Silver Prices - When Monetary Demand Trumps Industrial Demand

January 17, 2014

It is crystal clear to anyone willing to go a few steps beyond the headlines that massive intervention and ignorance of risk act as massive governors to progress, real economic growth and natural capital formation. Nevertheless, what is less clear is how these failures will manifest in precious metals - especially the silver market.  

The catalyst for much higher prices will be of a monetary, rather than an industrial, demand-led series of events.

A Parallel to the Current State of Finance

The current financial markets are a giant slow motion train wreck that we are living through, slipping along a surface lined with frictionless fiat.

In retrospect, it will be seen just how obvious the event must have been and how once again (or why) most people failed to act on account of basic psychology.

It is sad that as humans armed with self-awareness we are unable to expand our moral circle to be able to look at our situation from the ground level.

Many see it but don't understand it.

Silver always looks too good to be true. Many understand it but have not yet embodied the concept. Price performance has been abyssal.

The loudest voices will always condemn the metals for what they represent politically and therefore, financially (as an afterthought).

The steps needed to take advantage of cheap prices and an unencumbered position run absolute counter to how most people assume money should work for them.

There is physical exertion involved in taking position. We are a financial culture that refuses to stoop to that level.

Easy to Sit on the Fence

It's not so much that it's off the radar for most – the issue is more that sentiment creates fence sitters. 

Trillions sit in retirement accounts that could cheaply be converted to nests, or at least put into quasi-self directed accounts that enable the option.

Instead, many who know better fall in love with bitcoin and the so-called future of money, the next best thing to the social media craze they are "missing out on" with some sobriety.

Most have heard how pre-hyperinflation Germany was the pinnacle of progress, the cultural center of civilization, and the leading edge of the rational movement. How quickly it imploded. Sadly, humans today are not much different - just more comfortable. 

We are collectively even more entranced by our financial oligopoly and at severe risk of crisis.

The Return to Fair Prices

With regard to precious metals, artificial pricing has gone on for so long that consideration of the fundamentals seems to be an exercise in the abstract. At some point, prices will move freely - though not necessarily orderly. How will one know?

You will see it in the character of the trading. In fact, we caught a glimpse of what a parabolic might look like in 2011. Then, the power of a short covering rally pushed prices to a nominal resistance level not seen in some 30 years.

And the fact that it was a nominal high is one key to framing the mis-pricing. Even the average price of the late 1970's into the early 80's would be unrecognizable if expressed in real inflation adjusted terms.

The initial power of a price return untethered by the bullion banks would be like nothing you we have ever seen. However, it will still be accompanied by a wall of worry and anxiety - though of a different caliber. Just as we saw in the run up to the colossal price smash in early May of 2011; the character of anxiety changed significantly as speculators poured in late.

Not to mention the havoc it will cause to the trading platforms. Circuit breakers would be triggered as the market goes limit up each time it opened.

And the chaos and uncertainty surrounding a closed market would place another layer of bid under the prices. 

The worry will shift from concern over when price will rise come back down to concern over the time to take profits. Fear over confiscation could feed on itself.

Not to mention the barrage of bubble callers that will rise up like a phoenix.

Most Will Likely Miss it Anyway

Real price discovery is a foreign concept for precious metals. The market is completely disconnected from its true origin - its fundamentals. But more specifically, it is detached from the ebb and flow of those fundamentals.

The unorthodox return to fair price will be as unnatural as the decades-long price suppression. The trigger will not come from individuals standing for delivery.

We will see it in retrospect; the big banks will simply back away from capping rallies.

The mistake is currency versus store of wealth.

Many will simply not do anything about it, yet almost anyone can take minimal steps to prepare. The beauty is that the pendulum could easily swing much further the other way, vastly changing the purchasing power of the select few who choose to take action.


For more articles like this, including thoughtful precious metals analysis beyond the mainstream propaganda and basically everything you need to know about silver, short of outlandish fiat price predictions, check out

During 1500s the Spaniards had taken 16,000,000 kilograms of silver from Peru.

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