Silver Wheaton and Coeur d'Alene Mines Turned Silver Market On Its Head (SLW, CDE)

Poking out from the small heap of today's primary silver companies, you will find one that most people call simply a silver royalty company: Silver Wheaton (SLW). But a more careful look at Silver Wheaton reveals that this royalty company may just have stumbled across a business model that could be the rocket fuel for the silver spaceship.

And Silver Wheaton might not even know it. Perhaps more likely, it knows exactly what it is doing but does not yet want the rest of the world to catch on. If so, it might be too late. On Silver Wheaton's tail with more recent transactions of its own is a much older and more traditional mining company with lots of cash: Coeur d'Alene Mines Corporation (CDE).

Together, these two companies may have unknowingly turned the silver market on its head.

To understand my provocative thesis, we must first explore why the silver price seems to act like such a basket case. By basket case, I mean that silver has been in a supply-demand deficit for 15 years (or 60, depending on which expert you believe), yet the price of silver has declined during most of that time on an inflation-adjusted basis with the exception of the 1970's and the last couple of years.

The Conspiracy

The peculiarity of falling prices in the face of shrinking supply appears to be an impossible scenario according to many self-appointed silver experts. They reason that if silver were in a free market, the excess of demand over supply would cause silver prices to rise substantially until there would be market equilibrium as a result of increased mine supply and/or reduced demand.

Furthermore, these experts, whom I shall call “conspiracists