Dynamic relationship with gold – While silver hasn’t been tied to gold in any “official” capacity for decades, and centuries in some parts of the world, gold and silver are still tied together unofficially by market actors. In the recent silver correction, silver dropped by 33%, gold was virtually unchanged, having lost only 7% from top to bottom. The gold to silver ratio now stands at a reasonable 40:1. Of course, there is a very obvious case for long-term decoupling as silver gains from evolving industrial demand, but in the short-term, the irrationality of the markets weighs as heavily as anything else.
Financialized silver still important – Leading up to the silver correction were several key events. First, the build-up in investment interest in financialized silver, that which is bought and sold on markets and in intangible form, combined with the a mini-panic short covering just before the drop. Prices at your local coin shop are still set by the spot price, which is engineered first by the Comex, and secondly by the major institutional investors who bully prices for most financial products.
Miners matter – Wall Street, which is largely a game of who is smarter than who, is still on the hunt for cash flow, not protection of wealth. In the silver correction, traders were swapping bullion—at least supposed future delivery of bullion—for shares in silver miners, which produce cash, not silver. The short-silver, long-miners trade helped to balance out relatively low valuations for miners, which are to Wall Street future cash flows from silver production, not silver.
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