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Silver's Smoking Guns, Part 2: Investment Paradox

Not immediately. Mining by its very nature requires a significant lag time to adjust to changes in market parameters. It generally takes a minimum of five years to find/explore/develop a new mineral deposit, and usually closer to a decade. As noted in Part 1, however, vast numbers of gold and silver miners were bankrupted through the price suppression of the 1980s and 1990s (in excess of 90% of the world's mines), so reopening these old mines is a somewhat quicker process.

This means we have had more than enough time for the gold and silver sectors to fully adjust to (supposed) bull market conditions. Clearly expansion in mine supply is still being severely constrained by metals prices. In terms of market psychology, all bull markets are characterized by exuberant behavior, and (if anything) excessive gains in prices. Indeed to talk about "constrained prices in a bull market" is an obvious non sequitur.

With gold itself being underproduced and silver being underproduced (vs. gold) by more than a factor of two, we now have the complete picture we need as investors. Silver has been (and is) serially underpriced, resulting in severe underproduction (still), despite strong and growing demand.

With price, supply, and demand parameters all optimal in the silver market, we see investors stampeding into this sector, right? Wrong. Typically, throughout history investors have held an average of between 5% and 10% of their wealth in precious metals -- with that ratio soaring in times of extreme uncertainty/crisis.

Yet as we see Western economies disintegrating (and literally self-destructing in Europe); instead of seeing investors with somewhere in excess of 10% of their wealth in gold and silver, the actual ratio is only about 1%. At a time when we would expect silver (and gold) to be over-represented in investor portfolios; it has never been so underowned.

We now get to the point where we see how/why the silver market today represents perhaps a totally unique opportunity in the history of investment. Any/every bull market for a commodity (as a matter of arithmetic) should progress in an identical manner. Rapid gains in prices cause a strong surge (if not an exponential increase) in supply.
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