Silver: A Rare Opportunity

November 21, 2005

As little as one hundred years ago, a silver dime paid a worker for a full days worth of work. At today's fire-sale prices, you can buy those same 90% silver dimes for about 60 cents each. In fact, for under $6000 dollars one can purchase a 55lb bag filled with 10,000 silver dimes, the equivalent of 37 years of hard labor for over 2,000 years of history. In fact, in 1980 one of these bags was able to buy a comfortable home (Silver Ounces/Cost of Home)

Obviously silver is no longer used monetarily or these dimes wouldn't be for sale at such a ridiculous price, but does this necessarily mean that the price of silver should stagnate, only to revert back to its historic norms in the event of a worldwide return to the use of silver and gold as money? Not at all. Silver, as well as gold, should appreciate in price dramatically, regardless of monetary interest, which is, nevertheless, being seriously considered by Mexico.

Prior to the 20th century, silver's demand was almost entirely monetary. It was only until the industrial revolution and the advent of the modern electronic age that silver became an industrial metal. Though today absolutely no monetary demand exists, there has nevertheless been a documented 15 year supply-side deficit (CPM 2005 Silver Survey 2005). This demand has largely been met by government dis-hoarding, which has served to flood the market, partially explaining the long bear market in silver up until recently--with the exception of the dramatic price action of the late 1970's and early 80's.

Speaking of 1980, (the year silver peaked at $150/oz in inflated terms) in that year all the governments of the world could claim a collective silver stockpile of about 2 billion ounces. Today, the total world government supply has shrunk to an estimated 200 million ounces (Silver Survey 2004 pg. 32), an amazing 98% decrease in a period of just 25 years. It appears that the U.S wins the boobie prize in silver liquidation, as it has managed to sell the largest stockpile in the history of the world (6 billion ounces in 1930) in just 72 years. That's correct, the US stockpile ran dry in 2002, after systematically selling its silver into the market for over seven decades. In fact, the US government now has to purchase about 10 million ounces of silver every year in order mint its popular 1 ounce Silver Eagles.

Now don't imagine that the 6 billion ounces that were sold into into the market somehow found their way into another warehouse, with the potential to be sold back into the market again. Instead, it must be understood that the majority of that silver has long since been used up by industry, having been consumed in minute amounts that are not capable of being recovered. The silver truly is gone forever.

In the 20th century alone, an estimated 36 billion ounces out of the 40 billion ounces of silver ever mined in the history of the world have been consumed . This means that only about 4 billion ounces of silver remain above ground, and most of it in the form of silverware and jewelry, forms of silver that will not come to market until silver reaches a minimum of $40-$50/oz. Since the total amount of silver bullion in in the world amounts to 671 M ounces (Silver Survey 2004 pg. 32), and the average supply/demand deficit runs around 100 million ounces per year, not much of cushion exists any longer and the potential for industrial stockpiling is probable.

This leads to the most shocking conclusion of all, that Silver is indeed as rare or evenmore rare than gold. About 95% of the 4-5 billion ounces of gold ever mined (World Gold Council) is still in circulation, since about 95% of gold mined every year is used in jewelry, bullion, or bullion equivalent. Thus, the total gold inventory grows every year, where as silver is now consumed faster than it can be mined, because it is such an essential industrial component. Silver is then either as rare (4 billion ounces vs. 4 billion ounces) or more rare than gold. And remember, most silver is not accessible to the market at these prices. Yet somehow, Gold still trades at a premium of 60:1 to silver, even while historically, gold only traded at a premium of 15:1, and that was when silver was 10-15 times less rare that gold!

The Silver Story, of which this article has only related in part, is representative of perhaps the single greatest investment opportunity in history, in terms of risk/reward ratios. Historically, silver was 20-200 times more valuable than today's quoted price of $8/oz., and that despite the fact that today it is 10 times more rare. Silver is used in more applications than any other commodity besides petroleum, and the USGS estimates that there are only about 30 more years of mine life left for the metal (World Reserves), the least of any other. At this point, there is little to suggest that the price of silver will ever trade below $7/oz again, and certainly not below $5/oz, while the potential gains to be made are incredible. Considering that both the DJI and SP 500 have offered little more than a 2% yearly return since 2000, not even able to keep up with the government's own inflation figures (DJISP 500), silver and gold are once again becoming worthy editions to investment portfolios.

Armed with this information, you ought to know what to do. Open that phone book of yours and plan a trip to your local coin store. Purchase as much silver as you reasonably can and then sit back, relax, and watch the price rise ever higher. Now, if you happen to be like me, and enjoy the added volatility and leverage that silver mining stocks have to offer, I invite you to subscribe to my Free Silver Stock Newsletter found

Oh, and did I fail to mention that silver in not traceable, therefore, not technically taxable. So don't delay, free yourself by disposing those worthless fiat notes today, exchanging them for intrinsic value, a true store of wealth, the most lustrous of metals, humble silver.

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