RSS FeedRSS

Gold has deservedly been making the news this past week as trading has popped the spot price comfortably over the $1,600 an ounce mark, but silver is quietly generating a lot of interest.

January 10, 2012 – Gold has deservedly been making the news this past week as trading has popped the spot price comfortably over the $1,600 an ounce mark, but silver is quietly generating a lot of interest. Ever since rehypothecation, there has been a very serious question in the markets as to just how many paper contracts exist over a single ounce of precious metal. As the lawsuit currently pending between MF Global and JP Morgan over about 800,000 contracts shows, there is probably very little actual underlying metal.

In this sense, silver has some very different properties from gold. It is an industrial metal used in all new electronics, appliances, and even cars. Silver mines are actually in decline worldwide as the price of extracting the metal from the ground is comparable to gold, but gold clearly pays significantly higher per ounce. This makes gold mines more profitable right now than silver mines in some ways. Further, more silver is minted into coin each year than gold, and none of that silver is returning to market to fuel the industrial demand generated by, among others, developing economies in other parts of the world.

We may be facing a situation where the price of silver is extraordinarily undervalued given we have not yet realized how little silver is being produced and how much silver is being consumed. There is a report out today that investors in the paper market are paying a 30 percent premium over spot price for a PSLV that is nearer to the physical than a paper claim on a paper claim.

Again, this report brings up the name of the Canadian billionaire Hedge Fund manager, Eric Sprott, whose purchase of $1.5 billion of silver bullion in the third and fourth quarter made the whole silver market turn its head. If investors are willing to pay 30 percent over premium in order get just a little closer to the physical, it may be an indication that a serious shortage is somewhere in the system and is waiting only for a catalyst to blow up the entire market.

As we go forward in this bull market, we will learn more as the price-trending will give us more insight. However, the warning is rather serious and displays a tremendous investment opportunity. There could be a serious problem in the paper silver market that is currently in the beginning stages of unraveling. Gold and silver will both show serious gains if any of the troubles in the paper precious metals markets come to light.

Shannon King

Senior Staff Writer – GoldSilver.org

GS social media share img

Get Your Complementary Award Winning Guides Below

 Publish Real Money Magazine

 Publish Gold Investment Magazine

 Publish IRA 401K Kit Magazine

 Real Money Magazine