Month: April 2018

Why Invest in Silver?

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I am a recreational poker player and in poker there is a term- “pot odds”. The term is somewhat intuitive and basically means that the amount you will win if you make your hand gives you odds to call (sometimes raise) the current bet. There is also the term “implied pot odds” which refers to the total amount that you assume the pot will be by the end of the hand. While I think silver presents great pot odds, I also think it has tremendous implied pot odds. In other words I think silver is currently a good investment, but if silver does what it could and should, it will be a tremendous investment. Is there a guarantee on either scenario? No, but I cannot think of another investment that has the pot odds of silver.

The big question is when? If it is going to be another 10 years before silver lives up to its potential then obviously nobody would get too excited. But I believe the key to silver taking off in price is simply awareness of the Silver Story. But, how people become aware of the silver’s status is much more complicated. I have frequently emailed most every politician and media outlet that I can think of stating the following: silver is being manipulated, it is a crime in progress, the government’s own COT report confirms the manipulation and recommend reading Ted Butler. An average investigative reporter (or ambitious intern) could glean enough information in a couple of hours to convince themselves that they could write a very interesting and important article about the silver market.

Currently the silver market setup is extremely bullish. I have explained this in the post Available Silver Production for Investment (ASPI) and other places on this site. The main point is that silver is a small market, both in supply and dollars. Any investment is a gamble and all we can do is our best to compare risk to reward. I believe that public awareness of this manipulation is growing and the silver manipulation (to the downside) must come to an end sooner rather than later. Even holding cash or putting money in a guaranteed account, has risk- mainly inflation. This makes silver a great investment. Given the current state of silver I feel there is nothing wrong with trying to logically speculate on the outcome. Following is what I think is most likely to occur with the silver market.

There are many triggers that could set silver off and up. Typically, precious metals prices go up with uncertainty as investors look to use gold and silver as a “store of wealth”. It seems to me that uncertainty is about as high as it has ever been in my lifetime- maybe with the exception of the Cuban missile crises. In my opinion is we might not even need a trigger with the big banks shorting silver by over 350 Mozs. There are plenty of other triggers that could start the silver price on an upward trajectory. I think any of the following events are more possible than “normal” and could be triggers.

  • Widespread public awareness of the silver market manipulation.
  • A major military conflict.
  • A major or series of natural disaster(s).
  • Inflation rates increase significantly
  • Gold to silver (investment) conversion
  • A physical silver shortage
  • A stock market crash
  • An investor or group of investors (the public) buying silver
  • And/or a major pandemic

I’m sure there are many other potential triggers. Let me know what you think might be coming that could be a trigger. Once the manipulation ends does that mean that the commercials (or others) won’t try to re-establish it? No, but I think once the dam is broken it is going to be very difficult to re-establish at least until the physical supply gets back in balance. So, once the price goes to $20 or more (now) there is going to be increasing public awareness of silver. Silver has been called the “poor man’s” gold because it is more accessible (pricewise) than gold. Many more people can go to their local coin shop and buy a Silver Eagle than can buy a Gold Eagle. Available physical silver is the key to ending the manipulation. There is only about 22 Mozs. of new silver available per month for investment demand compared to the annual supply, after taking out what is used for industry and fabrication. See the Silver Institute annual survey under the LINKS.

The next leg up will be to $30+ as the public gets more excited about silver and buys more physical and EFT silver. As the price goes up and potential supply bottlenecks, the industrial users will become concerned about making sure they have silver so they can make their products. Some of these users may start looking for alternatives to silver, but that won’t happen overnight. Silver producers (miners) will look to mine more silver, but that won’t happen overnight either. Recycling/Scrap will increase but that will also take some time to get into the “pipeline”. If industrial users try to increase their inventory this could cause a sudden demand of about 50 Mozs. See my post on Physical Supply for some more details on this scenario. The combination of investment demand and potential industrial demand will cause silver to go up to $50/oz. Silver between $30 – $50/oz. will be getting a lot of attention and the public awareness will snowball. Remember when the housing market was booming and you had everybody and their cousins flipping houses?

