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(Silver
price goes down, demand goes up. Silver price goes up, demand goes
up!)
Al
Korelin had me on his internet radio show yesterday for about 8 minutes,
here's the link:
http://www.kereport.com/DailyRadio/Daily052808.mp3
We discussed the letter I wrote to the CFTC
, and the silver shortages, which are proof of manipulation and price fixing,
as are the limits at NYMEX.
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Some people don't understand how there can be shortages, and refuse to
believe in the reports of shortages, since the price of silver has gone down
in the last two-three days.
Other people don't believe that silver prices could be fixed to low, since
silver prices have generally been rising since 2003.
These misunderstandings may exist because silver has a unique and
paradoxical supply/demand curve.
In Econ 101, we are taught that as the price of an item moves up, there will
be less demand, and if the price moves down, more demand. Therefore,
the market will discover a price that is optimal where supply meets
demand. Silver should act like that for industrial demand; however,
industrial demand has continued to rise in the face of rising silver prices,
contrary to what we would expect. But silver is used in such tiny quantites
in most forms of industrial demand, that rising prices will not affect usage
very much, which is called a "price inelastic"
kind of demand. And so, the small increased industrial demand could be
a function not of the price of the silver, but of the overall growth of
an economy led by increased inflation, which creates a false boom.
But silver has another kind of demand, one that creates a paradox where
sometimes demand really goes up as price goes up!
Silver in today's world is increasingly becoming a wise investment. And
more and more investors tend to buy more as the price goes up.
Why? Because investors are drawn to returns like moths to a flame.
This supply/demand paradox of silver is a rather advanced concept in the
field of economics, and today, silver's supply and demand curve must be
an extremely advanced concept not even taught in Graduate School,
but perhaps only in investment newsletters similar to mine,
since economics does not even teach about silver and gold.
But the concept where demand goes up as price goes up, is described by
the terms "Giffen Good" and "Veblen Good", which are
rather uncommon economic terms.
http://en.wikipedia.org/wiki/Giffen_good
"In economic
theory, a Giffen good is an inferior
good for which a rise in its price
makes people buy even more of the product as a consequence of the substitution effect
and the income effect
for that good."
Perhaps Silver is a Giffen good, since Silver is an inferior good
or precious metal as compared to gold, in the sense that since silver is
heavier; and therefore, it takes more work to store and lift an equivalent
value of metal. Silver is also an investment product that one will buy
instead of gold, due to the substitution effect, so that as gold goes up, and
gold becomes increasingly unaffordable, then people will tend to buy more
silver.
However, on the other hand, silver is a superior good, a superior
investment metal compared to gold, since the supply and demand fundamentals
for silver are better which are setting up a situation where investors will
get superior returns by buying silver, and thus, perhaps silver is a Veblen
Good?
http://en.wikipedia.org/wiki/Veblen_good
"In economics, Veblen
goods are a theoretical group of commodities for which peoples' preference for buying them increases as a
direct function of their price, instead of decreasing according to the theory
of supply and demand.
It
is claimed that some types of high-status goods, such as diamonds
or luxury
cars, are Veblen goods, in that
decreasing their prices decreases people's preference for buying them because
they are no longer perceived as exclusive or high status products."
Another example I can think of is Lobster, which was first a food for poor
people, prior to it becoming a luxury item.
http://en.wikipedia.org/wiki/Lobster#History
In recent years, I read of a wealthy man who bought a $75 million painting, I
can only assume becausee he wanted to something he could show off.
He could have bought a wall of just over 4000 COMEX bars, that would have
been over 16 feet high, and over 100 feet long. I think that would be
far more exclusive of a thing to buy for $75 million! Imagine showing
off a wall of real wealth at parties!
it has been suggested by several of my associates that perhaps we should
promote silver by making it more stylish somehow.
Ok, how's this: Silver is cool, because it's a slap in the face of the
man. Silver fights the power structure. Silver tears down
economic inequality built up by the Wall Street fat cats. Silver is
power to the people. Silver is freedom! Bling-Bling!
Price fixing for silver works as long as it can discourage investment
demand. Price fixing for silver stopped working in 2003, the bottom of
the market for silver, when investor demand for silver had
been reduced to below zero for over 15 years, and when the entire
world had long stopped using silver as money. You cannot suppress
investor demand below zero, and the continued attempt to keep silver prices
low has backfired, since silver is now moving back up.
This is not to say that the efforts and methods of price fixing have stopped,
such as futures markets, and negative propaganda, it just stopped
working to create ever lower prices.
So, while shortages in silver exist today, and are evidence of a price fixing
that has fixed the price of silver too low for decades, the shortages in
silver will get worse with higher prices for silver, which will stimulate
ever growing investor demand.
This is why I have long attempted to persuade you to act as soon as possible
to get all the physical silver that you possibly can get, regardless of the
temporary and minor price swings between $21 and $16, because it's not going
to get any easier to source supply and find silver, but rather, it will
get harder as more investors enter the siliver market!
By the time silver rises to over $25/oz., investor demand may go up three, to
five, to ten times what it is today, creating even worse shortages.
Thus, you don't have to worry about who you will sell your silver to as the
price rises, it will only get easier to sell silver at a premium, or higher
price than normal. There is always www.ebay.com
, and silver now typically sells there at a premium above spot, further
confirming the shortage of silver.
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Inflation continues to soar.
