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Archive for June, 2011

Why Silver over Gold?

My interest in gold goes back to 1972 when I purchased my first gold coins. Over the years I have had the opportunity to compare the performance of gold and silver side by side. I watched gold climb from about $100/oz to $850/oz from 1973 to 1980. That is an 850% increase. I watched silver in the same time frame climb from about $4.50/oz to $50/oz. That is more than a 1000% increase. So even in the decade of the 70s silver was outperforming gold.

It is widely believed that the metals markets are manipulated by many interested parties both here and abroad. That means that they fluctuate widely. Silver tends to fluctuate along with gold but the swings in both directions are greater. At the end of the 20 year bear market in precious metals which ended in about 2000 gold had fallen from $850/oz to a low of about $252/oz but silver had fallen all the way back from $50/oz to its level at the beginning of the 1970s at a bit under $5/oz so its percentage fall was greater than that of gold.

The fact that silver fluctuates more widely than gold means that there is more potential for gain on the upside in the bull market we in which we are currently. We just want to exit that market before it reaches a parabolic top.

It is important to note that silver is more depressed than gold. It has been in a bear market since the late 1400s. When you adjust for inflation, silver did not begin to reverse this trend until about 2000. That is a very long bear market. It is like a tightly coiled spring that is about to be unleashed.

When we add to this the fact that silver is more scarce than gold it becomes more impressive. Just about all the gold ever mined is available in above ground stores such as central banks and private holdings. Gold has few industrial uses and is valued mostly for its monetary function, as a store of value which has stood the test of time.

Silver, on the other hand, has seen increasing use in industry in the past century. Silver is the best conductor of electricity and heat and the best reflector of light. Every electronic device uses minute amounts of silver in components such as switches and the like. Silver has been used for its antibacterial properties for centuries and now that resistant microbes make antibiotics less useful, silver is increasing its usefulness as an antibacterial. Silver is added to textiles to make them more germ free. Socks with silver fibers are recommended for diabetic patients. Silver has long been used to treat burn patients.

The industrial uses for silver are growing rapidly and in most instances there is no other substitute for it. This is putting greater pressure on the above ground supplies of the metal. At the end of World War the strategic stockpile of silver metal held by the US government was said to be about 3 billion ounces. Many other central government also maintained stockpiles of silver. Now there are zero ounces held by the US government. Due to pressure from silver user lobbies, the US sold all its silver. Other governments such as India similarly dishoarded their silver stockpiles. Now when the US mint wants to issue Silver Eagle coins it must go to the spot market and purchase silver.

Estimates are made that, in actual ounces and not monetary worth, there is about five times the amount of physical gold in above ground stores than silver. There is much greater demand for silver in industry than gold. That silver has been used up and cannot, to any significant extent, be recovered. To top this off, investors are now turning to silver because of its monetary role. The US Mint sold more silver eagles in the first few weeks of January, 2011 than in the previous nine months in 2010 and production was greater in 2010 than in 2009. This attests to the increased investor demand for silver as a store of value. Silver always used to mean money and was in greater use for that purpose than gold. It was what circulated. The word for money in French is l’argent which means silver. The role for silver as money may be making a big comeback.

For the past 20 years we have been consuming more silver than was being mined. The difference was make up by dishoarding of silver by governments and by recycling. Anyone knows that these means cannot supply silver indefinitely. When the above ground stores are depleted, the only new silver will come from mines. There are two interesting observations concerning silver mining. First of all, the easy to find silver has already been found. The rest will be more costly to find and bring to market. Secondly, the depressed prices of silver for the past 20 years discouraged new investment in developing new silver discoveries or in expanding capacity of existing mines. Many silver miners were forced to close their doors in the 1990s due to depressed silver prices. It cost more to mine that it would bring in the open market. It takes at least five years to turn a mineral discovery into a working mine. Even a dramatic increase in the silver price from this point forward will not result in new silver productions for at leat five years.

Add to this the fact that public confidence in paper currencies is at an all time low as governments deliberately devalue their currencies to try to maintain a favorable balance of trade. This puts even greater pressure on silver as a store of value. Since silver is lower in price it has been called poor man’s gold. The average citizen is better able to afford an ounce of silver compared to an ounce of gold. There are a lot more average citizens than wealthy ones so when they get the word on the worth of silver, the buying pressure will be immense but the supply is minuscule.

All of these fundamental features as well as the technical indicators point to the rapid and dramatic increase in the price of silver and silver miners in the coming months and years. We have seen what the price of gold had done in this environment and the increase in its value has been robust. With silver I feel it is going to go from robust (and greater than gold’s gain in the past ten years) to absolutely spectacular. This is why I like both metals but favor silver over gold at this point in time. What do you think?

Written By: Edward Smith

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Are We Running Out of Silver?

Silver has been on fire over the last three years — substantially outperforming its spotlight-grabbing cousin, gold.

