February 20, 2008

Israel Friedman on Silver


By Israel Friedman

Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades.

The U.S. mint sold 2,170,000 silver eagles and only 26,000 gold eagles in the month of January. By my calculation 83 times more silver eagles were sold then gold eagles. This is an enormous difference that shows you how much more interest there is in silver. Investors are starting to understand that silver is a better investment then gold. I congratulate Mr. Butler that by his writing about silver, more and more people are buying physical silver.

In my opinion, the beauty of silver is that any amount of silver you buy will reward you tremendously. Maybe only 0.5% of the world population has heard about silver and they are mostly American investors who bought in the last 15 years around 400 million ounces of silver.

Today, many silver investors are asking why silver doesn't achieve all time highs like gold. Mr. Butler answers this question every week by emphasizing the control of prices on the COMEX by 4 or less traders that hold more than 50% of the net short position. When you hold a position of more than 50%, you control the market. This may be changing now. The short position is the main reason why the price of silver is behind the gold price, but this creates the opportunity to buy silver.

Different people have different opinions or expectations for future prices. I personally believe that only silver can be characterized as real precious metal and gold is a second violin. I made this decision by understanding the rarity of the metal and its world stocks. Let's look at gold first: its world stocks increase almost 100 million ounces annually. Contrast this to silver, which is in a yearly deficit and is decreasing yearly. World gold stocks are around 5 billion ounces and silver around 1 to 2 billion ounces. I say with conviction that silver is more rare than gold and, in my eyes, is the only precious metal. I think investors are beginning to understand that a shortage can develop easily in silver, but not so in gold, because it is not used that much industrially. It is a lot easier for people to pay $15 or $20 for an ounce than $900 or $1,000, especially when the cheap one has the most value.

If 90% of the world population knew this, the prices of silver and gold would be different. In the short term, with gold prices over $900, silver would be in the hundreds. Mr. Butler doesn’t like my numbers. He says that they are too extreme and people are going to lose confidence in my writing, but I hope he will not censor me, because this is my opinion. Silver in the hundreds of dollars will come only with a shortage of silver. The 4 or less shorts will give up. With a shortage, world investors will recognize the rarity of silver.

Gold and silver seem to trade together, tick by tick. It is easy for many people to think they are the same commodity. Not true. Gold and silver are very different, even if they behave now as one. I am certain that will change, and perhaps very soon. You don’t have to look very far to see just how different silver is from gold.

Some of you want to hear how I see the future in silver prices and what I think about the world in my crystal ball.

(1) Life expectancy will rise tremendously and most of you will live over 100 in years to come.

(2) It will be very important to save and prepare for a long life.

(3) Investment in education----silver----farmland, in my opinion, will do the best.

(4) At some point, in 15 to 20 years, silver prices will be 5 times higher than gold prices. If my calculation is correct, a dollar invested in silver will do many times better than gold. In real estate value, I think 1,000 ounces of silver will buy a 3-bedroom apartment in Manhattan in Trump Towers.

I am a different thinker, and some gold investors don't like my opinion, but that is their problem.

Those who believe in silver value should buy eagles and force the mint to work overtime.

February 16, 2008

Ted Butler: Back to basics

Silver market analyst Ted Butler says that if you ever get tired of trying to figure out the daily movements of the silver price, you can find refuge in silver's fundamentals, which he lays out in his new essay, "Back to Basics":

Back to Basics

By: Theodore Butler
Posted 12 February, 2008

It’s hard not to get caught up in the daily ebb and flow of short-term news and price movements on an asset as interesting as silver. But, it is important to always remember that a short-term focus can detract from long-term investment success. It’s easy to fall into the trap of analyzing on a shorter and shorter time frame, as world events unfold at warp speed, thanks to modern communications.

I confess to blurring the lines between the short term and long term in silver. Most often I write about the short term; the COT market structure on the COMEX, the manipulation, the CFTC, ScotiaMocatta, etc. That’s a consequence of me trying to convey what I feel is important in silver. There is no intent to get people to focus on the short term over the long term. The best investment horizon in silver is the long term.

The danger in focusing on the short term is that it can cause you to lose your long-term perspective and thus, your position. The problem with the short term is that it forces you to concentrate on the current price. By doing so, one makes the implied conclusion that the current price is correct and reflects true value. While we must all transact purchases and sales at the current price, it is not necessarily reflective of true value or future price.

Put aside the current price and instead study the factors that go into determining the price, namely, its supply, demand fundamentals and world conditions. In other words, don’t look at the current price as being too high or too low, look under the hood. Look at verifiable facts and measure that against the current price. This is what analysis is all about.

A few years ago silver was under $5 and many said that was a fair price and reflected true value. There was no thought that the price could double or triple in a few years, even though there were structural deficits, dwindling inventories and growing world industrial consumption. They made the mistake of assuming the price had to be correct and fully reflected silver’s true future value. They failed to consider the real long-term fundamentals. I think many are making that same mistake today.

Back then, it was easy to make the case that silver was undervalued and a great long-term investment. The real facts spoke for themselves. Those that took advantage of the now-apparent bargain prices are glad they did. But that was then, and this is now. With prices double and triple the lows of recent years past, is silver still a long-term bargain?


Frankly, I think the case for silver is more compelling today than it was five years ago. When we compare today’s circumstances with the current price, silver looks better today. Of course, a 50-cent sell-off then is the equivalent of a $1.50 sell-off now. But a tripling in price then brought us to $13 to $15, now triple brings us to $40 or $45.

