Silver's Smoking Guns, Part 2: Investment Paradox
As I have frequently pointed out in, between 1990 and 2005 alone, silver inventories plummeted by 90%. Since 2005, I believe that inventory numbers have been falsified through a record-keeping sham, presumably to cover up even further erosion of inventories.
Those who have any understanding of markets will realize that this alone is further proof of the long-term/severe underpricing of silver, since price is the only mechanism which can restore equilibrium between supply and demand.
We have a second way of demonstrating that silver is underproduced apart from the collapse in inventories. Also mentioned in the first part of this series is the fact that gold and silver exist in the Earth's crust in roughly a 17-to-1 ratio to each other. This suggests we should also see these metals mined in similar ratios.
However, if we obtain supply numbers for silver from the Silver Institute and for gold from the World Gold Council, we see that over the past decade silver has been mined at roughly a 7-to-1 ratio vs. gold.This would indicate that silver is currently being mined at less than half the rate it would be mined if the metal was priced at its fair-market value. But this presupposes that gold itself is being mined at the level we would expect if it was priced at its own fair-market value. In fact, we have abundant evidence that gold is also serially undervalued (and thus underproduced), again by examining mine-supply data. Despite a decade-plus bull market for gold and silver (the result of the extreme price suppression of the 1980s and 1990s); both gold and silver mine production have limped higher at an anemic rate of about 2% per year. This is more, conclusive evidence of price manipulation. Companies exist to make money. Obviously, with a decade-plus bull market for gold and silver (and no end in sight), had gold and silver prices been allowed to move freely we would have seen prices rise to a level sufficient to generate large incremental increases in mine supply (as companies sought to cash-in on this market opportunity).
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