Silver Physical Supplies and Price Action

The basic tenets of economics tell us that supply, demand, and price as all intertwined, especially in free markets. While the silver market may be not as free as we would like, compared to most, it is relatively free, and it should be very much subject to basic economic laws.

Last week, I called a number of silver buyers, sellers and coin shops to get an idea of how the market was responding to the massive run up in silver prices. Needless to say, the results weren't exactly as I had expected. I thought that during the run up, shops would report that some of their regular investors had been taking profits. This wasn't the case.

The Survey

In what cannot at all be seen as an entirely representative sample, a total of 15 coin shops were phoned and surveyed about their total sales. All but three had seen an increase in sales of junk jewelry metals, as people were cashing out for a variety of reasons, most of which are probably preparing for the holidays. One said he had seen a decrease in junk sales, but admitted he had no hard numbers on which to base his claim.

The remaining two declined to comment. One suggested that it was a theft risk to release such data. We'll mark that particular shop as busier than normal.

As for sales of silver, all of the shops who said they were purchasing more junk silver than normal noted that they had, in fact, sold more silver bullion, even as prices rose higher. A few, more than willing to divulge such information, even noted that the regulars were buying more weight, while one-time customers were coming in to raise cash.

Therefore, from our small study, it can be reasonably concluded that even as prices tear towards the upside, there is little interest among the current physical silver investing community to let go of their silver. Instead, as prices head higher, we, as the good little investors we are, continue to buy more, not less, of the beautiful metals.

The Irony of Investment Markets

This is perhaps the irony of the silver markets, or any non-replacement investment market for that matter. As the market heads higher, the supply is not increasing at the retail recycling level or at the production level. Silver miners are not wholly silver miners, and they have to find copper before they can find silver. Therefore, while miners would love to start working overtime to dig silver, supplies ready to be quickly unearthed have yet to be discovered.

In the long term, the silver markets are only going to head higher. While we've seen the same core group of investors piling into silver for decades, we're also seeing the last of the most accessible silver (recycled jewelry) hit the market. This recycled silver is not in infinite supply, and rather, it is very much finite. With the recession lingering, more people jobless and silver prices headed to the moon, there are a number of unfortunate people who have no other option but to liquidate, and the amount of “easy pickings” is running dry. The investors are more than happy to pick up what is left of the inexperienced sellers.

To recap, the inexperienced physical owners are selling, while the experienced are buying. Supplies are dwindling, even on record high prices. This rally still has a long way to go.

By Dr. Jeff Lewis

Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com Copyright © 2010 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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