Silver Update: Scarcity Gets More Extreme

Since our last silver article, the price of silver has dropped. With due respect to Frederic Bastiat, the price is the seen. The basis mostly goes unseen. We will take a look at the market data, revised for a few more days of trading.

Warren Buffet, 2008, and the Cobasis

But first, let’s look at a chart we have discussed a few times over the years. It shows two ratios: gold basis to silver basis, and gold cobasis to silver cobasis. It shows a measure of gold’s abundance to silver’s abundance, and gold’s scarcity to silver’s scarcity. When the blue line is above 1, it means the gold basis is higher, which means gold is more abundant. When the red line is below, it means gold is less scarce.

The blue line is not merely above 1. It is now above the spike in Oct, 2008. To find a level this high, we have to look as far back as 2006. In other words, 16 years. Before that, 2001. And before that, 1998, when Warren Buffet’s Berkshire Hathaway was buying mass quantities of silver—after he drove the price up 73% from about $4.25.