I view silver as primarily an industrial commodity, strategic and vital to the modern world. Despite inevitable hiccups along the way, the juggernaut of world economic growth will continue. The primal desire to improve one’s standard of living can’t be suppressed. Throw hundreds of million of new-world citizens into the mix, and the case for world economic growth became even stronger. This requires increased consumption of all natural resources, including silver.

Looking back over the past five years, the idea that world economic growth would lead to increased consumption of natural resources seems an elementary conclusion. But it was not a universal expectation. It is easy to forget that, all along the way, many were expecting a world economic slowdown or recession. That is still the case today, particularly in light of well-publicized troubles in the housing and mortgage markets. In spite of such troubles, we are experiencing record high prices and consumption rates in a number of commodities, including the most important of them all, crude oil.

The high prices for natural resources in the past five years has been brought about, not by supply disruptions, but by unrelenting demand. This is particularly true in the developing BRIC countries (Brazil, Russia, India and China). This was something new. Previous commodity price spikes revolved around supply disruptions, wars, embargoes, weather shocks, etc. These days, industry-wide demand has propelled commodity prices, especially in metals and minerals.

I am hard-pressed to think of an industrial metal or mineral that has not established an all-time price high in the past five years. Strong and persistent demand, accompanied by declining or low inventories and restrained (but growing) production are responsible. However, I can think of one glaring exception to the new record highs – silver. While nearly all industrial metals and minerals have established new record-high price levels in the past 5 years (petroleum and natural gas, uranium, copper, nickel, lead, zinc, etc.), silver is still less than a third of its price peak from thirty years ago. Even gold, not considered an industrial metal, has approached its all-time price high. What’s with silver?


The doubling and tripling in the price of silver over the past few years hasn’t caused it to become over-valued, based on current fundamentals and circumstances. Although silver has appreciated as much as any precious metal, it has greatly lagged the price performance of the base metals. The GFMS base metals index is up almost 5-fold over the past five years, almost doubling silver’s price performance. This suggests silver is still undervalued.

Industrial demand for base metals is determined by the level of world economic activity. It’s impossible for there to be strong world demand for just one base metal and not for all the others. Nor could there be demand for base metals and not an industrial metal like silver. If the world is demanding more zinc and copper and lead, it is also demanding, and consuming, more silver.

The price peaks for base metals were made under shortage conditions. This included delayed deliveries and the existence of backwardization, where near term spot supplies commanded notable premiums to more deferred delivery. We’ve even experienced contract delivery defaults (in LME nickel). All this presages the coming shortage in silver. I predict that, at some point, silver will enter a true shortage condition because of strong industrial demand.


One special trait that distinguishes silver from all the other industrial metals is investment demand. It sets silver apart from any other industrial metal. Silver will always be considered as a true investment asset by people around the world. Investors large and small, hold silver in their own possession or in storage. They hold it in a wide variety of forms, including coins and bars. The only other metal that can be compared to silver in terms of investment holdings is gold. But gold is not considered an industrial material. The only true investment metals are gold and silver.

Any number of reasons can cause investment buying of silver. The single most compelling reason that motivates investment buying is rising prices. The masses will rush to buy investments as prices are rising. It doesn’t matter what the asset may be, stocks, real estate, collectibles, rising prices beget more buying and higher prices. This, most assuredly, includes institutional investors. Sometimes it ends badly, but only after dramatic gains.

We have yet to see the inevitable investment rush in silver. Modern communications guarantee the silver story will be spread far and wide. The investment world is eager to learn of such opportunities. The creation of institutional investment vehicles, which convert pension funds and other large institutional pools of capital into silver, are conditions that never existed before.


Industrial commodities can enter temporary periods where physical availability is a problem. This is reflected in time delays for physical delivery and premium prices being offered for prompt delivery. This almost always occurs when industrial users attempt to build up inventory to avoid disruptions to production. No industrial concern will willingly shut down and send employees home for lack of a key ingredient or component. It is precisely the need to avoid shutdowns that cause industrial users to build inventory when availability gets tight, causing more overall tightness and shortage. It leads to panic buying.

So much silver has been consumed industrially over the past 65 years that known world inventories have declined by more than 95%. This cannot be said of any other industrial commodity. (Just for the sake of comparison, known world gold above ground has more than doubled in that time period). Because it is an industrially consumed commodity, silver is prone to panic buying in the event of industrial tightness and delays in physical availability.

Of all the industrial commodities, silver is the only investment asset. Of all investment assets, silver is the only one consumed industrially. This is a rare and potent combination. There are powerful reasons to buy silver as an industrial commodity in a world demanding more of it, or as an investment asset in a world with exploding buying power. When you put the reasons together, you create a force that is greater than its parts.

It doesn’t matter if panic buying trips off investment buying, or vice-versa, the net result will be the same – one will inflame the other. It looks inevitable, given current world conditions and human nature. There is something you can do about it if you see it as I do. Buy silver for the long run. Nothing available anywhere has the potential to change your economic circumstances like silver.

February 2, 2008

Oikonomika Blog: The Double Whammy of Geopolitical Gold Games

Antal Fekete: The Double Whammy of Geopolitical Gold Games

Professor Fekete explains how Silver has always been THE monetary metal of China and how its comeback is being staged by the Chinese economists to coincide with the US $ demise from its global monetary status....