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Why is silver gravitating to higher price levels?

*Dow Theory Letters, Richard Russell, April 18, 2006

“Gold and silver. It appears that silver is caught in a tight box or more aptly a pressure cooker. Evidently, there is a real supply-demand problem in silver. The problem is this — there’s an increasing demand for silver, but the once-huge supply of above-ground silver is about gone. Silver is being used up faster that it can be supplied. On top of everything else, there’s a huge short position in silver on the COMEX. If all the COMEX shorts were to cover, there’s a question as to whether there’d be enough silver.”

“There is no supply-demand problem with gold. While silver is actually being ‘used up’ commercially, gold is taken off the market in the form of jewelry. Nobody uses up or destroys gold, gold is accumulated as real money or it “disappears” in the form of jewelry.”

“A hundred reasons are put forth by the ‘analysts’ who are seeking to explain why gold is rising. I’m seeing these so-called explanations in the newspapers almost every day. The usual suspects are the ‘speculators’ or the ‘momentum players.’ And oh yeah, there’s ‘the Iran situation.’ Aside from these absurd examples, we are told that there’s absolutely no earthly reason to buy and hold gold. ‘Gold is not an investment,’ the analysts inform us, because ‘gold doesn’t pay interest or a dividend.’ Well neither does a Picasso or a ten-caret D color diamond, but that doesn’t seem to occur to the goof-ball set.

And now for the dreaded secret, the secret that the Fed doesn’t want you to know, the secret the WSJ will never tell you, the secret you’ll never hear from Bennie Bernanke. Gold is rising because the Fed and the central banks of the world are turning out hundreds of billions of dollars worth of junk money. The central banks fight the potential forces of deflation with a device known as — inflation. In the language of Washington, we can say that the Fed is ‘preempting’ deflation. The theory is very simple. Inflation and deflation are always monetary phenomena. The central banks are mortally afraid of deflation. Above all, they want to avoid deflation. How to do it? Why it’s so easy — you just keep inflating.”


*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

Monex Bullion Investor