The Silver Story

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.