December 15, 2009

National Inflation Association "Declares Silver Best Investment for Next Decade"

Silver remains at less than 1/6th of its inflation adjusted high and well below 1/2 of its non inflation adjusted high reached some 30 years ago. It is only because of the continuous massive super concentrated (and in my opinion, completely illegal, and government sanctioned) fundementally naked short position of one bullion bank operating on behalf of the working group on financial markets in my opinion, that is keeping the price of silver to moving towards its actual market value. It will not be long until the truth underlying the tiny silver market makes silver worth many times its current value as demand for physical silver will soon become massive and overwhelm the silver paper market in my opinion. I am sighting a couple of articles in this post, with the first one being the National Inflation Association Article on Silver followed by excerpts and links from an article entitled, "How Much Silver Is There …."

First the NIA article:

NIA Declares Silver Best Investment for Next Decade

"We are less than three weeks away from entering the next decade. The most important thing you need to know entering 2010 is that silver is the single best investment for the next decade. In our opinion, investing into silver is the only sure way to tremendously increase your purchasing power over the next ten years.

Throughout world history, only ten times more silver has been mined than gold. If you go back about 1,000 years ago between the years 1000 and 1250, gold was worth ten times more than silver worldwide. From year 1250 to 1792, the gold to silver ratio slowly increased from 10 to 15 and the Coinage Act of 1792 officially defined a gold to silver ratio of 15. The ratio remained at 15 until forty-two years later when the ratio was increased in 1834 to 16, where it remained until silver was demonetized in 1873.

The gold to silver ratio remained between 10 and 16 for 873 years! It is only over the past 100 years that the gold to silver ratio has averaged 50. History will look back at the artificially high gold to silver ratio of the past century as an anomaly, caused by the dollar bubble and the world being deceived into believing that fiat currencies are real money, when in fact they're all an illusion. Next decade, the fiat currency experiment will end badly in a currency crisis. The wealthiest people will be those who bought silver today and were smart enough to research and pick the best silver mining stocks.

While the vast majority of the gold ever produced remains sitting in vaults, 95% of the silver produced has been consumed by industry for thousands of applications in such tiny amounts that most of it will never be recycled and seen on the market again. Nobody knows the exact above ground supply of silver today, but most likely it is somewhere in the neighborhood of 1 billion ounces. That's a total worldwide market value of only $17.4 billion, when the world has over $7 trillion in foreign currency reserves, mostly in fiat currencies that they will need to diversify out of due to rampant inflation.

Besides the fact that the world has been ignoring the monetary value of silver, silver prices are artificially low due to a large concentrated naked short position. It's not a coincidence that the day silver reached its multi-decade high of over $21 per ounce in March of 2008, was the same day Bear Stearns failed. Bear Stearns was a holder of a massive short position in silver. In our opinion, this was likely a naked short position because there is nobody in the world who owns such a large amount of silver for Bear Stearns to have borrowed.

The reason why we believe the Federal Reserve was so eager to orchestrate a bailout of Bear Stearns, is because Bear Stearns was on the verge of being forced to cover their silver short position. Because the silver market is so small and tightly held, if Bear Stearns was forced to cover their short position, silver prices could've potentially rose to $50 per ounce or higher overnight. The world would've seen how economically unstable our country is and confidence in the U.S. dollar would've rapidly deteriorated.

JP Morgan still holds the silver short position they inherited from Bear Stearns. The concentrated naked short position in silver today is the largest short position in the history of all commodities, as a percentage of its market size. Eventually, JP Morgan will have to cover this short position or it could jeopardize their existence.

The best evidence that the short position in silver is naked and not backed by real silver, is the differential between what silver trades for on the Comex and what real people are willing to pay for physical silver on eBay. Every hour on eBay, there are dozens of one ounce silver coins selling for approximately $25. That's about a 43% premium over the current spot price of silver. With so much demand for physical silver, we doubt the silver shorts in the paper market will be able to manipulate prices downward for much longer. A major short squeeze could be right around the corner and silver could take off in a way that shocks even those who are most bullish…."

