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Too few people are using logic as their first tool
for investment decisions. I look for logic first before deciding on an
investment. Let’s take the real estate market as an example. When the
interest rates started to fall sharply several years ago, due to Federal
Reserve actions, logic had to tell you that real estate would be a good
investment. Prices exploded. When interest rates started rising, logic would
say it was a signal to take profits.
Another example was when China and other countries started
to expand dramatically and consume energy like never before. It was only a
matter of time before oil prices rose. Likewise, the strong growth from the
developing countries exerted a strong demand for industrial commodities of
all types, particularly metals. Inventories of everything declined and logic
told you higher prices were in store.
My logic tells me that, to satisfy the appetite of
hundreds of millions of new consumers with billions of dollars to spend, the
need for raw materials will remain strong. This underlying demand won’t
easily go away. In the metals, my opinion is that silver will fall into short
supply and most of the people who are predicting modest prices for silver
will be wrong. You cannot easily predict a price for a material in short
supply when the material has a strategic importance. The rare combination of
a shortage added to an item that can be invested in directly by millions of
people around the world will come to make current modest price projections
for silver look silly.
Today, you can buy 12 Gold Eagles for the same money
you can buy 500 Silver Eagles (a Mint box). You have the potential to make
much more money with silver, dollar for dollar. That is one of the keys to
sound investment – getting the most bang for
your buck. The beauty is that you don’t have to invest a big chunk of
money for a potential home run.
Most of the time, I am asked when silver will be in
a shortage. My answer is that I don’t know right now, but it can come
at any time. I don’t rely on technical charts, news and other things to
analyze silver. To me logic is the most important tool. What is the logic in
silver? For thousands of years it was produced and we accumulated billions of
ounces in world stockpile. In the last 50 years we consumed more than we
produced, and the world’s stockpiles have been shrinking year-by-year. This
is the logic behind holding silver, and all the other reasons are only
stories. We have almost depleted the world stocks of silver. Logic will also
tell us, at some very high price, when silver is no longer a logical buy, but
a sell.
To remind you, silver had a fantastic year in 2006,
with prices improving from $ 8.82 to $12.82, a gain of 45%. I wish that this
next year will be as good or better, but remember a 45% compounded annual
increase in silver prices would bring a price of $82 in five years. This has
been my opinion only. You must use your own logic.
MAKING DREAMS COME TRUE
By Theodore Butler
In silver, we are presented with low risk and enough
potential firepower to the upside to make our personal long-term dreams and
goals come to fruition. While anything is possible, I just can’t see
stocks, bonds or real estate rising 10 to 20 times in value over the next 10
years. But within that time period, and probably much sooner, such a rise is
unavoidable in silver.
The more I write about silver, the less disagreement I get. Sure, some people
think my price projections are extreme. Others ask, "if it’s so
good, why is it so cheap?", even though I have
spent years, and great effort, to explain that the answer is manipulation
caused by leasing and COMEX short selling. I wish there was more disagreement
with my facts. However, no one has stepped forward with a legitimate free
market explanation for how a market could remain in a structural deficit,
where consumption exceeds production (and where inventories have declined
precipitously), without the increase in price dictated by the law of supply
and demand.
But, this isn’t about me being right or wrong
about silver. It’s about you fulfilling your future goals by using real
silver as your vehicle. I am trying to help you achieve your goals by
pointing out the merits of silver.
The prior article was written by my friend and mentor, Izzy.
He’s more bullish on silver than I am. Izzy
challenged me to analyze silver 20 years ago. He made a profit of ten times
his money on real, fully paid for silver in 1980. Try telling him that silver
can’t climb 10 to 20 times in price over the next few years. He’ll
laugh at that. He got ten times his money with no leverage and no shortage of
silver. Back then the world had two billion more ounces above ground than it
does now. Two Texas
oilmen bought around 100 million ounces and silver hit $50. If there was no
shortage and much more silver around when the price went to $50, what price
could it go to in a genuine shortage, with no visible inventory and the
largest short position in history?
Not long ago Izzy told me that he made arrangements
to purchase houses for each of his grandchildren when they grew up. I know
he’s a devout family man so that didn’t surprise me, but I did
ask him what he meant. Izzy then told me he had
bought 1000 Silver Eagles for each of his grandkids. According to him, by the
time they grow up, 10, 15, or 20 years from now, the value of the coins will
likely be worth the same as a regular house. Maybe not in Manhattan
or Palm Beach,
but a regular house in a regular town.
His reasoning was brilliant, take approximately
$15,000, put it into something safe (with ultra-low risk), allow for
sufficient time, and watch it grow into a dream. Isn’t this the very
purpose of investing in the first place? Hold, and then give the law of
supply and demand a chance to work.
We are talking about a valuable natural resource
that is disappearing from the face of the earth. What has taken 5000 years to
accumulate has been brought to the edge of extinction in the last 50 years. The
accumulated production of 5000 years (billions of ounces) was consumed in
just 1% of the time it took to produce those billions of ounces. Silver is
used in a variety of vital applications now necessary to modern life, like
photography, medicine, industry, communications, electronics and defense. There are no practical substitutes for these
silver applications.
Common sense and geological fact also tells you that
most of the "easy" silver has been removed from below the earth,
like any mineral mined since antiquity. And while the inventory and mineral
depletion continues unabated, world population is the highest in history, and
growing.
Silver is truly a world commodity, known to
everyone. Thanks to our remarkable modern communications systems, the coming
rise in the price of silver will be noticed everywhere on our planet. It will
not be long before intelligent people the world over learn the true story of
silver, precisely because the rising price will compel them to investigate. They
will uncover a story of manipulation, structural deficits and nonexistent
inventories. The realization of how there may be no more than an eighth to a
quarter of an ounce per person remaining on earth will be motivation. It will
dawn on them that this is an item to be sought after and held closely for
their old age, and for their heirs. Except, they won’t be able to buy
it at anywhere near current prices. They won’t be able to get it the
way you can today. Do you have a dream? Fund it with silver. And please,
please, make sure it’s real physical silver.
Theodore
Butler
www.investmentrarities.com
(No one can safely predict the future and
it’s possible that Israel
Friedman’s Butler’s
analysis will prove incorrect. Silver can go up, but silver can go down. It
is up to you to read, analyze, and arrive at your own conclusions. Prudence
requires we emphasize that precious metals may or may not prove to be
suitable for your consideration.)
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