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I wrote a piece a couple of weeks ago pertaining to “shortages.”  I mentioned that ammo was nearly impossible to find unless you searched online which is still the case.  “New” guns are still not arriving at dealers and unless you find a used one that someone else is willing to sell.  Good luck finding what you are searching for.  I also found it (still do to some extent) that even Walmart has in many cases, “sparse” shelves compared to what we’re used to.  I have thought this one through a little bit, I think that the “just in time” inventory practice may have something to do with it.  Let me explain.

Walmart is a huge buyer of everything from soup to nuts, almost anything that you need can be found there.  They surely don’t “pay first” and then receive the product, they order, receive it and THEN pay for the product later.  I think it is very possible that the credit pipeline is getting jammed up.  Producers of product worldwide have shaved their margins to the bone in an effort to keep market share.  They understand that unless they are lowest cost they will not compete in a world where everything is “commoditized.”  I suspect that margins are running so thin (this is a sign of inflation in raw materials by the way) that producers are having a problem between higher input costs and “slower” payment for product.  There are other big box retailers (J. C. Penney and Sears are obvious examples) where their “sparse” shelves are displaying stress of some sort.

But retailers are not what I want to talk about, even though soap and toilet paper are important commodities.  I want to talk about silver.  Silver is a very important “raw product” for many different applications.  All of your electronic gizmos (that I haven’t even a clue how to use) have silver in them.  Silver is also becoming more and more important (as it was 100 years ago) in the medical field.  Then of course there is the fact that silver was used and IS money.  This all goes to demand and how it is expanding on many and all fronts.

Supply on the other hand is not expanding and has not for years.  Silver in fact is primarily a “by product” of miners who mine for other metals, there are very few “pure silver miners.”  There is also talk that we may have seen “peak silver” and that mine supply will basically run out over the next 20 years or less.  This may be so, and I don’t doubt it, but is a story for another day.  Today’s story?  Today’s story is that “unintended consequences” very similar to those of late 2008 are just now surfacing.  The price of silver has dropped close to 20% over the last 3 months or so yet shortages are starting to appear!

How is this possible?  The price must surely be down because of selling right?  More sellers than buyers in a “supply and demand” world causes the price to go down.  This is not what has happened or is happening.  Speaking from the standpoint of what I know from inner workings of Miles Franklin, they have for the last 2 years sold 200 ounces of gold and silver for every 1 ounce that they’ve bought back.  This is an obvious 1 way street where the “buy to sell” ratio of the public is 200 to 1.  My point is this, when it comes to real physical “hold in your hand” metal, there is NO ONE selling.  If no one is selling then how is it that the price could go down?  …COMEX and LBMA!  The paper markets, that’s how.  Paper contracts that are “sold” with no silver, no gold backing them AND no intention of ever delivering have hit the markets to knock prices down.

But that’s the rub, this “strategy” has spawned the unintended consequences of increasing demand for the real thing.  How do I know this?  Take a look at the U.S. Mint’s own numbers and actions.  They are reporting record purchases and have already suspended deliveries twice so far this year.  Why would they suspend deliveries?  Because they don’t have enough “blanks” to press out to meet demand.  Mother Nature is a funny but very predictable old bird.  She will prompt humans to “buy” when prices are too low and to “sell” when they are too high.  The artificially low prices in the precious metals arena have brought out buyers (using their own common sense) in record numbers.

I do want to mention that silver “supply” or as Jeff (I don’t even know what a blank is) Christian would say “was never a problem” in the past   …until current times.  The U.S. government had some 2 billion ounces stockpiled 20 years ago, that now has all been chewed through and is gone.  High prices used to bring out the grandchildren with silverware inheritances to melt down for “cash.”  This is also largely gone.  As far as demand is concerned, the mint has already sold over 11 million Silver Eagles through March 5th.  This is over 1/3rd of what they sold  ALL of last year.

…and the price has gone down?  But wait, it gets even better.  Andy Schectman, president at Miles Franklin, has informed me that if you want to buy Silver Eagles then you must “get in line” and the only ones that can be found are 2013’s.  Backdated Eagles largely cannot be found.  I ordered a bag of junk last Friday and was informed that there is a 3-4 week wait BEFORE they receive them and are shipped.  Not only that, there is now a higher premium over the spot price to purchase “junk,” so what the heck is going on?  This I believe is the looming “shadow” of shortage and as long as the “price” in the paper markets have JP Morgan’s boot on its throat, the shortage situation will continue, get more acute and ultimately blow up in a buying panic… exactly what JPM has been trying to avoid at all costs!

I also would like to do just a little math here before I finish.  A nearly $2 premium on “junk” which has almost ALWAYS been available at spot price or very small premium equates to about a 6% premium… and this is even before you include the commission for purchase.  This means that dealers are paying nearly $31 per ounce for a product that the paper markets “say” are worth only $29.  ONE or the other is wrong.  Either the paper markets or the physical buyers.  Can you guess which one is wrong and which one IS the market?  You have already witnessed the gun and ammo market go into shortage and prices double in less than 3 months because this is a purely “physical” market where “paper” guns and bullets” don’t and won’t fire.  If there was a “paper market” for arms you could bet the prices would be much lower and “the picture” of plenty available would be painted for you.  There isn’t and that’s the problem the paper banksters have in the metals markets; there just isn’t enough to go around… at these prices.

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