Precious Metals Fundamentals: The Numbers Don’t Lie, Part II – Jeff Nielson

by Jeff Nielson, Sprott Money:

The previous installment focused on establishing two of the dominant fundamentals of the precious metals market:

a) Gold and silver are currently priced below the cost of production necessary to sustain these industries.

b) The gold and silver markets are both experiencing long term supply deficits because these metals are priced below the cost necessary to sustain these industries. The silver mining industry has been almost completely destroyed and today (for the first time in history) the world gets 70% of its mine supply of silver as a byproduct of other mining.

Why are these two fundamentals so important? Let’s turn the question around. Why does the Corporate media (and their banker Masters) go out of their way to avoid discussing these fundamentals – with real numbers?

Until three years ago, the crooked, quasi-official bookkeepers in the silver market were pretending that the silver market was in balance or even in surplus, every year. Only recently have they acknowledged that supply deficits in the silver market go back well over a decade . Meanwhile, additional evidence already in the public domain indicates that this supply deficit actually extends to at least thirty years , if not longer.

The bankers (and their record-keepers) pretended that the silver market was in balance so they could pretend that the price of silver was at a fair legitimate level. The bankers are no longer pretending that the market was in balance yet they continue to pretend that the fraudulent/manipulated price of silver over the past 30+ years is legitimate .

In legitimate markets, the economic mechanism of “price discovery” always creates balance in markets with deficits. The price continues to rise until supply meets demand.

There has been no price discovery in the silver market for 30 years or more. This is unprecedented in the history of commodity markets.

This market crime in the silver market (and to a lesser extent in the gold market) has only been possible because of the enormous stockpiles of these two precious metals which we have accumulated over thousands of years. We have had no price discovery in the silver market for 30+ years, ipso facto the price of silver over that period of time has been a fraud .

The price suppression of the silver market has been even more extreme than the price suppression of the gold market, therefore the supply/demand imbalance has also been more extreme. Why? Because (as previously mentioned) the price of silver was manipulated to a 600-year low (in real dollars), and continues to be held down near that level to this day.

The enormous expansion of the gold/silver price ratio quantifies the increased level of perversion with respect to the price of silver. Historically (for more than 4,000 years), the price ratio between the two metals gravitated around 15:1, reflecting the natural supply ratio between the two metals, 17:1.

Over the past century that ratio has been perverted to as much as 100:1 and today it is close to 80:1. Silver is even more under-priced than gold therefore the supply/demand imbalance has been even worse.

Anything that is under-priced will be over-consumed. Price chocolate bars at 10 cents apiece and store shelves would be completely emptied in a matter of days. Furthermore, with chocolate bars artificially priced below the cost of production, all of the chocolate bar manufacturers would be bankrupted and the world would quickly run out of chocolate bars.

The difference is that the world has never had any huge stockpile of chocolate bars, accumulated over thousands of years. At a price of 10 cents apiece, the chocolate bar market would quickly implode. But price silver at a similarly absurd level and the imbalance can extend (and has extended) much longer.

These stockpiles can sustain the silver market longer, but not forever.

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