Once the price hits and goes over $50/oz. I think the silver market will get really hot By this time MSM will be reporting on silver (and gold) and increasing numbers of people will be trying to buy into an already very tight silver market. I think it could take a year or so from the time silver breeches $20/oz. until it gets to $50/oz. It could happen slower or faster, but I think a year is a good guess. The last time silver hit a high ($48.70/oz.) it took about 7.5 months (163 trading days) to go from $20.31/oz. to the high. Once it goes over $50/oz. I think it will go up to $100/oz. fairly fast- maybe just a few weeks or months. Over $50, we are in uncharted territory. There may be investors trying to short silver to cap the price, the USG could be looking at ways to stifle demand- including confiscation, the COMEX may stop trading and/or be in disarray. Any of those things could cause a lot of price volatility. I think anyone invested in silver will need to be on their toes. I am not forecasting what WILL happen, just what I think could happen and in some instances what is likely to happen. The main point is there could be several different routes on how we get there ($50+) and there will be many different things happening, so we will need to evaluate the situation at that time. I have seen predictions of silver at $100, $200 and even 1:1 to the price of gold. Obviously, I or no one else KNOWS what the price of silver will be and we will only know the high price once it backs off.

I do think that at some point after $50 and more likely after $100/oz. that silver will get into a “bubble” situation, so trying to hang in until the absolute top could get very tricky, but depending on how wild it gets could be very profitable. From now (9/27/20) at $24.00 to $100 is a 300%+ gain. To grab a number that sounds reasonable to me I would say that silver in an un-manipulated market should be around $50/oz. (based on 2020 dollars). I think things will “get bumpy” (be volatile) once silver goes over $50, up to the top and then back down to what will become a stable price range.

The other big plus for silver is the current silver to gold (Ag:Au) ratio compared to historical averages for this ratio. Currently, it is up around 80:1 (takes 80 ozs. of silver to buy 1 oz. of gold). Historically, that ratio has been more like an average of 55:1 and lower. Typically as silver prices rise the Ag:Au ratio goes down. At the two highs of silver on 1/18/1980 ($49.45) and 4/28/2011 ($48.70) the Ag:Au ratio was 17.2 (approx.) and 31.5 respectively. So, even though the gold price is likely to increase, the silver price is likely to increase by twice as much or more. The above ground gold market is estimated to be worth $11.4 trillion at current (10/2/20) price of about $1900/oz. So, what would happen if/when silver starts going up, 1% of gold were to convert to silver. That would be $110 billion dollars and at $24/oz. that would buy over 4.5 billion ounces of silver. The only trouble is there are only 2 -2.5 billion ounces of silver above ground, at least in 1000 oz. bars. The graphics at Markets gives a very good visualization of the size of different markets.

So, silver is the golden child, so to speak. What could go wrong? As I have said I think the run up of the silver price could be very volatile, but I also think the pot odds are very good. See the section of Risk & Disadvantages to get an idea of some of the risks as I see them. Please comment with ideas of either the advantages or risks of silver investing.

Comment Parameters

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As I have said on these pages the information given is my opinion. Please comment with your opinion and info. I am hoping that we can help each other figure out how to best invest in silver. I just ask that comments are:

  • Respectful
  • Not obscene
  • Intellectually honest

This site uses Disqus for comments, please create an account for yourself if you don’t already have one.

Physical Silver Supply

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The key to price with any commodity is normally supply vs demand. The more supply compared to demand means the price goes down. If demand is stronger than supply then prices go up. Those rules break down in the manipulated silver market. But, basically by manipulating the price down the manipulators have kept investment demand down. The industrial demand for silver has remained fairly consistent for the last few years- about 750 million ounces. You can look at the last Silver Institute survey.

Silver Institute Survey

You’ll see that both the supply and demand have averaged pretty consistently (within 10%) between 2011 – 2019. Between the industrial usage and the silver used for jewelry and silverware there are only 263 million ounces (9 year average) left for investment demand. This is only 22Moz. ounces per month. Think about most manufactures these days. They typically operate on a “just in time” supply system. They want to have as little inventory as possible. Ted Butler wrote a good article on this years ago.

http://www.investmentrarities.com/ted_butler_comentary03-05-02.shtml

So for many if not most industrial silver users, silver is a small part of the total product. I have heard that there is about an ounce of silver in a car. The car manufacturer is much more concerned that the assembly line remains running than what the price of silver is. I don’t know what amount of silver manufacturers keep on hand, but to make it easy let’s say it is one month’s worth. Now say there is a physical silver shortages. Deliveries are delayed. The natural actions of the purchasing agents would be to build up silver inventories. The manufacturer would want to at least double their lead times and probably more. So, currently the manufacturers use over 60Mozs./per month. Then, due to a shortage they want another 60Moz. to build their silver inventory and they want it now. There is only an average “extra” 22Mozs. “new” silver available per month that is currently being bought with investment demand. So, just an extra 60M oz. demand would put a strain on the current supply and demand causing prices to jump, causing more investment demand, causing more strain on physical silver inventory. I think there are many “triggers” that could cause silver prices to start moving up, but at some point I think that price rise will go into high gear once silver supply is constrained given the way people will react to supply shortages and higher prices.

