Lear Capital: Is Silver Set to Go Stratospheric?

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PeterThe numbers are getting harder to ignore.

Here's Jeff Clark at Casey Research's enlightening newsletter, Big Gold: The numbers for silver demand are starting to make some market-watchers nervous. The U.S. Mint sold over 6.4 million silver Eagles in January, more than any other month since the coin's introduction in 1986. China's net imports of silver quadrupled in 2010, to 122.6 million ounces, roughly 13.7% of global production. Meanwhile, mine production can't meet worldwide demand; the only way demand gets fulfilled is from scrap supply.

And it's not like the U.S. is just brimming with a supply of silver scrap. You can't exactly drive around and see towering piles of silver odds and ends surrounded by coil-topped fences and crazy junkyard dogs. It is startling, though, just how much silver comes out of the woodwork when the price of silver goes north. We all seem to own something silver.

I remember back in 1980, at an obscure Woonsocket, Rhode Island coin shop, people were lined up around the block at midnight looking to either sell silver stuff -- like silver tea sets -- at those record high prices (back then, silver had reached $48; it's now at $30) or else they were looking to buy silver and gold as an antidote for the rarely-seen-in-this-country 9% to 14% inflation at the time.

At the height of all this buying and selling madness, the precious metal market began having problems getting people in and out. Dealers actually ran out of bags of junk silver and gold anything to sell. True story. Values moved so fast it was hard to affix a price tag on precious metal items. Silver and gold liquidity, which is usually excellent, suddenly was a sporadic case-by-case situation. Many dealers had nothing left to sell. It was a prime example of what happens when a whole lot of people suddenly, frantically, want something of rapidly shrinking availability.

Was that midnight-line-around-the-block a preview of coming events? Stay tuned.

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