In Jim Cook's Archive


What’s the best asset to own in a world where uncertainty reigns and our economy careens from one crisis to another?  We think it’s silver.  In our view it’s better than gold, bonds, stocks or real estate.  It can offset the damage from economic upheavals because of its unique list of bullish attributes.  Whether the future holds good times or bad the case for owning silver remains strong.

Problems in Europe can and probably will erupt again.  The U.S. budget deficit is intractable.  The dollar promises future weakness.  Inflation and money printing are out of control.  The Mid-East and oil prices are mercurial.  China is slowing down.  The U.S. economy remains weak.  No one can be sure whether another crisis lies around the bend or if we will have some semblance of a recovery.

No matter what happens silver could be the answer for people who don’t want to lose their fortune or damage their purchasing power.  First of all you have an asset that’s in short supply.  The billions of ounces that were once above ground and in the hands of the U.S. government are gone forever.  Industrial demand for silver has been so great that all the silver ever mined in thousands of years has been used up.  Think of it, all the Spanish silver from the incredibly rich Potosi mine in Bolivia and the great mines in Mexico, is gone.  All the silver from the Comstock Lode and Leadville has vanished.  All the big silver mines in China, Australia, South America and Canada have poured forth silver that industry has devoured.

At the same time scores of new uses for silver have been superimposed on relentless industrial demand for brazing, alloying, electrical switches, relays and as a catalyst in plastics manufacturing.  An automobile uses silver in twenty electronic applications.  New uses for medical products (silver is antibacterial), solar (silver is highly reflective), windows and batteries promise strengthening demand from a slowly growing annual mining supply and diminished recycling.  For many years the demand for silver exceeded its production.  Compare the thin supply of silver with the supply of any other world commodities and you will be attracted by the comparison.  It’s hard not to conclude that the world is gradually running out of this miraculous and indispensable metal.

Silver is used in tiny amounts in a multitude of industrial applications.  Consequently, if the price rises its usage will not diminish significantly.  Furthermore, the low price of silver for many years has meant that no one has searched for substitutes.  That means industry must have it or go out of business.  Silver analyst Theodore Butler has postulated that the growing tightness in supply will eventually boil over into an industrial panic where silver users must have the silver at any price.

The gradual education of investors to silver’s numerous bullish aspects has led to increased buying.  This dramatic upsurge in silver purchases has meant record demand for silver coins and bars from the U.S. Mint and elsewhere.  All around the world silver is being hoarded and stashed away as a hedge against reckless money creation and for its potential to make a gargantuan profit.  People who learned about silver early are already up 800% and the most bullish arguments for silver have yet to unfold.

On top of the record demand for silver and a seeming shortage comes another astonishing argument first uncovered by Mr. Butler.  A short position exists in silver futures that is much larger than any other commodity.  More than half of annual silver production has been sold short.  This short selling has been concentrated in a few hands (JPMorgan, etc.).  This short position has suppressed the price of silver for many years.  The law of supply and demand tells us that an artificially low price reduces supply and increases demand.  That explains the signs of a silver shortage that are now cropping up.  Inevitably, if the free market price is held down a shortage must arise.

A shortage that drives up the price would force many of the shorts to buy back their paper silver contracts and further impact prices.  It would cause industrial users to double down on their silver buying.  It would attract hoards of new silver investors.  However, this inevitable shortage is not absolutely necessary.  The Commodity Futures Trading Commission which has been investigating silver for 3 ½ years could act to curtail the concentrated short selling.   This would be extremely bullish.  The big short would have to reduce its short position and most importantly couldn’t go short in the future.  Ted Butler used to say that silver is an atomic bomb on top of a hydrogen bomb on top of a neutron bomb.  The best thing about the silver story is that the price has yet to reflect these powerfully bullish sentiments.  Given all this how can you not buy silver?

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