The True Value of Silver
Most of the silver produced on this planet is a by product
of a primary mining operation. That is
to say there are very few silver only mines.
As pointed out in http://buy-silver.silverprice.org/2012/01/silver-a-future-road-yet-travelled.html. There is a reason for this. There used to be
many silver mines being worked and doubtless there are still many silver mines
out there that are not being worked. With the price of silver being so low and
the cost of mining so high, it is uneconomical to work a silver mine hence 80
percent of the silver extracted is a by product of other mining activities.
Despite this there is a heavy demand for silver both in the
investment as well as the industrial fields yet the price does not match this
and although the demand is there, the supply is still not commercially
feasible.
On top of this we have the investment anomaly of the ratio between the gold and the silver
price being about 50 or so to 1. This is
an anomaly because the ratio of gold to silver in the earths crust is around
17:1, not 50:1 and these metals one would expect to be mined and available in
the same ratio. Yet we have a suppressed
silver price well below its proper ratio with gold. These metals should be
mined in about the same ratio as their availability and of course they are not,
purely because the silver price is far below the costs required to mine it.
According to both the Silver Institute and World Gold
Council, silver has only been mined at a ratio of around 7:1. So silver is being mined at less than half
the rate one would expect if the silver price reflected the true value of
silver.
As Jeff Nielson in his article, ‘Silver Smoking Guns’
recently pointed out.
“What happened toward the end of the 20th century? Nothing
much…other than the price of silver being driven down to a 600-year low (in
real dollars)—and held there. At this point the realities of silver mining
become just simple arithmetic.”
“If the price of copper was driven down (and held down) at a
600-year low, there would soon be few if any primary copper mines in the world;
and the vast majority of copper would have to come as a by-product of other
mining. If the price of nickel was driven down to a 600-year low, the world’s
nickel mines would quickly be driven out of business. And so on.”
With silver 17 times more abundant than gold you would
expect more silver being mined as a primary activity. The fact that the silver price is
extraordinarily low for the value both in investment as well as industrial
terms only gives further credence to the manipulation of the silver price.
Which brings us to Mr. Butler’s revelations concerning the
massive short positions held by essentially five banks. These five banks hold 80 percent of the short
positions and continue to do so year after year in the Comex, the world’s
largest silver market. JP Morgan is the bank that holds the largest of these
short positions which is, interestingly, bigger
than the long position held by the Hunt brothers when they were charged with
silver manipulation. Something JP Morgan
appears to have avoided so far.
So from an investor point of view, why should one invest in
silver when there is so much manipulation and it appears that the silver price
is never going to go up. Fortunately it
is not as bad as it seems.
The answer is simple, as Jeff Nielson points out. “Low
prices lead to high prices.” When silver
is severely manipulated leading to an inventory collapse, such as 2011 when the
silver price was pushed down to 4 dollars an ounce. It drove the price to 50
dollars an ounce in the northern hemisphere spring of 2011. We are approaching an inventory collapse as less
silver is being mined and current stocks are being depleted as the price has
been held down so it is economically unfeasible to mine silver. Then the demand
is going to increase and industry as well as investors are going to start stock
piling silver, even remove what actual silver is in the COMEX, and this will
drive the price up again to closer the true value of silver.