Because we believe this bull run is far from over, we advise investors to always maintain exposure to the precious metals markets. Even if you haven’t yet participated in the run-up of both gold and silver, I’m glad you’re ready to take a look at the investment potential of silver.

The question every investor faces in a bull market is: Do I buy now, anticipating prices will continue higher — and chance getting clobbered if a correction arrives? Or do I wait for a pullback and possibly miss out on big gains? There’s risk either way.

Our goal in this report is to suggest various ways you can invest in silver, while underscoring the importance of patience and discipline. Investors must remain patient to avoid chasing silver, overpaying, and draining their cash. Instead, we recommend that you use temporary price declines to steadily accumulate the best silver stocks and your preferred form of bullion.

Looking back after this bull market has finally run its course, we think gold and silver will have amply rewarded those who bought smart, had meaningful exposure, and stayed the course.

Silver: The Lay of the Land

There is ample data on the silver market to consider, but there are two specific issues regarding  supply and demand that are critical to understand.

The first is industrial use. Demand from a number of industries that use silver has been flat or falling. Household demand for silver like cutlery, flatware, and candlesticks hasn’t risen in ten years. Jewelry fabrication is up but a blip. With the shift to digital photography and image storing, use in photographic film processing continues to fall. And yet, total demand from industrial users keeps climbing.

So what’s driving industrial demand?

Uses for Silver Are Growing

Since 1999, consumption in electronics has increased 120%. Silver use in solar panels began in 2000, and usage is up 640% since. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small percentage of total silver use, it has grown six-fold.

The point is that not only are the number of uses for silver growing, the demand within each of those applications is rising as well. This is important to keep in mind because, traditionally, the industrial component of silver tends to keep the price soft in a poor economy – and Doug Casey is convinced we’re on the cusp of the Greater Depression.

However, these increasing sources of demand are now more likely to keep a floor under the price in the future. In fact, the Silver Institute forecasts that total industrial use of silver will rise by 36% over the next five years, to 666 million troy ounces/year. That’s a lot of silver, meaning this portion of demand, which is roughly 60% of all fabrication, isn’t letting up anytime soon.

The second issue is mine supply. Silver mine production has been increasing over the past decade, largely due to rising prices, allowing companies to ramp up production and bring more metal to the market. In fact, global mine production is up 33% since 1999. Meanwhile, total demand, as you’ll see in the chart below, is also rising.

Mine Production Can’t Keep Up with Demand

So what’s the concern?

In spite of miners digging up more and more silver, production alone can’t meet global demand, and the gap has to be filled by scrap silver coming to market.

And there’s a catch with scrap. While scrap metal comprises about 20% of silver’s total supply, many of these new applications are difficult to reclaim. Some applications contain such small amounts that they’re uneconomic to recapture, such as many biocidal and nanotechnology applications. With others it’ll be a long wait. Solar panels, for example, have a 20- to 30-year life. Still others are waiting on more effective recovery programs; more than half of all silver in cell phones, TVs, computers and other electronics, for instance, still ends up in landfills.

In other words, a growing portion of the silver that’s consumed won’t be returning to the market anytime soon.

(Excerpt from the Casey Research 2011 Silver Investing Guide)
By: Jeff Clark, Senior Precious Metals Analyst

Jim Rogers Says – Buy Silver!

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Video Interview: Murphy, Turk & Boehringer-On Gold & Silver

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America Is Run By Big Banks and Wall Street

MUST SEE VIDEO: Dennis Kucinich Calls For Congress To Take Back The Power Of The Money, Demands The Abolition Of The Federal Reserve.

Until we take back control of our money system – protect your spending power through “Honest Money” – Silver

G Edward Griffin – The Creature From Jekyll Island And Current Events

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Richard Russell: Buy Silver

Like myself, Richard Russell had been vocally skeptical about the parabolic surge in silver prices. But he isn’t a believer in the silver theory. Russell says the recent correction is healthy and he feels as though the recent consolidation is setting the stage for the next leg up. In his latest Dow Theory Letter the investment legend explained why he’s bullish again about silver:

“Silver – According the Constitution of the United States, only gold AND silver are money. Silver is a lot cheaper than gold, and for a while the “crowd” rushed in to buy silver as a ” safe haven substitute” for gold. Silver turned into a speculative bubble, and when the bubble broke, silver suffered a crushing drop from a price of 49.75 to 32.

I wrote that silver’s upward post-crash correction might surprise most silver-haters and silver shorts. As I write silver has rallied to above 37. The bull market in gold is still very much intact, and I believe gold will take silver UP with it.

Remember I said that during recessions, silver is treated as an industrial metal, but during periods of inflation silver is treated as a monetary metal. With inflation built into America’s future, I see silver following gold to higher levels. And I see the public once more rushing in to buy silver as a safe-haven currency against a shaky dollar.

Below I include a daily chart of silver, going back two years. Like gold, silver seems to respect a 150-day moving average, which I have drawn on the chart (blue line). Also, note that silver is still severely oversold, as per RSI.”

Source: Dow Theory Letters