It looks as if the silver market has finally bottomed, as the tarnished price of silver recovered some of its luster over the last two weeks.
The big silver shorts have continued to exit their futures positions, yet there remain some elephants in the market — as evidenced by yesterday's non-economic volatility.
Furthermore, despite various perception related issues, the underlying case for holding physical silver remains as strong as ever, while public confidence in paper currencies trends ever lower.
Retail Demand Rises
Retail demand for silver also continues to surge. A few weeks’ time will reveal the true impact from this recent price dip, as dealers receive new shipments — most of which are already sold out — or not.
A previous piece outlined the sequential moves away from "King Dollar" as a reserve currency that has been observed recently, although this trend has mainly been progressing in the developing world thus far.
From a broad view, the truly unprecedented demand for physical metals leading up to and through the most blatant price rigging operation the commodities market has seen thus far may be a significant tremor of a massive fault line in the confidence that supports what could well be the largest bubble of them all — that of the value of paper fiat currencies.
Reflated Sentiment Manufactured
The monetary authorities have succeeded for now in reflating sentiment. System sentiment is the perception driving the majority. On the surface, it appears that the housing market has recovered somewhat, the European debt crisis seems contained, and inflation is not a threat. U.S. equity markets are trading at all-time highs once again.
In truth, it requires very little effort to dispel these myths by simply looking just beneath the distorted data points. Nevertheless, a form of plausible deniability exerts a significant barrier to entry for the majority who depend on the maintenance of the status quo.
This manufactured sentiment allows this majority to comfortably dismiss the wide cracks beneath the surface. In fact, such dismissal is often accompanied by anger and hostility that are just more evidence of a political, rather than an economic, achievement.
Bubbles and the Demand Equation
Recall that bubbles have universally gone undetected and unappreciated for quite some time before outright dismissiveness arises as the holes begin to appear and the bubble eventually bursts.
The larger the bubble, the more speculation, fervor and distortions typically arise. The more protracted the bubble, the more desperate the attempts are to cling tightly to the risk mentality.
The precious metals markets are currently witnessing a new dimension in the "other side" of the demand equation for silver, and also for gold to a lesser degree. This is ultimately a reflection of value and represents a natural transition as the market deepens over time.
Despite the decade’s long perceptual distortion and mis-pricing of these intrinsically valuable commodities, savvy investors are finally beginning to see through the shams that are ultimately political events and not reflections of an economic reality.
Mainstream Perception Issues
The mainstream media and those who consume it still tend to have general issues with the ownership of physical silver and gold. They often focus on the fact that the precious metals do not pay any interest rate, nor do they provide investors with a regular dividend.
Of course, these intrinsically valuable metals with a long history of use as hard currencies pay no dividend or interest because they do not need to. A dividend on shares and a rate of interest on paper currency deposits are essentially bribes to encourage investment in those less secure assets.
Another issue commonly brought up is the high premium that physical metal commands relative to paper futures prices, although this situation will probably only get worse over time as metal supplies dwindle.
It is also worthwhile to remember that both dividends and interest happen to be denominated in a persistently devaluing fiat currency with a purchasing power that is being gradually eaten away by the rate of inflation that its central bank insists on maintaining.
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