November 30, 2006

The Age Of Silver

The Age Of Silver

FN Arena News - November 24 2006
By Greg Peel

"The short answer is that the results astounded me, as I think they will astound you. I must confess – it takes something very special to make me feel I have underestimated just how bullish silver really is. This study has had that effect on me".

Theodore Butler is a self-confessed "silver bug" and, to his fans, a silver guru. The study to which Butler refers is one he has conducted recently, and clearly has been moved by. Critics may scoff, but the reality there is a groundswell of belief that while there may be reasons to feel the gold price could see new highs, there is potential for the silver price to explode to levels never previously imagined.

Before turning to the fundamentals of Butler's study, it is necessary to look more closely at the "poor cousin" metal that is silver.

Silver has the highest electrical and thermal conductivity of any metal, the highest optical reflectivity, and the lowest contact resistance. Silver is classified as a precious metal, but it is the only metal with the chemical reactivity to act as a catalyst in several applications. While "precious", the vast majority of silver's usage today is in industrial applications.

"Silver is arguably the most versatile of metals", notes silver expert Richard Karn, "as is witnessed by more patents being filed for new uses of silver each year than for all other metals combined".

Karn notes that that there are two approaches to investing in silver – as an industrial metal (or "commodity"), or as a store of wealth in terms of monetary inflation in the same vein as "precious" cousin gold. This dichotomy has, in the past, resulted in a clash between both camps in the market.

In 2004, when the overwhelming success of the first US-based gold exchange traded funds led to talk of an equivalent silver product, the Silver Users Association was up in arms. An ETF must store the amount of metal it sells through the fund, and thus take it off the market. Silver has been in deficit for years, in terms of demand versus new production. "There isn't enough silver!" cried the SUA.

SUA represents those manufacturers, from jewellery-makers to industry, who buy physical silver. Their cries fell on deaf ears and in 2005 the first silver ETF was listed. The price of silver jumped almost overnight, from around US$7.50/oz to over US$12.00/oz. While ETF buyers were no doubt cognisant of silver's industrial profile, it was as a precious equivalent to gold that they sought investment.

In previous times, buyers of silver for industrial use had often met precious sellers coming back. While this often made for a chaotic market, everyone was happy. Now the two camps are aligned, and Richard Karn, in the latest Emerging Trends Report, suggests the two will have to live together. Not only do inflated commodity prices reflect increased demand out of the emerging world, but they also reflect the diminishing purchasing power of the US dollar.

"Make no mistake," says Karn, "at some point the dollar will inflate itself into oblivion as has every other fiat currency in history; when, however, is anyone's guess".

One of the arguments for a much higher gold price in the near future is that the US government has artificially propped up the US dollar through hedge fund and tech-wreck crises and recession. It has done this by selling gold under the radar, through leasing arrangements and derivative instruments. This means the amount of gold left in central bank vaults is becoming critical, and derivative obligations are covered by printing cash.

If gold runs, so will silver, but even without that consideration the bullish story for silver as an industrial metal is no less compelling.

The global slump in commodity prices began after the boom in capacity following World War II and bottomed in the recent technology boom. As is often cited, capacity expansion in recent times has been non-existent, given it's all miners have been able to do to survive, let alone expand. When China took off so did capacity development, but China had a very substantial start.

One way mining companies survived was by consolidating, such that any growth came from acquiring existing reserves rather than developing new ones. This is why the "super-cycle" theory was born, and why resources analysts took a long time to shake off long-held belief in the cycle of supply rising to meet demand. China has kept growing, but mining capacity has lagged significantly.

It has also meant that costs have increased substantially, as there is now an undersupply of technicians, workers, equipment and mining supplies. But while costs can harm profit margins, Karn suggests it's naïve to think producers will not pass cost increases on to consumers. This has largely played out.

There is a groundswell of feeling that the Chinese economy simply cannot keep growing at current levels, and look out when it slows down. One argument is that the massive infrastructure boom underway will end as soon as the Olympic cauldron is doused in Beijing 2008. But in the 1950s the US consumed half the world's commodities. Karn suggests that if (the much more populous) China can do the same, we still have a long way to go.

Silver is used in a surprising array of industrial applications, albeit usually in small quantities. One of the traditionally extensive uses is in photography. But silver use in photography has declined by 22% since 1999 when the digital camera became commercially accessible to all and sundry. This is one reason silver followers have been unenthusiastic about the metal as the new century unfolded.

