When asked if shortages in silver will continue Rick responded, “I suspect it’s true.  One of the things that happens at least in the near-term, shortages and the price rises that they cause ironically exacerbate shortages.  Meaning that more people are attracted to speculations in silver as the price goes up.  The price of course has gone up because of that attraction. 

Specifically the amounts of silver that have been bought by the ETF’s and by Sprott Physical Silver, have driven up prices.  But the silver they have taken off of the market has not been as easily available to mints that have themselves faced increased demand from retail coin buyers.  It’s been very aggressive buying demand that’s really changed the price of silver.”

We are seeing more money pouring into the silver market from all sides, you're saying that just feeds upon itself and so we could actually see this continued tightness in the silver market and a potential explosion in the price?

“Yes absolutely, you know we have talked before Eric about the fact that gold and silver are in some senses unlike other markets in that they are driven by both of the primary investment motivators in the world, that is greed and fear.      

The fear buyer buys gold and silver as a consequence of his or her fear about economic conditions, and the resulting price momentum encourages the greed buyer.  The greed buyer’s buying in the short-term validates the suspicion of the fear buyer, and you have what are called “echo bull markets.”  I think what you have now is a classic example in silver of an echo bull market.

If you remember the markets in the late ’70’s, the 1977 to 1980 bull market, these echo, or hyperbolic bull markets can continue for an amazingly long period of time.”

So the price of silver could get disorderly on the upside?

“Yes, I think many of the silver bulls are hoping for that.  If past is prologue, that’s very possible.  The other interesting thing about silver is on the supply side.  So little silver is produced as a consequence of silver mines, that is primary silver mines.  So much more of it is produced as an adjunct of the mining of other metals, lead, zinc, copper, gold and things like that.  What’s interesting about that is that increases in the silver price do not necessarily result in an increase in supply of silver because their production is tied to other metals.   

Now, it’s also true that the price of base metals are also up, and in a normal market we would see as a consequence of that increased base metals production.  What’s interesting about the market that we are in is that we are still credit constrained.  Meaning that although the banks have ample liquidity for short-term lending as a consequence of quantitative easing, they don’t have enough on their books to make long-term project loans.  

These are the types of loans necessary to build great big base metals mines which would increase the amount of base metals and hence increase the supply of silver.   So we are in a very interesting supply/demand situation where near-term demand is strong, but the fact that the demand is strong and the fact that the price of silver is rising has not and may not for a while increase supplies.  It’s a very, very imbalanced market in my view.”

Rick is warning of an imbalanced market in silver that has tremendous tightness and much more upside.  As predicted, the rise in price has done little to alleviate the tightness in the silver market.  I would note that sentiment on gold is suggestive of a significant move higher in that market as well.

Eric King

KingWorldNews.com

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