This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Silver's Smoking Guns, Part 2: Investment Paradox

The combination of surging prices and surging supply is an inevitable buildup of inventories. This is due to the fact that higher prices (eventually) constrict demand, while continuing to stimulate higher and higher levels of supply. This means that as investors we are always provided with a clear warning on when any bull market for a commodity is about to end: Inventories swell well above historical averages.

The length of time that any such bull market will last is based on a combination of the commodity's "supply elasticity" and "demand elasticity". Don't be intimidated by the jargon. All this refers to is how quickly supply and demand for the commodity adjusts to changes in price.

What makes silver unique as an investment opportunity is that it has both highly inelastic supply and highly inelastic demand -- something perhaps never before seen in the world of commodities. In terms of supply, because most silver comes onto the market as a byproduct of other mining, it was (and is) impossible for the supply of silver to respond quickly to price-increases.

Meanwhile, because silver is consumed in small quantities (even trace amounts) in many of its industrial applications, it also exhibits high inelasticity of demand, as even huge increases in the price of silver result in only small/moderate increases in the price of silver-based products.

Going back to the 1990s, silver has never been so underpriced in all of history. Since silver was first discovered in the New World 600 years ago; it has never been so underproduced. Yet despite these literally unparalleled parameters, silver has never been so underowned by investors in all of history.

To refer to this as an investment paradox is the epitome of understatement. In the conclusion of this series, readers will see how the (sinister) market paradox in the silver market is directly responsible for this incredible investment paradox.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
4 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $117.81 0.00%
FB $105.45 0.00%
GOOG $750.26 0.00%
TSLA $231.61 0.00%
YHOO $32.94 0.00%


Chart of I:DJI
DOW 17,798.49 -14.90 -0.08%
S&P 500 2,090.11 +1.24 0.06%
NASDAQ 5,127.5250 +11.3820 0.22%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs