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, could easily fall that low again
Directly from silver institute:
Total silver fabrication demand in 2012 dipped to 846.8 Moz
Global silver mine production grew last year to 787.0 Moz
846.8-787=61.8Moz deficit. Fail.
1) Industrial demand outpaces production and continues to accelerate with new electronics every year.
2) Most industrial silver is compounded with other elements for wiring/semi-conductors is cannot easily be recovered after thrown away.
3) Most above-ground inventory has now been spent and very little excess inventory is left.
4) Check out availability of APMEX 100oz bars...there's going to be a massive disconnect between SLV and real silver.
Conclusion - paper silver will be worthless. Physical silver will become priceless.
Although I was originally expecting to see silver in low-mid teens, the extent of recent move was very surprising. So much so that I actually bought SLW calls this afternoon. Too far, too fast. Playing the very possible bounce.