"Dow Chemical,
the top U.S. chemical company, said Wednesday it will raise prices for all
products as much as 20% on June 1, calling the plan essential
to mitigate the effects of surging costs of energy and related raw
materials."
http://money.cnn.com/news/newsfeeds/articles/djf500/200805281650DOWJONESDJONLINE000877_FORTUNE5.htm
"For instance, the cost of polyethylene - a commodity chemical used in a
variety of consumer products, such as plastic shopping bags - has climbed
from roughly 30 cents a pound five years ago to about 80
cents a pound now."
Many household items will be soaring in price. Twenty percent
inflation, in one month? Amazing!
These are the kinds of price rises that can slow down consumer purchases, and
vastly accelerate purchases of silver as an investment that protects one from
such inflation.
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Here's another commentator who just doesn't get it:
Tony Schwensen writes:
Why Does A Mint Lease Out Gold/Silver?
http://www.321gold.com/editorials/schwensen/schwensen052908.html
Tony seems like he interviewed the mint, and took them at their word, without
doing any analytical thinking whatsoever, as he writes:
"AGR Matthey is a
commercial operation and like any business it has many jobs and must
prioritize in favor of its major clients. This sometimes means delays in
delivering to minor clients during busy periods. The physical investment
demand for silver and gold at the present time is at unprecedented levels.
This means delays are inevitable but note again that these delays do not
necessarily imply a shortage of the metal. These delays get exacerbated when
rumor mongering takes place and demand for "certain" products
vastly exceed the ability of the Mint to supply (a self fulfilling prophecy
if you like)."
They "Must prioritorize in favor of its major clients?"
Ridiculous! They are producing a commodity. Product can
be allocated in either of two ways. First, by seniority with
rationing, or by price! They are not allocating product based on
price, like they should! If they are not acting in a free market way,
then they are price fixing! It's so basic!
Furthermore, a refinery can pour 100 ounce bars just as easily as they can
pour 1000 ounce bars with no delays. The delays, therefore, are
indeed, evidence and proof of a shortage!
Imagine going to the store to buy milk, and seeing no milk on the shelves,
and being told that all the milk is being allocated to the cheeze
factories because they are the major clients, and you will simply have to
wait 6-8 weeks, but that there is no milk shortage. Insanity is the
only word to describe that situation and excuse. Tony, what are you
thinking? Really! But it gets worse, since if you want that milk,
you have to pay today. Total insanity.
It's very irresponsible for 321gold to publish such a poor report. What
could explain such bad editing? Well, Bob Moriarity, the publisher of
321gold, seems to continually go out of his way to publish things that try to
make me look bad, because Bob and I had a discussion about silver that I
published that made him look bad. See it here:
http://www.silverstockreport.com/reports/silverstockreport40.htm
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By the way, getting back to the issue of the Perth Mint's responsibility to
their certificate holders, and delivery delays which do suggest shortages,
and possibly fraud, which is the real issue, the Perth Mint's lawyers let the
truth slip out!
http://www.perthmint.biz/downloads/Investment/PMG%20Tax%20Issues.pdf
See Page 3, two paragraphs from the bottom of the page, where it says:
"Gold
Corporation continues to be the owner of the gold bullion backing the PMG
[ie, certificate]. However,
even though Gold
Corporation holds gold bullion in order to back the PMGs, it is not required
to do so and does not hold
gold bullion for the benefit of the Holder."
Thus, if you own a silver or gold Perth Mint certificate, it is no evidence
that you own any gold or silver, they own the gold or silver, not you.
And furthermore, they can do anything they want with their own gold (not your
gold) including spend it on whatever they want, since they are not required
to hold it for the benefit of the holder of the silver or gold certificates!
It's exactly as the Mogambu Guru said, as I quoted 12 days ago:
http://www.silverstockreport.com/2008/bullionbanks.html
The Mogambu Guru Writes:
"Unallocated gold is
the most widely traded form of gold in the world. While this gold remains
unallocated to you, the regulator
considers it part of a bank's liquid reserve."
He figures that 99% of
gold deposits are in unallocated form, and therefore all the deposited gold
is, in effect, in a big commingled pile in the basement of the bank.
Another way of looking at
this stunning fact is, "This makes unallocated gold an attractive way
for the bank to maintain its regulated liquidity, because you have paid for
your gold, and the
bank is free to use your money, while it is also able to add your unallocated
gold holding to its own reserve."
http://www.dailyreckoning.co.uk/gold-investment/to-trust-or-not-to-trust.html
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The desperation of those who would attack silver and gold becomes more
evident with each passing day. They are now attacking and slandering
gold-back programs, not because of any fraud of those who run such programs,
but because such programs are "outside the system" and allow the
possibility of terrorists having access to anonymous, payable wealth.
Ottawa warns on gold-backed Web trades
http://ago.mobile.globeandmail.com/generated/archive/RTGAM/html/20080526/wrfintrac26.html
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The Jon Nadler stupidity index just went up another level yesterday to reach
new highs.
Just yesterday, Jon Nadler quoted someone who said: "Gold should
outperform silver in this environment as the latter is more dependent upon
investment demand."
http://www.kitco.com/ind/Nadler/may282008B.html
But as anyone who has half a brain who has studied the silver and gold
markets should know, that's a blatent lie.
The gold market is far more dependent upon investor demand than silver, not
the other way around.
About 95% of the gold market is purchased for investment demand.
In contrast, only about 7% of the silver market is purchased for investment
demand.
So, if investment demand for precious metals is going down, it means that
silver should outperform gold, as it has been, and will continue to do!
Surely, a man such as Jon Nadler is aware of those fundamentals, so why
would he say such a thing that would only damage his own credibility?
Because he's desperately trying to talk silver down!
Interestingly at kitco, Silver Eagles and Maples at kitco are still listed as
"out of stock"!
https://online.kitco.com/bullion/completelist.html
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