WEEKLY COMMENTARY

January 17, 2006

Silver Review

By Israel Friedman

(Mr. Friedman is one of Ted Butler’s mentors. His opinions are not necessarily endorsed by Investment Rarities.)

It was not a bad year for silver investors. A 30% increase in prices makes you feel good. In my opinion, silver is as good an investment today as it was a year ago. We are speaking of silver under $10 oz.

Silver must be looked at as a long-term investment. It’s possible we can have some correction in the future, but that isn’t a sure thing.

With each passing day, silver is rarer. Less above the ground and less below ground.

People don’t understand yet that silver is the modern gold. In the last 50 years, silver world stocks have declined while gold stocks have increased. This is the essential and critical difference between silver and gold.

I will not be surprised to see silver outperform gold in a big way in the future. We are starting a long period where tangibles will outperform any other type of investment. And my opinion is that most raw materials are going to rise in price in future years as long as China and India are expanding and no communist revolution returns to China.

Two and a half billion people in China and India are knocking on the door for higher standards of living. The world doesn’t have enough raw materials at anywhere near current prices to satisfy all the newcomers for these higher standards of living. There will be a big competition for raw materials and silver will be the item most competed for.

I am not a big believer in gold and will not be surprised in years to come that silver prices will exceed gold prices. The only question in my mind is if silver equals the gold price or greatly exceeds it. I hope that gold investors will not be angry with my opinion.

Mr. Ted Butler doesn’t share my opinion on gold. I give him the highest grade for being the pioneer for silver investing.

Today when other gurus are starting to jump on the silver train, the new silver gurus are recommending silver mining stocks. You must understand that physical silver is the real wealth and stocks are paper. The miners depend upon many things that aren’t under their control – 1. Depletion of their reserves 2. Cost of production 3. Hedging mistakes 4. Future taxes by the countries where the silver is mined. 5. Confiscation of silver reserves.

Mr. Butler in all his writings has never publicly recommended any silver stocks. I know this is because he is concerned that the unknown factors could cause people to lose money in the long run in some of these stocks.

We have to thank Mr. Butler for pinpointing to the public how good an investment silver will be. Today, on my opinion, the small investor has accumulated 250 to 300 million ounces of silver because of him and I would not be surprised to see those investors become millionaires in 10 to 15 years from now.

A marker reporter in 2020 is going to write, " It is unbelievable that 15 years ago the price of silver was under $10, and looking back if you bought one ounce under $10 you would have made more than 50 times your investment." In the same time gold, which traded at $550, today is trading at $850.

Don’t be surprised by these numbers. Today gold and silver have a gross mine production valued at $50 billion annually. From this gold has a 90% share of the pie ($45 billion) and silver has 10% ($5 billion). 15 years from now, with a tremendous shortage in silver and potential sharp reductions in silver mine production, the pie will change and silver’s share could be 75% and gold have 25%. And the pie could grow from $50 billion to $300 billion because of high prices of silver.

15 years from now, world stocks of silver will be almost zero. At the same time, gold stocks will rise from 5 billion to almost 6.5 billion ounces. At the same time, most of the mines that operate today will be depleted, so both gold and silver will have to rely on only new mines for production. It is rational to believe why silver can equal or exceed the price of gold.

When these big changes will happen the tune will change too. Instead of hearing the regular business news when they quote the price of only gold, then silver will become the news of the day. You are going to hear this – good morning, the price of silver traded in Europe and Asia at x.

I want to comment on the silver ETF. My question is why they are registering the ETF for the American Stock Exchange, under US securities regulation, by mostly US firms, and to be sold to mostly US investors, and they are depositing the actual silver in London and not in the US? We have good transparency here and we should use it.

For the traders be aware of the danger to short any commodity, let the commercials take the chances. We are only by the start of the bull market in commodities.

These are all my personal opinions and you must do your homework before investing.