For years we have heard of the coming silver shortage but somehow price was always contained and was a wild swinging commodity. But that changed last spring when allegations of silver manipulation made it to mainstream internet sites and became a focal point of testimony by Bill Murphy of GATA to the CFTC in early spring.

Since last August the silver market has been on a tear to the upside and the physical market is now again facing reported shortages. The demand for coin is at its highest levels in 25 years as reported by coin dealers.

Once silver broke above $20 dollars there was a triple demand factor that came into play.

The first is the industry that uses silver. It's made a mad dash to the buy line to secure supplies. No user in his right mind is going to stick around and wait for the shortage to become acute and hold up production. That is a show stopper and industrial use is the largest demand factor in the fabrication of silver. I was informed by a person who was building a database for a company in late October that the company she was doing business for was in panic mode buying up to a year's worth of silver so as to hedge for future price increases. She did not even work there and was providing a service for the business. She said that the talk was rampant among the executives.

World silver inventories are at the lowest point in 200 years. Industry requires over 900 million ounces each year. Silver is the best conductor of electricity. Every computer, server, monitor, cell phone and switch must have silver. Lasers, satellites, high-tech weaponry and robotics, all require silver. Digital technology and telecommunications need silver. Around the house there's silver in every TV, washing machine, wall switch and refrigerator. Conductors, switches, contracts and fuses use silver because it does not corrode or cause overheating and fires. Silver is used heavily in photography and in prints. Meanwhile, new and exotic uses for silver are expanding.

The second factor that is coming into play is the loss of confidence in paper money and the realization by many that silver is not only an industrial metal but was a monetary metal.

Finally the third factor that comes into play is the massive amount of short positions that have been sold forward by the manipulators of silver. According to the latest statistics there are 154 days of silver production that is currently sold short. As prices rise the shorts have only two choices. Sell more contracts short - or cover the positions. Each drop in silver since the summer has not been met with new short positions. It has been met with short covering. This triple whammy is turning the supply side equation and demand into a runaway freight train.

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