BEST OF JIM COOK

May 3, 2006

SILVER OVER THE LONG TERM

Let’s say that silver came to rest at an equilibrium price of $25.00 an ounce. Would it still be worth buying? I think so, because our central bank’s continuous expansion of money and credit debases the dollar. In other words, much of the asset appreciation we see today is a mirror image of the dollar depreciating. Our dollar doesn’t buy what it once did. It’s losing value. If that trend continues, and enough people catch on to the fact that money’s purchasing power is eroding at an accelerating pace, then silver will begin to be purchased as a hedge against inflation. That will increase demand.

In addition, industrial demand, which has also boosted other commodities, will likely grow over the long term. Because of its usefulness, silver could be in greater demand than any other metal. The wild card would be a worldwide depression where demand for silver tumbled. However, with the Federal Reserve insistent on a policy of loose money and monetary accommodation, a downturn may be forestalled for some time. Despite our debts and deficits, nations around the world still hold the dollar in high regard. The flow of dollars spurs their economies. Why would they abandon the dollar? It’s more likely for a glut of dollars to cause worldwide inflation.

The sheer abundance of dollars also works to boost asset price. People have money to spend and they chase investment items. That’s why all traditional assets seem expensive. Real estate, stocks and collectors’ items appear fully priced. Gold and silver are catching up now. So are other commodities. Prices could go a lot higher before the metals become as expensive as other assets.

For the long term, we have these favorable trends for silver.

1. More and more money chasing assets
2. Inflation and dollar debasement
3. Increased demand for commodities in general
4. Growing industrial demand for silver, especially from Asia
5. Long-term stockpiling of silver
6. Increased role as an inflation hedge
7. Possible re-evaluation of silver’s importance and role in the world (rising prices focus attention).