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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