Hi Ghandi!

The situation with silver in smaller bars is similar to silver coinage. There were once millions of coins in circulation which were about 90% silver content. As the price of silver increased, the silver in the coinage was replaced with copper and base metals alloys. The silver coins began to be hoarded and they have now disappeared out of circulation.

One must ask, if all those millions of silver coins can be taken up by retail 'investors', how long will the remaining stockpile of physical silver bullion last? While the issue simmered under the radar, supply was largely balanced as retail selling matched the retail buying at bullion dealers. As awareness has grown regarding the drawdown in stockpiles of silver, plus the rising price of the metal, along with inflationary concerns, people are no longer in a hurry to sell their physical bullion, and more buyers are stepping up with the intention to own silver.

The predictable result has been a shortage of physical silver in smaller bars. Now it should be a fairly simple shift for the refineries to begin minting more of the smaller bars to match this demand. There is a margin built into the bar charge that makes smaller bars more profitable than larger bars. So why do we not have production shifting to meet this demand, months after the shortage became evident?

I think silver investors are way ahead of the curve. The CFTC wants everyone to believe that silver is abundant and in a surplus. However, I believe that silver production is not keeping up with demand, and the deficit has been masked through the drawdown of multi-billion ounce stockpiles which are now almost exhausted, and through the price suppression of paper futures contracts. ETFs were approved as a vehicle to divert investors from owning the real metal, under the illusion of bullion pools which are in reality just more paper silver. People who think they own silver just own a piece of paper with a promise of silver, which unfortunately is not the same thing.

The bottom line IMO, is that the failure to meet market demand for smaller bars is the canary in the coal mine. It is a symptom of more serious shortage than the silver analysts will admit to. The illusion of a silver surplus, plus the scorn and ridicule directed towards anyone that questioned this myth, have done well to keep the problem from surfacing. The buying presure of physical silver will finaly expose the shortage for all to see. Thereafter, we will see silver reach new highs along with all of the other metals.

I do not know how long it will take to arrive at this new reality. It is only just now dawning on analysts that we do not have infinite supplies of oil, and the price discovery on the oil spot market has begun discounting this in. It will happen for silver too. Even if investment demand did not expose the situation, commercial demand was going to outstrip production in time.

Silver is finite and it has been artificially priced well below the true price as would have been established in a real balanced market. The disincentive to mine silver and the inability of most mines to produce it at a profit have undermined the price suppression. You can fool stupid people for some of the time, but economic inputs will not be denied.

cheers!

mike