Buying a commodity and storing it, simply creates excess supply (it's NOT true demand).
1. Bubbles are created by hoarders.
2. Hoarders create a FALSE illusion of excess demand, by buying something and storing it.
3. But ANYTHING stored is actually EXCESS SUPPLY (not true demand).
4. Producers react to the hoarding by INCREASING production capabilities and output
5. The hoarders help temporarily drive the price higher and those higher prices KILL true demand because the real users of the commodity are forced to make cuts, due to high prices.
6. So with FALLING real DEMAND, and with RISING SUPPLIES, the massive oversupply continues to build up, while prices are pushed to a peak.. But with excess supplies, prices top out and start to crash.
7. Falling prices scare speculators away and the massive oversupply helps to keep pushing prices lower. The lower prices go, the more it frightens speculators and many start to dump their hoards FURTHER ADDING TO THE MASSIVE OVERSUPPLY and further crashing the prices.
8. As prices continue dropping, the commodity gets a very bad reputation as a wealth destroyer and that bad reputation completely kills the hoarding cycle and prices drop VERY steeply.
The real estate bubble was created by folks buying and storing unused real estate (many folks held 2, 3, 4, and more houses sitting empty and unused). When the bubble popped, prices fell to 2001 levels.
When the rhodium (precious metal) bubble failed, prices returned to 2001 levels.
Silver was $4 in 2001
So I guess gold and silver prices are historically declining!? Buy a clue - anything affecting supply and demand shows up in the spot price - econ 101. GLD actually liquidated gold and shares when investor demand declined recently. Two year plus bear market in silver - the beta dog - has shares down over 50% from the run towards $50 that was the Hunt brothers high back in 1980. Investors can now put retirement account money in shiny one ounce coins, and they're buying in size (and paying a significant premium to bullion for the shinyness)! I like the low cost option of SLV or PSLV shares. Dealers will eat up any trading profits, Everything is marked to spot anyway, except legal tender coinage which has 'coin collector' value on top of the silver value. Don't know why its called junk!
Its a coin shortage from the mints. No shortage of kilo bullion bars. The spot price has always been spot on - just ask any mining company that sells its physical supplies. A bullion shortage (which does not exist presently) would drive up spot prices in a hurry. JP Morgan might be covering its shorts down here. Goldman sure did play the gold market well recently! Remember - spot is for bullion bars - not shiny coins that a lot of investors prefer for long-term physical holdings. Only if enough bars get melted down for coins/jewelry/industrial use would we get a bullion spot price change.