The purpose of a taboo is to avoid destruction. Those who do not respect
the taboos of a culture endanger the cultural identity.
Therefore, disregarding the taboos produces self-destruction and/or
destruction.
Many of you read Jeff Clark's (of Casey Research) recent piece outlining
the reasons why silver prices will likely move higher. It was a great piece
from an organization with great reach.
But it missed the unmentionable elephant in the room. Here is a summary in
all its bullish glory.
http://www.caseyresearch.com/articles/top-7-r...ying-silver-now
1. Inflation-Adjusted Price Has a Long Way to Go
One hint of silver’s potential is its inflation-adjusted price. I asked
John Williams of Shadow Stats to calculate the silver price in June 2014
dollars (July data is not yet available).
Shown below is the silver price adjusted for both the CPI-U, as calculated
by the Bureau of Labor Statistics, and the price adjusted using ShadowStats
data based on the CPI-U formula from 1980 (the formula has since been
adjusted multiple times to keep the inflation number as low as possible).
The $48 peak in April 2011 was less than half the inflation-adjusted price
of January 1980, based on the current CPI-U calculation. If we use the 1980
formula to measure inflation, silver would need to top $470 to beat that
peak.
2. Silver Price vs. Production Costs
Producers have been forced to reduce costs in light of last year’s crash
in the silver price. Some have done a better job at this than others, but
check out how margins have narrowed.
Although roughly 75% of silver is produced as a by-product, prices are
determined at the margin; if a mine can’t operate profitably or a new project
won’t earn a profit at low prices, the resulting drop in output would serve
as a catalyst for higher prices. Further, much of the current cost-cutting
has come from reduced exploration budgets, which will curtail future supply.
3. Low Inventories
Various entities hold inventories of silver bullion, and these levels were
high when U.S. coinage contained silver. As all U.S. coins intended for
circulation have been minted from base metals for decades, the need for high
inventories is thus lower today. But this chart shows how little is
available.
4. Conclusion of the Bear Market
This updated snapshot of six decades of bear markets signals that ours is
near exhaustion. The black line represents silver’s decline from April 2011
through August 8, 2014.
The historical record suggests that buying silver now is a low-risk
investment.
5. Cheap Compared to Other Commodities
Here’s how the silver price compares to other precious metals, along with
the most common base metals.
Only nickel is further away from its all-time high than silver.
6. Low Mainstream Participation
Another indicator of silver’s potential is how much it represents of
global financial wealth, compared to its percentage when silver hit $50 in
1980.
In spite of ongoing strong demand for physical metal, silver currently
represents only 0.01% of the world’s financial wealth. This is
one-twenty-fifth its 1980 level. Even that big price spike we saw in 2011
pales in comparison.
There’s an enormous amount of room for silver to become a greater part of
mainstream investment portfolios.
7. Watch Out for China!
It’s not just gold that is moving from West to East…
Silver market trading volumes rose sharply last year, mostly a result of
the Shanghai Futures Exchange (SHFE) initiating overnight trading.
Don’t look now, but the SHFE has overtaken the Comex and become the world’s
largest futures silver exchange. In fact, the SHFE accounted for 48.6% of all
volume last year. The Comex, meanwhile, is in sharp decline, falling from
93.4% market share as recently as 2001 to less than half that amount today.
And all that trading has led to a sharp decrease in silver inventories at
the exchange. While most silver (and gold) contracts are settled in cash at
the COMEX, the majority of contracts on the Shanghai exchanges are settled in
physical metal, which has led to a huge drain of silver stocks…
The bottom line is that the current silver price should be seen as a
long-term buying opportunity. This may or may not be our last chance to buy
at these levels for this cycle. But if you like bargains, silver’s neon
“Sale!” sign is flashing like a disco ball.
For all its bullish glory, the basic impression this leaves is -
Well, the markets must know best after all, and all this will eventually
get priced in. Just wait.
To get it so right and so wrong trumps the cause.
Anyone adhering to the taboo that silver is manipulated is punished - or
marginalized - to the fringe.
Especially by organizations like this that predicate their existence under
the assumption that the markets are bigger than intervention. They may be
eventually. But while no one can time that eventuality, one can certainly
prepare.
But to ignore the fragility caused by manipulation or price suppression -
for silver or any other market - is perilous. In fact, silver is the poster
child for market-risk.
Finance has created artificial bubbles in predictable cycles, each one
trumping the size of the next in terms of size and destruction. Complaining
versus extolling the virtues.
We all get the taboo.
One perception is that those who complain that the price is too low
obviously have an agenda.
Of course, we will complain. But complaints begin to sound like a pitch,
or a justification. Not a basic truth.
The mainstream financial media parades one actor after another promoting
and extolling the virtues of paper; despite clear, real indicators that
nothing backs the series of asset bubbles outside of intervention.
How hard would be to include, as the 8th factor, the irrevocable truth
that prices have been suffocated for decades by a simple concentration of
sellers versus a diverse group of buyers on (currently) the most important
commodities exchange on earth?
That pregnant truth gives rise to most of the others.
Silver and its artificially low price are a reflection on monetary policy
gone wrong.
A policy that begs for risk aversion. But taboo will not sell newsletters.
Taboos have a self protective mechanism. Conspiracy's cousin, they
strictly and effectively punish any attempt at breaking its hold.
http://www.silver-coin-investor.com/