However, the flipside is that photographic plates – once the major source of scrap silver – will eventually disappear. Moreover, another factor that has yet to take effect is that unless today's photos are printed out on silver-backed paper, they will quickly deteriorate. Nor are CDs and DVDs indestructible. In fact, we all now realise that an audio CD will develop a "scratch" just as quickly as an old vinyl LP. Some pundits actually believe that while the typewriter may have been superseded, the old 35mm camera will not be.

Photography may or may not be a victim of technological development as far as silver is concerned, but technology has also opened up a whole range of new uses for silver. Since 2000, silver's industrial use has only slipped 5%. At the same time, usage of silver in computer chips has increased 3%, 50 million ounces were used last year alone in the development of superconductors, and sales of plasma television screens are expected to triple by 2008. A 42 inch screen uses as much as an ounce of silver. This has all occurred while the silver price has increased by 10%.

Silver is also used in solar energy systems and water filtration systems. Think of the upside there.

Growing demand is all well and good, but the fallout from a growing price in any metal is usually substitution. Part of the current drop in the copper price is attributed to the search for different, cheaper alternatives. Indeed, already silver has been replaced in various applications by stainless steel, aluminium, rhodium, tantalum, and antimony. Such substitution will be a factor of price, but on the flipside silver has also been used as a substitute itself, for gold and platinum.

That's the demand side. Let's now consider the supply side.

For the last thirty years, the consumption of silver has exceeded the production of silver. The difference has been made up from scrap (principally photography) and inventory sell-down. Photographic sources are running out, and it is estimated only about one to two years of global silver inventory remains.

The deficit still exists despite silver production increasing by 8% in 2005. But the other factor, peculiar to silver, is that only 29% of the new metal actually came from silver mines. The remainder was extracted as a by-product from copper, lead, zinc or gold mines. Notes Karn:

"Ironically, 450 years of advances in extraction technology have relegated silver mining to a secondary source of silver ore."

There would thus have to be a significant increase in the development of new silver mines to make any dent in the deficit, and the Emerging Trends Report knows of none planned. So low has silver fallen in reputation, that miners of base metals have in the past been selling their silver by-product forward at bargain basement rates in order to assist in mine funding.

Karn notes that silver is actually tipped to go into surplus in 2006, but only because silver bought by ETFs is counted as non-consumed, and thus it eventually must be sold. While the US government alone held 2 billion ounces of silver in the 1950s, today's estimates suggest only 88 million ounces are held by governments world-wide (most of it by India). There is thus no real lender of the last resort in the silver market, other than that which is held in private hands.

Calculations suggest 42.5 billion ounces of silver have been mined in the history of mankind, and that about half of that has been consumed. Of the remaining 22 billion ounces, only 5% is held as bullion or coins. The rest of it is in Granma's cutlery drawer.

Yes – 95% of the world's silver has been fashioned into forks or trays or trophies or jewellery or religious icons. While most doubt religious icons would ever be sold just because of a high silver price, there has always been much debate as to at just what price the average citizen might be prepared to part with Granma's cutlery. If everyone sold their silverware, that's a lot of silver.

The rule of thumb used to be US$7/oz, but here we are at US$13/oz. This suggests that very little silverware is being melted down. In the meantime, newfound investor interest is surging. At the end of July, silver funds held 120 million ounces of metal. This supply is not allowed to be lent back to the market, so it is effectively removed from the market (until the time to sell out is reached).

No one knows the answer to the silverware sale price question, so let's go back to bullion. There is about one million ounces of silver held as bullion or coin. By comparison, there are 5 billion ounces of gold held "above ground" in the world according to the World Gold Council. Most of this is jewellery.

On that basis, Theodore Butler suggests that the "market capitalisation" of gold is US$3 trillion (5 billion x $600), and the market capitalisation of silver is $12 billion (1 billion x $12). In other words, gold is capitalised at 250 times silver.

Here we arrive at the beginnings of Butler's study – that which so astounded him.

Butler set out to further investigate the "gold/silver ratio". This price ratio has been a determining force for the price of silver over the last centuries. The mid-point is held to be around 50 times, and in over a hundred years it has moved only between 15 and 100.

