Anyone with any interest in gold or silver may have noticed recently that the "spot" price for silver and gold is a joke and nowhere near the price you'll pay if you actually want to invest in or own precious metals.  In most cases, gold coins are selling for 50% above the spot price while silver bullion is enjoying premiums of 80-100% or more above the "official" price.  This should concern everyone for the simple fact that these events are a huge indicator of highly inflationary times to come.  But the bigger news is that this enormous price discrepancy can't (and won't) last forever - something has to give.

Here's an article that explains just what's going on with precious metal prices. It explains recent events in the precious metals markets much better than I can, but I'll provide some notes and highlights here anyway.

The main problem is that the "spot" price of silver and gold do not reflect reality.  With the spot price of silver under $10/ounce, you'll get laughed at if you show up at the local coin shop trying to buy silver at this price.  Chances are they don't have any silver at all and if they do, the price will be closer to $18-20/ounce.  The article linked above focuses on gold but the same problems plague the silver markets - and to a much greater extent since the silver market is substantially smaller than the gold market and it won't take near as much money or investor demand to trigger a price explosion.

First, let me expand on the spot price of precious metals.  This is a price set on commodity markets by large hedge funds and financial institutions who place bets on the future price of silver (or gold) via paper contracts.  There isn't a whole lot of physical metal to back these contracts, which normally isn't an issue since most bets are simply rolled over or cashed out as the contracts expire.  However, there is an option to take physical delivery of the precious metal outlined in the contract, and with the contract price of silver and gold being so much less than the physical price, human nature says a large majority of contract holders will be inclined to take delivery on the metals.

When there are a large number of contracts demanding delivery of precious metals at artifically deflated prices - with relatively small amounts of physical metal to back these contracts - the most logical outcome is a default on the contracts.  In other words, people who pay $10/ounce for silver contracts and expect to take delivery of the physical metal won't be able to do so.  There's simply not enough precious metals to meet the soaring demand.

When this happens (which could be as early as December 2008), the "spot" prices of silver and gold will be exposed as the manipulated scams they represent and the physical prices of these precious metals will take over.  Some people "in the know" predict that if/when this happens, gold and silver prices will double in a matter of days.

Well shoot, if physical silver is already selling for double the spot price and the physical price takes over, silver prices will effectively double in an instant if this happens.  Actually, they've already doubled the "official" price so your guess is as good as mine as to how much higher silver prices will go from there.  But whatever the case and arguments, all signs are highly bullish for silver, gold, and all other precious metals.

As a side note, I still consider silver to be a much better investment than gold.  If you wish to invest in precious metals and feel you must own gold, consider the following:

• Silver is an industrial metal and more silver is consumed every year than is produced - this has been going on for 20+ years, eating away at the available supply of physical silver.  On the other hand, gold is NOT consumed.  Virtually all of the gold that has been produced since the beginning of mankind is still available in one form or another.

• The Gold-to-Silver ratio is currently around 80 to 1.  This means that one ounce of gold can be traded for approximately 80 ounces of silver.  Historically this ratio is closer to 20 to 1 and was only 50 to 1 only a few months ago.  It's become increasingly out of whack.  So if you must own gold, buy 80 ounces of silver instead of 1 ounce of gold, wait for the ratio to return to the historical norm, and then trade your 80 ounces of silver for 4 ounces of gold.

• The physical market of available silver decreases every year while the phsyical market of available gold increases every year.

Of course, there are other reasons to own silver over gold but all signs seem to indicate that owning any precious metals is a far better option than trusting your wealth (and livelihood) to paper money that's backed by nothing.  And remember, the paper markets are extremely skewed and don't represent reality so they currently can't be trusted.  It may be cliche, but everything is worth what someone else is willing to pay for it and as far as precious metals go, people are willing to pay much, much more than the "official" price.

Good investing!