The Silver Story
The Silver story is one that many will call a filthy rotten stinking scandal as the price of Silver has been illegally suppressed for so long, however screaming and make empty threats has not changed much. Now we have something new, the US has admitted that they don't have any more silver and basically will have to buy it on the open market.
As of march 30th 2004, commercials are short 95,630 contracts, each contract represents 5000 ounces, so effectively they are short approx 478 million ounces of Silver.
In 2002 Silver production came in at 585.9 million ounces, take time to think about that for one second and compare it to the total number of ounces the commercials are short. However on the demand side we have an interesting situation, 838.2 million ounces were used in 2002, which is approx a deficit of 253 million ounces. This was met by dipping into reserves (the table below illustrates this point nicely); the US has no more reserves to dip into, so the ship is one step closer to sinking.
The main source of Silver in 2002 was generated as a by-product of other metals. The above pie chart illustrates the point very nicely. There are not many pure silver mines; this indicates the scarcity of Silver.
It is said that the COMEX only holds between 100 million to 150 million ounces of Silver, if this is true one large buyer could effectively bankrupt the exchange. Even if they had 500 million ounces of Silver, one large player could still take them out. Someone like buffet could do this in one second. One day perhaps someone might try, though they would have a hard time taking delivery of that Silver, as I am sure the boys in charge would find someway to prevent the owner from taking delivery.
Since Silver is the poor mans Gold and is in reality a currency, though most try to deny that it is one, it will do much better than Gold in terms of % gains. The reasons are simple one of them is Psychological, people always want to get the biggest bang for their buck and Silver allows them to do this. In addition there is a really terrible scandal waiting to unfold one of these days in regards to Silvers price suppression that has gone on illegally for decades. When this Scandal unfolds the consequences are going to be extremely huge and sadly negative. How negative these effects will be is just too difficult to predict. Furthermore Silver unlike Gold has industrial uses other than just being seen as currency. It is metal that is of outmost importance to many applications and we have no substitute to date. In addition most of these applications destroy Silver, so unlike Gold that is basically circulating around the world in one form or another, most of the Silver used in industrial applications is destroyed forever.
In the mean time one should look to take positions in silver on any major pull back. If you look at our last essay the Silver Lining , it graphically illustrates that Silver is in a true bull market. Silver has broken out in almost all the major currencies of the world. The real war is not going to be the war between the Feds and Gold but between all the central bankers and Silver. When it begins the only question that will form in those individuals' minds that are standing on the wrong side of Silver will be "to run or not to Run?"