Now, before we proceed there is one obvious flaw in Butler's logic. He counts gold jewellery as part of all gold held, but dismisses silverware, silver jewellery etc. This assumes gold jewellery will be "traded" but Granma's silverware will not be. This is not too farfetched, as gold is bought in jewellery from as much for investment as for adornment, while Granma once actually used her cutlery. Butler argues there is little evidence of silverware being sold in any great amount to date, and if it is it would probably be snapped up by investors. Says Butler:

"To conclude that silver is not a good investment at current prices, strictly because more supply may come on to the market at higher prices, is strictly absurd".

So there. We will proceed on the basis that Butler's logic is accepted.

By multiplying the amount of known gold by its price in 1900, 1950, 1975 and 2006 we get a growing market cap – from US$20 billion in 1900 to US$3 trillion now. The same exercise with silver sees only a growth from US$8 billion to US$12 billion. The peak was US$20 billion in 1975, but known metal has rapidly diminished.

The gold/silver price ratio has moved from 30 to 44, 38, 50 across those years. But (and this is the big but) the market capitalisation ratio has moved from 2.5 to 9, to 23, and now to 250.

Apply the same figures, and throw in world population growth, the value of gold held per capita in the world has grown from US$13 to $28, to $113 and on to $462 now. Silver's equivalent value has changed from US$5 to $3, to $5, to $2 now.

Now you know why Butler was astounded. If the market capitalisation had remained static since 1900 silver would be worth US$1000/oz. Taking only the per capita valuation ratio gives a silver value of US$175/oz. However you play with the numbers, Butler muses, you still end up with a silver price much, much higher than it is now.

(Add back the other 21 billion ounces in unknown silverware – that which Butler has dismissed - and those numbers become US$45/oz and US$8/oz.)

So there you have it. Two arguments, coming in from different angles, predict a major surge in the silver price. Both have an unknown factor – silverware. The question is thus: at what price will this hit the market? One thing is for sure – we won't see 21 billion ounces worth on eBay at US$15/oz.

And US$15/oz is the figure that Goldfields Mineral Services is targeting for silver. GFMS is a lot more bullish on gold, suggesting it should reach US$750/oz, even though it dismisses all arguments of price manipulation and overstated central bank inventories (these arguments have gold as high as US$2000/oz or more). But GFMS has actually warned against getting too bullish on silver.

Its main argument is that despite growing investor demand, the fall-off in industrial demand at higher prices will ensure the silver price has only limited upside. Production is also increasing. Silver will follow along with gold, GFMS suggests, until slowing global growth will undermine the price just as it does base metals.

GFMS recommends a short term silver investment will most likely be profitable. Butler and Karn believe there is a lot more upside in silver than in gold. If the silver price bursts through US$15/oz then maybe we'll have a clue who's right.

Richard Karn's Emerging Trends Report is a US based "predictive Business Intelligence service". Free ETR reports as well as reports to purchase are available on

A collection of Theodore Butler interviews and analyses can be found at and at Or simply visit

November 23, 2006

Silver keeps clothes from smelling -- portfolios too!

Silver Lining: Precious Metal Keeps Clothes From Smelling

By Michael Rubinkam
Associated Press
via Centre Daily Times, State College, Pennsylvania
Thursday, November 23, 2006

SCRANTON, Pennsylvania -- Bill McNally believes he has found a silver bullet for keeping the stink out of your socks. Not to mention your underwear, workout clothes, travel outfits, and hiking and hunting gear.

McNally's company, Scranton-based Noble Biomaterials, embeds the precious metal in clothing worn by U.S. soldiers, elite athletes and weekend warriors alike -- thus capitalizing on silver's increasing popularity as a way to keep clothes smelling fresh, even after multiple wears without a wash.

Noble is among a handful of companies that produce silver-coated textiles for use in the burgeoning market for high-tech performance apparel. The 10-year-old, privately held company's sales have grown an average of 50 percent per year, and doubled in the last 18 months, signaling rapid acceptance in the marketplace.

Silver kills odor-causing bacteria and neutralizes ammonia; it also conducts body heat, keeping the wearer warm in cold weather and cool in hot weather.

"I think it's a great concept for workout clothes and athletic gear, things you don't necessarily wash every single time," said Marlene Bourne, president of Bourne Research in Scottsdale, Ariz. Bourne studies emerging technologies - and has worn a pullover threaded with Noble's silver-coated fiber, called X-Static.