Butler has reported that since 2011 JPM has been building a physical silver inventory. He claims that currently they own about 1000 Moz. of silver. This silver hoard definitely is a wild card in trying to predict the when and how of ending the silver manipulation. JPM has accumulated this silver inventory over the last 9 years or about 100 Mozs. per year. So, if investment demand added 100 Moz. per year that would take up the slack if JPM backs off its accumulation. Butler has also said that he believes JPM was buying Silver Eagle and Maple Leaf 1 oz. coins and probably melting them into 1000 oz. bars. From 2011 – 2016 the average US Mint Silver Eagle sales were 41.2 Moz. per year. JPM apparently backed off in 2017 and the sales were only 23.1 Moz. last year.

I have seen estimates that there is an estimated 25 Boz. of above ground silver. That seems reasonable to me. But, 1000 oz. bars are what is used for most large silver users and for investment demand. There is only 2 – 2.5 Boz. of “viable” 1000 oz. bars. At the right price silver will get recycled and melted into bars. My local coin dealer told me after the 2011 price high that he was surprise how much scrap silver came in during that period. His point was he didn’t think near as much will come in on the next price rise. In other words if people didn’t want to bring their silver items in to be recycled in 2011, then at what price would they sell now?

Please post answers to these questions if you know the answers:

  1. How long does it take from the time that silver items are recycled to when they can be turned into 1000 oz. bars?
  2. Since Silver Eagles are already .999 silver, Is it quicker to turn 1000 silver eagles into a 1000 oz. bar than 90% silver?

Silver Manipulation Deniers

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The main arguments that I hear by silver manipulation deniers are:

  • Supply and demand sets the price of silver, not the futures market. The futures market is just used for hedging of commodities to layoff risks.
    • That might be true in some commodity markets, but definitely not in silver.
    • In silver (and gold) the market has been manipulated down by a concentrated group of commercial investors with an out sized short position, which in silver at least is probably a “naked short” meaning they don’t have the metal that they have already sold.
    • The miners aren’t using futures for hedging as they would have to report that and they aren’t. They are about the only ones that could (legitimately) sell silver short to lock in a price as a hedge.
  • In future contracts for every buyer there is a seller.
    • This is true. But, in silver the majority of the contracts are bought and sold by entities that are pure speculators, not hedgers. It is a big rigged gambling game. This is all laid out and explained weekly by Butler, Steer and others. The weekly CFTC COT reports show that the traders classified as commercials basically lead the traders classified as managed money around by their collective nose. How? The managed money traders are dominated by technical funds. These technical funds trade on price signals and moving averages. The problem is they trade as a herd, buying and selling at certain price signals. The commercials use trading tricks (HFT, spoofing, etc.) to move the technical funds in and out of trades to the advantage of the commercials. Butler claims per his observations that at least JPM (and the commercials in general) have never had an overall loss as they buy when the managed money is selling and selling when they are buying. This kind of track record is not possible in a non-manipulated market.
  • The CFTC has investigated these manipulation allegations at least twice and has not found any problems.
    • This is true, but it doesn’t mean that the silver price is not manipulated. It MAY mean that the trading tactics of the manipulators are not illegal. If that is the case then the laws/regulations need to be changed because silver is being manipulated and the CFTC’s own data proves that. The price of silver in effect is determined by COMEX future contract trading. As I have said, most of the trading is done by speculators who are manipulating the silver price.
    • What the lack of CFTC findings and actions says to me is that the CFTC is incompetent, corrupt and/or not strong enough to battle JPM and the other large commercials. I would guess that the CFTC is underfunded to actually carry out their mandate. Politically it might not be feasible to rein the large commercials in as they are large political donors.

The Silver Story

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I have been interested in the “Silver Story” for over 35 years. What I have learned about silver has come mainly from Ted Butler, Ed Steer and a few others. I do not have any “new” facts to say about silver, but I do want to present some silver “philosophy”. Why? First and foremost is how relatively few people know and understand ANY of the silver story. If you have coherent opinions (in agreement or disagreement) about what I am saying I would guess you are one of a very small population that knows something about silver. I don’t have anything against gold and I think gold will do well in the foreseeable future, but I think as an investment silver will do much better, at least until after the current silver price manipulation ends. Why? Mainly because silver is such a small market both in readily available above ground silver (in 1000 oz. bars) and the relatively small amount of money that it would take to push silver prices to new highs. I do believe that every bubble bursts and every manipulation must end.

