Silver: High Prices ‘Cure' Depleted Inventories

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In my recent review of the bankster assault on the silver market, I alluded to the fact that we knew there was no “bubble” in the silver market, since there had not been the build-up of inventories which must take place before any commodity could ever achieve the status of an asset-bubble. However, the concept is so important, and it is not being forcefully articulated by others within the sector, and so I am devoting an entire commentary to this totally elementary concept.

As the title of this piece states, “high prices cure depleted inventories”. However, brevity prevented me from stating this in more absolute terms: high prices are the only way to restore equilibrium to any market where there are depleted inventories (i.e. inadequate supplies). This obvious corrective mechanism functions in two manners.

High prices not only stimulate greater supply/production, they also dampen demand/consumption. Similarly, low prices are the only way to restore equilibrium to a market where there is too much inventory (i.e. excess supply). In this respect, the U.S. housing market is the mirror image of the silver market.

In the fraud-saturated U.S. housing market, the government has tried everything in its power to prevent U.S. residential housing prices from falling to their true value (a long way below prevailing prices). They have tried countless bogus gimmicks, half-hearted government initiatives and an enormous amount of lying to try to “pretend” their way to a “bottom” in the U.S. housing market.

The problem is that as soon as we factor in the massive “shadow inventory” of this market, we still see a housing market with (much) more inventory than at any time in history. And as we are seeing as this market resumes its descent, the laws of supply and demand function very similarly to the laws of physics (i.e. gravity) – with the exception that in economics it is possible to temporarily delay the inevitable consequences of these parameters.

Just as the laws of supply and demand dictate that U.S. housing prices must go much lower, equally those laws dictate that the price of silver must go much higher. Note that when the CME Group launched its illegitimate manipulation of the silver market with five rapid-fire increases in margin requirements (the last four of them undertaken while the price of silver was falling) that inventories have still been falling.

Thus, not only do we know that $50/oz can't possibly represent a “bubble” price for silver, we know that it can't even represent an “equilibrium price”, since it is obviously not high enough to prevent further inventory-destruction. We will know when we begin to approach that equilibrium price because the silver market will give us a very obvious signal: inventories will start to grow again. Until the process of restoring inventories begins, this market must continue to become even more unstable: plunging downward in response to ruthless manipulation, followed by immediately rocketing upward when the tortured laws of supply and demand inevitably reassert themselves.

It is here that I must repeat another previous discussion, since this is another argument which must be made as often and as assertively as possible, and yet to the best of my knowledge I'm alone in doing so: “shorting” destroys markets, while “hoarding” preserves/conserves them. How did the silver market ever get to such a position of totally (and dangerously) depleted global inventories? The simple application of supply and demand.

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