Noble has licensed X-Static to more than 300 companies, including Adidas, Umbro, Puma, Polartec and other apparel makers. England's national soccer team wore X-Static jerseys at the World Cup, and track-and-field squads from 60 countries clad themselves in it during the 2004 Athens Olympics.

Lululemon Athletica Inc., a Canadian sportswear company, incorporates X-Static in workout and running garments, "a lot of the sports you would sweat in," said spokeswoman Sara Gardiner. "The feedback we've received has been fantastic."

While most of Noble's growth has been concentrated in Europe and Asia, X-Static is gaining ground domestically. "The U.S. is always slower to pick up on technology advancements in the apparel market, but it's really starting to catch up," said Joel Furey, who heads Noble's consumer division.

U.S. soldiers and Marines already wear X-Static socks and T-shirts, which provide "olfactory camouflage" as well as a first line of defense against shrapnel wounds, because any of the silver fabric that becomes embedded in the wound "actually starts treating the wound," according to McNally, the company founder.

"You spend enough time in the jungle like I did, with clothes rotting off you and all sorts of skin infections, and I knew there had to be a better way," said McNally, 45, a Marine veteran.

Though a pair of X-Static socks contains only about one-hundredth of an ounce of silver, Noble cajoles wearers to take the "Double Dog Dare": Clad one foot in an X-Static sock and the other in a regular sock for a week straight without washing - and "smell the difference."

Silver's germ-killing properties have been known for thousands of years. In ancient times, silver was used to purify water. More recently, silver nitrate was dropped in newborns' eyes to ward off bacterial infections from the mother.

As manufacturers look to feed America's obsession with germ-fighting, they are adding the metal to a wide array of consumer products.

Samsung has launched a line of washing machines and refrigerators that use silver to kill germs. The Sharper Image offers food-storage containers lined with silver nanoparticles. Curad sells silver bandages. And Motorola's i870 phone includes an antibacterial silver coating.

"It is a growing field, there's no question about it," said Michael DiRienzo, executive director of The Silver Institute, a Washington-based trade group. "You're talking microscopic amounts of silver being used in this application, but over time, it could chew up a lot of silver and that's what interests us."

November 14, 2006

Us And Them

Us And Them

By: Theodore Butler

-- Posted 13 November, 2006 | Digg This ArticleDigg It!

For the past month or two, I have written about how the market structure in silver and gold, as depicted by the Commitment of Traders Report (COT) had indicated low risk and decent upside potential. That depiction proved correct, as prices rallied from dead low points to recent highs by around $2.50 in silver and $70 in gold per ounce. Once again, the COTs provided an accurate assessment of the low-risk nature of the recent bottom in silver and gold. Now what do the COTs suggest?

There has been deterioration in the COT structure (spec buying and dealer short selling) on the rally that brought us off the bottom and away from the previous ultra low-risk condition. Could we sell off, back below key moving averages? Yes. Will we? I don’t know. We could just as readily move sharply higher from here, based upon non-COT considerations. In truth, the COTs aren’t good forecasting tools when we are not at extreme COT readings, like now.

The COTs will explain a sell-off if we get one. Bear in mind, this is not a prediction of a sell-off, just an explanation in advance in case we do get one. Any sharp sell-off from here will be the direct result of the dealers collusively pulling bids, at opportune times, to insure that the brain dead tech funds sell into a vacuum. There will be no other reason, particularly if the sell-off is dramatic. Should this occur, this will clearly be manipulation at work.

But it is also important to put things into perspective. Long-term silver investors should be unconcerned with any short-term gyrations. If we get a clean out to the downside, it will present a "load the boat" opportunity. It is imperative not to lose perspective. It is critical that one focus on the many dollars to come to the upside in silver. To lose one’s long-term position because of a short term sell-off would be an incalculable error. Particularly since it is quite possible that any attempt at rigging a short-term sell-off could backfire on the manipulators and that rig failure could serve as the catalyst for a price explosion.

Away from the COTs, conditions appear very favorable for silver. Sooner or later, the six-month corrective price process will be decisively resolved to the upside with dramatic new highs. It’s just a question of when. In the meantime, I’d like to present another example that reflects how undervalued silver is on a relative basis.

