August 16, 2008

David Bond: Silver Shortage? What, Me Worry?

The Wallace Street Journal

By David Bond, Editor
The Silver Valley Mining Journal

Wallace, Idaho – We received a missive yesterday from the American Precious Metals Exchange, an Oklahoma-based company that retails silver and gold bullion – American Eagles, Canadian Maple Leafs, Krugerrands, bars, coin bags and the like, that immediately raised alarms in our cranial area.

The gist of their missive was: There's a silver shortage because the price ($14.35/oz at this writing) is too low. Particularly hard to find are the 2008 American Silver Eagle 1-ounce coins. Here's what APMEX said yesterday:

“You may have noticed a significant number of products on the website are listed as 'Out of Stock' right now. This stock shortage coincides with a low price for the precious metals we provide investors and collectors across the nation. Most, if not all, dealers are experiencing temporary shortages right now. . .

“When the price of silver, or other precious metals, drops to a low position, everyone who has been waiting to purchase comes in and buys. Whatever silver or gold is in inventory is quickly depleted – not just in our reserves, but also in those of our suppliers. Ultimately, this reduction in supply increases demand, and will eventually increase prices.

“This is basic supply and demand. This effect is felt across the marketplace, from suppliers to dealers to the investors.”

Well, we appreciate the lesson in Economics 101. But it had an eerily familiar quality to it, this particular lesson in Econ 101, a deja vu feeling. Had we not heard this same stuff about five months ago, only in reverse? So we dug through our Platts Metals Week archives, and lo and behold, found that we were writing about a silver shortage back in March – under entirely different circumstances.

Here were the same folks, only this time, they were saying there was a silver shortage because the price was too high! Said Metals Week:

“Silver buyers overwhelmed retailers during the third week of March, when silver was trading above $20/oz. (Retailers) stopped taking orders over the Internet, limiting business to telephone orders of no more than $5,000 -- if buyers could get through. 'Demand is incredible; it seems like there are 5 to 10 times as many people wanting to buy [silver] as opposed to selling,'” said one dealer.

Said another: “'We're running out of metals, and silver in small quantities is extremely difficult to find right now. The largest demand is for silver rounds and for small (100 oz or less) silver bars." The early-year price run from $17/oz to $22/oz sucked outfits like APMEX, Northwest Territorial and others dry.

We find this quite curious. It seems that when the price of silver is low, there is a shortage of silver, because people can't get enough of the white metal. When the price of silver is high, there is a shortage of silver, because folks can't get enough of it. Would it be too much of a reach to surmise that there's just a plain shortage of silver?

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