Silver's Smoking Guns, Part 3: Market Paradox

It's easy to understand how/why silver is so grossly under-produced given that its price has been and is suppressed so far below its fair-market value. When commodity producers can't get a fair price for what they produce in a world of soaring costs, then that commodity will be under-produced.

Much more paradoxical is how/why silver is so ridiculously under-owned (again by a factor of at least 10) at a time when it is objectively under-priced, and with supply/demand parameters so strongly favorable. Referring back to the Golden Rule of "buy low/sell high," we would expect astute investors to be flocking to this sector followed by the inevitable stampede of retail investors.

Why have we not seen this expected evolution toward higher investment in the silver sector? Here the clueless shills of the mainstream media can claim full credit, crowing about a "silver bubble."

Again, there can be no possible defense for such idiocy. All commodity market bubbles must be characterized by two obvious conditions.

First, we must see the asset being over-represented in investor portfolios, since one half of the definition requires an excessive flow of capital into the sector.

That must always be followed by an explosion in inventories as bubble prices must result in over-supply. With silver ridiculously under-owned and ridiculously under-supplied, we have literally the precise opposite of "bubble" conditions.

Potential investors may still be asking themselves how/why they would invest in an asset that is still being serially manipulated. The answer to that is simple: low prices lead to high prices. It was silver being manipulated to under $4/oz that led to the inventory collapse that drove the price to nearly $50/oz in the Spring of 2011.

Inventories are still totally depleted. Thus, the suppressed/manipulated $30+/oz price of silver today can only result in an equal if not greater price explosion in the future. Smoking guns rarely lie.

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This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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