Over the past 4 or 5 years, measured from the dead lows to the extreme highs, the price of copper, nickel and zinc have risen 6-fold, with zinc tripling in the past year or so. Even lead, which is under attack for toxic and environmental concerns has risen four-fold. These are commodities that share production and industrial consumption similarities with silver. These metals account for the majority of silver mining as a by-product. All have consumption, like silver, that is a function of general world economic growth and demographics.

Simply put, if production and consumption patterns share close similarities, it would stand to reason that the respective price patterns should also be similar. (These comparisons wouldn’t apply to gold, of course, as gold is not an industrial commodity). Based upon the 6-fold increase (so far) from the extreme lows in copper, nickel and zinc, silver should have a price objective of $25 an ounce, or double current levels. It could also be argued that because silver is so under priced vis a vis copper, nickel and zinc (and even under priced compared to lead), that this would serve as more proof that silver is artificially depressed due to manipulation by the concentrated shorts. I am unaware of any documented current concentrated short position in these other metals.

But as undervalued as silver may be, considering the price moves so far in these base metals, the actual price discrepancy vastly understates the true nature of the silver under valuation. Where silver clearly stands out from these other metals is in the fact that silver has always been considered an investment metal, spanning thousands of years. In this regard, silver is closely aligned with gold. The regular investor of the world has not and will not, in my opinion, hold physical copper, nickel, zinc or lead. That regular investor has and will continue to hold physical silver (and gold).

This simple fact means that silver should have already greatly exceeded the price run-ups in the other metals, due to the investment kicker. That it hasn’t yet certainly should not be interpreted that it won’t. In fact, it is this obvious investment kicker that promises to blow the lid off the silver market. In summary, the investment punch to the silver price has barely been felt and before it’s over, the percentage gain in silver will dwarf any other metal.

It has been reported that the NYMEX IPO will be priced this week. While I have no personal financial interest in this underwriting, I am disappointed that the SEC has apparently taken a pass on forcing the Exchange to address the hundreds of public complaints concerning the NYMEX’s refusal to answer the allegations of manipulation in their COMEX silver market. I’m sure many of you are similarly disappointed with the NYMEX’s failure to behave as a legitimate Self Regulating Organization (SRO) and with the government regulators as well.

We have to put these disappointments in perspective. It was never a case of counting on the regulators, alone, to terminate the silver manipulation and set the price free. At least, it wasn’t what I was counting on. It would have been great if it turned out that way and they should have done the job they signed up for, but it wasn’t the reason to be invested in silver. The reason to be invested in silver, for me anyway is that sooner or later, the market will overcome the concentrated shorts and reflect the true fundamentals. Of that, I am more convinced than ever.

But it’s also instructive (and I think encouraging) to review just what was involved and accomplished with the collective effort to get the regulators to move against the silver manipulators. For one thing, it brought the issue into the open. Allegations were made publicly about a very specific issue (the concentrated short position) and the record of that continues to exist. The regulators were given ample opportunity to respond publicly to these allegations and convince you that the allegations were false and to put the matter to rest. I don’t think that has occurred.

The only regulator who publicly responded was the CFTC, with the NYMEX and the SEC weaseling out and remaining silent. In the case of the SEC, this was particularly insulting because they took the time to tell everyone who wrote in that they were taking the issue seriously. I would be very surprised if anyone was convinced by the CFTC response (dated September 6), as no one suggested to me that was the case. What has been expressed to me, universally, was that it is scandalous for regulators to sidestep such clear and serious allegations. The regulators had a clear chance to demolish my arguments and they didn’t and probably couldn’t. Far from the matter being resolved, it was simply a case of the regulators kicking the can down the road.

I strongly believe that this issue will be resolved and when that time comes our efforts will be judged not by silence and evasion, but with great fanfare. In the meantime, I take solace in the fact that the regulators didn’t step up to the plate and present information that overturned my arguments. To this point no one has offered a checkmate or any kind of explanation that proves me wrong. You would think that my serious allegations would spark a response of some type; either a sharp rebuke, a hasty letter from an attorney or at the least an explanation of why I’m wrong. This in itself seems to validate my charges. Meanwhile, I take comfort in the fact that the long-term conditions in silver never looked better.

-- Posted 13 November, 2006 | Digg This ArticleDigg It!