The U.S. Mint resumed sales after a week of suspension as silver coins
sales for January almost doubled compared with the month before. An all-time
high of over 7.4 million Silver Eagle coins were bought in January from the
U.S. Mint, which substantially exceeded the former record set in early 2011.
Gold coin sales were also the highest seen in almost three years.
All of this excitement in the coin market is happening against the
backdrop of currency wars, debt ceiling debates, and some of the most blatant
price controls implemented in years.
One can almost hear the whispers about the end of QE as the world
patiently awaits the fate of Europe’s coming recapitalizations and the rise
of the Eurobond.
When Industrial Demand Overpowers Investment Demand
The industrial users of silver have benefited from unnaturally low prices
for decades. Nevertheless, the artificially low prices have led to
destruction of inventory.
Roughly 90 percent of the silver stockpile has now been worked through
since the demonetization of silver in the United States in the early 1960’s.
One can only wonder if the remaining silver longs who have withstood the
egregious price management are now standing for delivery, leaving industrial
concerns suddenly in a pickle over their just-in-time delivery practices they
have taken for granted for so long.
Indeed, anecdotal evidence has surfaced indicating shortages of silver
bars for industrial applications. Also, well publicized announcements have
started appearing, such as the news that HSBC has been sourcing silver from
Poland rather than what would appear to be ample supply elsewhere or in the
warehouses they run as custodians.
Investment demand for silver has been fueled in large part by high profile
investments over the years — including renowned investor Warren Buffett — and
the creation of the big silver ETF (SLV), and the silver market has blossomed
as the great financial storm approached and passed over the world.
Fueling the Return to a Crossroads for Silver
As monetary policy has shifted and become more aggressive, more fuel has
been fed to the fire smoldering under silver, while authorities attempt to
manage public perception via complicated data interpretation, propaganda and
even perhaps covert market manipulation.
It seems more and more likely that silver has now come to the crossroads,
as the world economy enters the age-old stage of currency wars where the
masses come to accept open ended fiscal monetization in the name of export
improvement or as a matter of national survival.
Arriving at just such a juncture means the merits of commodity backed
market standard money will once again be held to experiment.Perhaps this will
involve dramatic steps, such as removing the big naked shorts from the metals
markets, nationalizing the CME and allow the market to re-price itself based
on fundamentals?
Certainly the silver derivatives fallout would be a shot heard around the
world, but the market would finally return to valuing real money, and the
price of silver and gold will be much, much higher.
Inflation and Deflation: Comparing Like With Like
Critics of inflation or the deflationists have one essential flaw — they
tend to look to history to gauge the likely outcome, although during most of
those times, the U.S. dollar and other currencies were backed by gold.
People who like to talk about deflation by referencing prior periods of
deflation are usually looking at countries that were operating under a gold
standard, rather than a solely fiat currency system.
No countries are currently operating under a gold standard, so their
analysis is largely irrelevant. The fiat currencies have no standard, and
their value is only measured relative to each another and to the price of
valuable commodities, which have been manipulated for years.
Furthermore, if you look at countries that have taken on tremendous debts
in a world dominated by fiat currency systems, it has never been a
deflationary environment in terms of the fiat currencies.
On the contrary, such situations have always resulted in massive
inflation, commonly referred to as hyperinflation. Deflation may only exist
in such a situation if you measure prices against a currency that did not
collapse or against something of intrinsic value like gold or silver.
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