are clear: more than 90% of the world's silver stockpiles and inventories are gone, forever (see "History of Silver, Part III: Inventories Gone").

Thus, at a time when decades of overconsumption have nearly totally depleted the world's available silver, the gold/silver price ratio remains near an historical extreme -- in gold's favor. With the amount of elemental silver in the Earth's crust approximately 17 times the amount of elemental gold, it is no surprise that for 5,000 years the gold/silver price-ratio has averaged 15:1.

Today, the gold/silver price-ratio has been ranging between 60:1 and 70:1. This ratio would be totally unsustainable even if all of the world's silver were still available for demand -- rather than gone forever. However, with 90% of the world's available silver gone, what this means is that the gold silver price-ratio is at its most-radical extreme (by at least a factor of 10) than at any other time in 5,000 years.

This comes at a time when all of the world's (respected) gold commentators are stating unequivocally that the current price of gold dramatically undervalues that metal, as well. While it is very difficult to come up with estimates of total, available gold vs. total available silver, some analysts have attempted to make such estimates. They vary widely, and thus do not have much analytical value -- except to observe that the highest ratio of available silver to available gold that I have seen is 6:1. At the other extreme, some analysts are suggesting there is now more available gold in the world than silver.

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