I follow the daily silver price on www.kitco.com. Kitco has links to videos with interviews “movers and shakers” in gold and silver. So, often in these videos the interviewees will make predictions on gold prices rising and then as almost an afterthought they will say “and I think silver prices will do better”. I don’t understand why the “experts” don’t focus more on silver especially when they seem to know that it will do better than gold. The math is simple. Historically, when gold and silver prices rise the silver/gold ratio tightens. So, currently the silver/gold ratio is over 80 to 1, meaning it takes 80 ozs. of silver to buy 1 oz. of gold. The average of this ratio in the 20th century was 47:1 and was 31.5:1 the last time silver hit a high.

Following represents the facts as I think they are:

  • Silver prices have long been and are being manipulated. I will expand on how this has been done later in this article.
  • Annual production- mining and recycling- of silver is about 1 billion ounces.
  • Annual industrial and fabrication use of silver is about 750 Moz.
  • Much of the industrial use of silver is fairly price insensitive. I have read that there is about 1 ounce of silver in the parts in a new car. If the price of silver doubles, triples or more the car manufactures aren’t going to cut back on production because they have to pay extra for silver. Their main concern is going to be getting the parts with silver in them, not that those parts cost them a little more. Same with computers, cell phones, etc. A rise in price is not going to have much impact on consumption, at least for a period of time until the part manufactures can find cheaper substitute materials to use.
  • This leaves about 260 Moz./year of new silver (9 year average) available for investment purchases such as the ETFs and/or investment in silver bullion.
  • All manipulations must end at some point.
  • Silver and Gold have historically been used as money and a store of wealth.
  • Because of the facts above I believe that silver will be the best investment over the next few years.
  • I don’t have anything against gold and I think gold will do well in the foreseeable future, but I think as an investment silver will do much better, at least until after the current silver price manipulation ends.
  • Notice that I am not predicting the collapse of the economy or major turmoil. Those things could happen and probably will happen at some point and if/when they do the price of precious metals will go up as people invest as a “hedge” against inflation or turmoil.
  • Keep in mind that as the price of gold & silver goes up typically the silver/gold ratio goes down. In other words the price of silver goes up faster than gold.

Assumptions, Risks & Disadvantages

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Assumptions:

  1. JP Morgan (JPM) and other large commercial banks have been manipulating the silver price to the downside for at least 10 years.
  2. JPM has acquired 650 – 700 Moz. of physical silver per Butler over the last 9 years.

Risks & Disadvantages:

  • I think the risks of investing in physical silver are minimal, but should be noted and watched for.
  • 30 years ago silver was under $5/oz for quite a while. It went up to just under $50/oz. in 1980 when the Hunt Brothers tried to corner the market, then crashed when they were stopped. It went up to almost $50/oz. again in the months before May 1st of 2011 due to physical tightness. Then manipulators took the price down . They have worked it down and it has been in the current trading range ($15 – $20/oz.) pretty much ever since, until in July 2020 when it spiked up over $28/oz.
  • There is a small chance of the government or governments declaring silver a “strategic metal” and trying to confiscate it. I don’t think that it is likely or would likely be successful and wouldn’t happen until there was an actual physical shortage. But it is something to watch out for.
    • Gold and silver are traded internationally and if USG tries to confiscate it will just make these commodities more valuable.
    • I think if there is confiscation it will be mainly to get silver. Silver could be declared a “strategic metal” which it is and is needed for electronics and military equipment.
    • I think physical metal under your control would still be relatively safe, but if the USG wants/needs it hopefully they will at least pay a fair price.
  • Having physical silver under your direct control is the safest, but other methods may produce better returns and probably more risks and volatility.
  • There is an Exchange Traded Fund (ETF) for silver with the symbol SLV. Basically, a share of this is an ounce of silver (less accumulated fees). Currently, there are 326M oz. in this ETF.
    • Advantages of SLV are:
      • Can be traded thru most any brokerage account including most retirement accounts (you may have to sign additional notifications)
      • Has physical silver backing most shares. There has been some shorting of the stock, but that has been fairly minimal and consistent for the last few years.
    • Potential Risks of SLV are:
      • You don’t have the silver under your direct control.
      • BlackRock, Inc. is the SLV sponsor, JPM is the SLV custodian. I’ve seen many comments and questions about JPM being the custodian and the potential for them to somehow use that position to their trading advantage. I haven’t seen any reported abuses, but something to keep an eye on.
  • Physical silver typically does have a fairly large premium. At your local coin shop you can pay $2 -$4 premium on a Silver Eagle. A 10 or 100 oz. bar may have a smaller premium. While this premium is definitely a deterrent to trading silver as a short term investment, I don’t think it is for long term investment.
  • At some point the price could get into a bubble situation, but I don’t think that will happen until $100/oz. or more.
  • If the COMEX trading got too wild, I could see COMEX halting trading on silver. Hopefully, we would get some prior indication that might happen, but if it does it should be bullish for physical silver and could be very negative for “paper” silver.

