Silver: Before it's too late

July 18, 2014 07:22 AM

The plight of the long-term value investor continues, seemingly without end.

However, decades of exuberance and greed have colluded. The financial establishment has created an accident waiting to happen. The mainstream has not priced in risk, which makes it even harder to travel the road less traveled. And once the accident happens, it may be too late.

If silver prices were to suddenly move back toward natural price equilibrium, there would naturally (not always the best thing) be a rush to get on board. This could very likely induce a shortage, which would temporarily stoke a new monetary enthusiasm for the buy side.

There would be some selling, but a large amount personally held scrap was purged years ago in its last run toward what would be at least $150 in today's inflated dollars. Of course, that was followed by a massive and complete drawdown in world government stockpiles.

From a commodity standpoint, mining has suffered miserably. Any hopes that new supply could be brought on quickly are pipe dreams. If and when prices return to reality, production would severely lag.

First of all, there are very few primary silver mines left. Secondly, by-product mining of silver is still the norm — this will not change overnight. If commodity analysts were unable to see the value with prices being depressed for as long as they have, they certainly will not be inclined to chase another bubble. Of course, these same analysts are completely deaf and dumb to the monetary side of silver - and gold for that matter.

If the move back toward natural price equilibrium comes with a financial crisis, it will be even more difficult to resurrect a sector that has been crushed by artificially managed prices held at or below production on and off for decades.

Sadly, once the masses figure it out, it'll be too late.

Caught in the romance of zero-sum trading

People seem only capable of measuring value and understanding by watching price performance. A price is essentially an anchorless derivative where those same units are forced legal tender and created with the press of a button.

The key to value investing is the reverse. Understand whatever it is you can about it, and then check the price; from there it is a matter of rechecking your assumptions.

Sadly, it takes performance to garner attention. The attention tends to justify the array of macroeconomic-financial-political reasons to be exposed to physical metal for nothing else as an emergency hedge.

What happens in the aftermath? Investors who feel that zero interest rate policy offers them no choice but to hold stocks are likely choosing to experience negative returns instead of zero. Millions of investors appear to have the same expectation that they will be able to sell before everyone else. The question then becomes, sell to whom?

When the opportunity comes to sell, it will be when conditions meet the following criteria: the price represents fair or above value in relation to the fundamentals.


Monetary asset has store of value indirect to currency, or what passes for money currently. This comes with an entirely different behavior profile. No one alive today can reference what that unwind would look like in a modern sense. It's like the financial system is the paper to the economy the same way paper metal (re-hypothecated) is to the visible physical market.

In the meantime, a few new investors awaken to the window of opportunity each day. For all the rest, it will be a spectacular show in which they cannot participate.

All the while, the world around us bubbles up with its immoral paper campaign shenanigans as if the imbalance can go on forever. The paper hecklers mistakenly assume that they will be able to sell in advance of the coming storm.

Those who have been riding the great precious metals wall of worry for some time know that we are worlds away from fair price. Volatility and price manipulation have been brutal. The mantra “ounces matter more” requires constant practice. The faster new investors arriving on the scene can embrace this phenomenon, the more prepared they will be for the turnaround.

About the Author

In addition to running a busy medical practice, Dr. Jeffrey Lewis is the editor and publisher of, where he provides practical guidance for precious metals investors.