Extraordinary Stress in the Silver Market
I’m no expert on backwardation, and I don’t necessarily believe in the significance Turk assigns to it. That’s why I put "for discussion" before the article when I posted it!
I’ve been educating myself about PMs and a lot of what I read points to silver as being a good investment. Some of reasons (in my opinion):
1. The above ground reserves of silver are very small.
2. Below ground, silver is generally a byproduct of other metal mining. The economic slowdown has meant very little mining activity, which will take time to restart. New below ground reserves will take even longer to develop.
3. ETFs have become large holders of silver, but there is question as to whether they actually hold 100% of the metal they have shares out on.
4. There is a lot of paper contracts on silver, but little metal to back it up.
5. The gold-silver ratio is pretty high right now:
6. As gold prices rise, smaller investors will be priced out of that market and will look to more affordable PMs.
7. China is starting to move out of holding US debt. It looks like they are moving into commodities.
On the down side:
1. Silver doesn’t seem to get the respect that gold does as money.
2. The recession has slowed industrial demand for silver.
3. Although silver is not at a bad price now, it has gone up substantially over the past few months.
Several sources I’ve seen think silver could have a major breakout due to the limited supply if futures or ETFs are caught short, it’s value as money if the dollar declines, it’s industrial value when things turn around, and it’s affordablity as gold prices rise.
I admit I am new at this game and am easily led on by the last editorial I’ve read. But I see this theme a lot and by respected sources. So please educate me!