Facts (as I see it)

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  • Ted Butler (https://www.butlerresearch.com/) provides the most comprehensive and accurate information on silver that I have found.
    • I highly recommend subscribing to his newsletter $34.95/month) to be able to see his twice weekly reports.
    • On his website there is a section “Free Archive” that has some of the articles he has publically published and which would be a good start to learning more about silver.
    • I first became aware of Ted Butler in the early 1990s when I would get a monthly newsletter from Investment Rarities. Many of the articles were written by Butler. Many of his articles are archived on their website at http://www.investmentrarities.com/tbarchives.shtml This is another good place to research the history of the silver market.
    • For years Butler has called the commercial banks that seem to control this manipulation criminals/crooks. That includes JP Morgan (JPM) that seems to be the “ring leader” and the CME Group (owner of the COMEX) that allow the manipulation to continue. The fact that none of these entities have threatened to sue Butler tells me that they know they don’t want to go to court and fight against the truth.
  • The silver price is and has been manipulated to the downside for 20 years and more.
    • Butler does a great job of explaining how this manipulation works and its effects.
    • Every manipulation must end at some point and historically the price of the manipulated commodity takes off in the opposite direction once it is ended. In most cases that we know about the manipulation is to the upside and then when ended the commodity crashes. In this case once the manipulation ends the price will explode to the upside.
  • The Commodity Futures Trading Commission (CFTC), a government agency, publishes a weekly report called the Commitments of Traders (COT) that Butler analyzes weekly.
    • This report on its face shows that silver is being manipulated by speculators using COMEX silver future contracts.
    • This report shows huge volumes of silver contracts being traded.
  • There are only 2 – 2.5 billion ounces of above ground silver currently available in 1000 oz. bars.
  • According to the following link to The Silver Institute the average production of silver for the last 9 years was right at 1 billion oz. Including mining and recycling (140M oz.)
    • https://www.silverinstitute.org/
    • According to the linked report there is only an average of 260 Mozs. per year of silver left for investment demand after taking out the Industrial, Jewelry and Silverware average demand.
  • All manipulations must end and when they do the price of the manipulated item (silver in this case) will move strongly in the opposite direction of the manipulation (thru the roof in this case). We are most used to things being manipulated higher in price and then the price crashing when the manipulation ends. With silver the price has been manipulated to the downside and when the manipulation ends I think silver will skyrocket

The Silver Story 2

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In my opinion, the price of silver is going to explode and we are getting closer to that explosion day by day. Silver is currently at a low point and as I will explain it will go up from here. The two big questions (as with any investment) is when and how high it will rise. Everything that I say on this site is my opinion; I am not a financial advisor or a silver “expert”. What I am is somebody that has watched and studied silver for over 35 years. I am a computer tech and always try to use logic to help me process information and make decisions. I have gotten much of my knowledge about silver from Ted Butler and highly recommend his newsletter for anyone who wants to learn more about the silver story.

What I have been looking for is a website that tells the Silver Story as I believe it is. One that would help a nubee to silver understand where it is at and where it is going. A website that would also give the veteran silver watcher good current information and resources to help make investment decisions. A website that would provide information for as deep as you want to go.

If you are a Goldbug- I think gold will do fine and has a good outlook as a store of wealth in these turbulent times. But, I think silver will do much better than gold.

I think that anyone interested in making a good investment or protecting their wealth or both should buy silver. I assume people landing on this page will range from those who just want some info and ideas on why they should invest in silver to those who will want to investigate and research silver. I hope that the information provided below will help all gain useful more knowledge about silver. Please leave comments and questions.

If you don’t know the Silver Story and you hear “silver manipulation” you may just want to write it off as another “conspiracy theory”. I don’t think it is and I believe that logic proves that the silver price has been and is being manipulated to the downside. (see Facts)