This is from a thread I started on Jim Jubak's Market Watch over a year ago. Some of the links referenced no longer work but I'm excerpting from my original post. For me, Gold and Silver represent the basis for true wealth and integrity and a check and balance on the giant banks and the Federal Reserve, which have enabled untenable debt positions on American citizens and as a byproduct damaging circumstances for much of the global financial community. Its not merely about investment for me but none the less, the investment opportunity is tremendous in my studied opinion.

How much silver is there? – A lot Less than there used to be.

"…I believe this article spells out the long term bull case for silver from the standpoint of the most basic supply and demand fundamentals. I am a silver bull and have a large percentage of my holdings in silver. …"

Originally posted at:

"…http://www.bullionmark.com/2008/12/how-much-silver-is-there.html

"…Most of you know my bullish bias on silver. I have written numerous articles outlining this incredibly misunderstood, unloved and undervalued investment opportunity.

http://www.bullionmark.com/2008/11/amazing-silver.html
http://www.bullionmark.com/2008/10/silver-to-gold-ratio.html
http://www.bullionmark.com/2008/09/important-considerations-for-silver.html
http://www.bullionmark.com/2008/09/myths-in-silver-market.html

Much of my research is based on gold and silver comparisons throughout history. I want to make it very clear that I am also bullish on gold but relatively speaking the silver story and data is compelling.

My latest research involved looking at the amount of ounces in existence (all the metal ever mined plus recycle minus consumption) back to 1900 and developing a series of metrics based on price and population.

The first chart shows that 1 billion ounces of gold existed in 1900 versus 5 billion ounces today in 2008. This makes sense. Gold is valuable, therefore hoarded and its industrial uses are largely reclaimed through recycling. Roughly new mine supply adds to the ounces in existence.
However 12 billion ounces of silver existed in 1900 but only 1 billion remain in 2008. Yes thats right less than 1 billion ounces and there is 5 times more gold available than silver! Why is this so? Well silver has far more industrial uses than gold. It is critical to electronics, whitegoods, medical technology, solar technology, industrial equipment, water purification, photography, nano technology, military weapons etc etc. Silver is critical in our daily lives. However the low price of silver makes recycling uneconomic, so silver used is silver consumed and lost forever. Secondly, silver is mined as a bi product of other metals such as zinc, lead, copper and gold. Silver is scarce in the earth and very expensive to mine. World silver mine supply could decline substantially in the next 2 years as economic conditions worsen around the globe. Silver mines themselves are going bust (ie Macmin silver in Australia) but also the base metal miners who mine some silver as a bi product have now become uneconomic and closing at an accelerated pace. Peak silver is with us!

Overlaying the population of 1.6 billion we see the world per capita gold at 0.6 ounces in 1900. In 2008 this has increased slightly to 0.7 ounces despite the population increasing to from 6.75 billion. So gold has been added to world supply slightly faster than population growth. Silver on the other hand has declined from 7.5 ounces per capita in 1900 to just over 0.1 ounces per person on the planet. See chart below.

If we then bring price into the mix the story becomes even more compelling. If we take the 1900 gold price of $20 and silver price of $0.65 and multiply by the ounces at the same period we get a value or market cap for gold and silver. By dividing silver into gold we can see relative market caps in a ratio. In 1900 this ratio was 2.6. for every dollar of silver in the world there was $2.6 dollars of gold. Astoundingly in 2008 there is $400 in gold in the world for ever dollar of silver. Silver is scarce and dramatically under valued versus gold.

The final chart highlights the much publicised gold to silver ratio. Simply the price of silver divided into the price of gold. Given the 700 year average is 15 the currently level of 80 appears extreme.

I wish to stress that I am very bullish on gold. I expect to see gold prices of between $3000 – $6500 in the next 5 – 10 years. However I am ultra bullish on silver. If the history, data, fundamentals, technicals, pricing and even market structure can overwhelm the political forces holding silver down, prices could reach unimaginable levels almost overnight…."

http://www.bullionmark.com/2008/12/how-much-silver-is-there.html

"…Most of you know my bullish bias on silver. I have written numerous articles outlining this incredibly misunderstood, unloved and undervalued investment opportunity.

National Inflation Association "Declares Silver Best Investment for Next Decade"

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