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The environment for
investment opportunities is, right now, in the process of undergoing a
radical change that only a relative handful of investors has come to
recognize. A vastly greater number of people believe they are going to become
wealthy over the next decade by investing in technology stocks, rather than
in the areas we have targeted. When all is said and done at the end of the
next decade, we believe silver and silver stocks will have been by far the
best performing asset classes on the planet.
First, we think it
is appropriate to view the historic bear market that has unfolded since (not
1980 as many believe when silver hit $50, but) 1477 when silver hit an
equivalent $806 per ounce!
http://www.goldinfo.net/silver600.html
When one views this
stunning chart (see above link), it is most amazing that for one to
appreciate the investment merits of silver, it is not even necessary to rely
on silver returning to its historic role as money, although that would truly
be the icing on the cake.
Silver is an
industrial metal whose price has fallen so low that only a handful of primary
silver producers are efficient enough to produce silver profitably. Much of
the world’s silver production today is produced as a byproduct of gold,
copper, lead, and zinc. Many market observers are dumbfounded and question
why these producers would continue to sell their product into the market at a
loss. Some observers, most notably Jason Hommel and Ted Butler have prodded
managements to do the opposite, by either withholding their production or
using their excess cash to buy silver. In light of the increasingly rapid
money creation, this appears to be a brilliant strategy. Silver Standard
(SSRI) has lead the way by purchasing silver on the open market, and Nevada
Pacific Gold (NPG) – Toronto is another producer that has announced it
will withhold some production.
The truth of the
matter is that supply is rapidly drying up. The US Government had a 60-year
stockpile of silver that has been completely depleted. There has been a
supply deficit in silver for 15 years running and this year the deficit could
be as high as 50 million ounces. It is uncertain how or if this deficit will
be filled. Whereas 95% of the gold that has been mined still exists,
estimates run that only between 250 and 650 million ounces of the silver that
has been mined is still in existence, excluding silver jewelry. This means
that there is probably as much as seven times as much gold still in existence
as silver. In addition, silver is incredibly cheap relative to gold. The long
run price of gold to price of silver ratio has been about 16 to 1. Currently,
the ratio exceeds 60 to 1 which suggests that silver should appreciate
several times the rate of appreciation of gold. The reason this could be
explosive is there are a multitude of commercial uses for silver that are
difficult if not impossible to replace. Much is made of the replacement of
traditional photography with digital photography and its bearish implications
for silver usage. Realistically, a good portion of the world’s
population does not own a computer and in the huge population centers such as
China and India, it is much more likely that growth will be seen from these
countries in the traditional photography area which uses silver. Silver’s
unusual chemical properties ensure increased demand in high technology and
medical markets which make up 40% of demand. Among its most important
properties: it is superconductive, highly reflective, malleable, ductile, it
endures extreme temperature ranges, and has electrically low contact
resistance. While demand from these areas alone are enough to make the silver
story an exciting investment theme, the real home run is if silver returns to
its more traditional role in history as money. Incredibly, while not given
much publicity this is already happening in at least two US states.
We feel strongly
that paper fiat money systems are already in the process of failing. Ever
more desperate measures are being taken by the Fed and government statistical
agencies to present economic releases in the most favorable light, in an
effort to cover up a financial system that is coming apart at the seams. For
gold and silver to return as money for the entire world, a combination of
money destruction in the form of defaults and a tremendous increase in the
prices of gold and silver by many, many times will be required. The world is
deluged in credit that must not be stopped, or slowed for that matter, or the
system will surely implode. Gold and silver have long been trusted as a
barometer for the economy and financial system. There are a number of market
commentators, Ted Butler in particular, whom have provided overwhelming
evidence that gold and silver markets are being manipulated to project a
message that all is well with the financial system. The silver paper traders
at the COMEX know their days are numbered as the physical demand for the
above mentioned uses will overwhelm their limitless paper sales. Financial
derivatives now number $392 TRILLION according to the Bank of International
Settlements, and are increasing at a parabolic pace that can not sustain the
sheer magnitude of such numbers relative to the total value of, well - Earth!
So, we have an
investment opportunity, with $6.50 downside and $800 upside to its old high,
that is in a supply deficit, is rarely produced at a profit at current
levels, has growing and irreplaceable industrial demand, and is hardly even
being used in its traditional role as money!
SILVER - What are
you waiting for?
Richard J. Greene
Managing Partner, Portfolio
Manager
Thunder Capital Management
More articles by the author can be accessed by the
"Research Articles" choice at: www.thundercapital.com
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