March 5, 2011

Jason Hommel: silver going to US$500/oz

Here's an excerpt from Jason Hommel's newsletter, where he argues on why the metal is eventually going to hit US$500/oz...

"Recently, I've been hammering the point that there are two major reasons why silver is headed to $500/oz.

First, silver hit $50/oz. in 1980, and money creation has increased 10 times since then, so the true inflation adjusted price of silver will be $500.

Second, when 1% of money in US banks buys silver, it will be 1% of about $18 trillion, which is $180 billion. If you divide that by 700 million, you'd get $257/oz., which would leave no silver for industry or the rest of the world, which implies a silver price of at least about $500.

So, here then is the problem.

How will they prevent silver from going to $500/oz.? They can't. They can only slow down the rise, or let it rise fast. (while increasing volatility, and creating temporary price dips) And how will they prevent the implications of such a massive rise to $500?

See, the problem is twofold.

If they let silver run fast to $500, say over 6 months, the dollar will be perceived as collapsing, and could continue to collapse to zero.

But if they let silver continue to go up "slowly" at only 30% per year, for the next ten years to take us to $500, this would create a worse problem. See, after nearly 20 years of precious metals only going up, people will begin to notice -- more than notice. They will begin to say, "precious metals only go up, they never go down". And that's how price bubbles begin to form, making silver go from fair value to over valued.

And if silver were to become over valued, that would drive the price from $500 to $5000, and could continue and ultimately collapse the dollar to zero value.

So that is quite the problem for the people who are trying to prevent the silver price from rising.

The silver storm is coming. Prepare.

People ask some interesting questions when I point out that silver is headed to $500. They ask, "Gee, who will buy it when it's that expensive?" Did they not comprehend the argument? Only 1% of people will be buying silver when silver is $500/oz., (a hundred times more than today, when only 1% of 1% of people are buying silver) but yet, 99% of people won't have bought any silver in the recent year, at $500/oz.

Some analysts today say that silver is going to go down, because "everybody loves silver". Such analysts don't know anything about the fundamentals, which trump any kind of other analysis! Silver might hit the news due to new highs, but the facts are clear. Only about 1% of 1% of money is buying silver each year. That's one dollar out of 10,000!

Silver's not a popular investment. Not yet. But it will be. IT WILL BE! Prepare for it. Get it now. Anywhere below $50 to $100/oz is cheap..."

For more from Jason Hommel on silver you can visit his web site "Silver Stock report" and subscribe to the newsletter.