In Jim Cook's Archive


I’ve put such a large percentage of my assets into silver that it’s a cause for worry.  Not so much because I think it might go down, but will it go up to the extent I anticipate?  I’m looking for something really big, but will it happen?  I reassure myself that it will by frequently reciting the facts.  What are the facts?

We know that one big New York bank has an extremely large short position in the futures market.  It’s so big it dwarfs the short positions in other commodities.  According to silver analyst Ted Butler it’s 30% to 40% of the annual mining production of silver.  We know that if this short position were to be covered by this big bank through purchases in the futures or physical market it would have a profound impact on prices.  We also know that going forward, if there were no more of these short sales from the big bank the price would be free to rise.

We know that according to current commodity law a big concentrated short position is illegal.  We are aware that the Commodity Futures Exchange has held hearings on this subject and have made noises about applying position limits to futures contracts.  We know they launched an investigation of silver two years ago and as of yet have rendered no decision.  We know a new chairman has promised vigorous enforcement of the law.  If these regulators impose position limits in silver then concentrated short selling will be a thing of the past.  We know that nothing could  be more bullish for silver.

From our observations of government we know that they are bound to disappoint. We can see their bureaucratic indifference and procrastination in silver.  It would be safe to conclude they will do nothing, except for one thing.  A large contingent of the public has bombarded their regulators with emails and letters insisting they act.  The chief whistle-blower, Ted Butler, has focused widespread attention on what he calls the “silver manipulation.”  This issue will not go away quietly.

We know that the low price of silver has been caused by a rigged market in futures contracts.  The artificially low price for this useful commodity has only increased demand.  Consequently, most of the silver ever mined has been used up by industry and is gone.  Virtually all the gold ever mined is still with us but the silver no longer exists.  We know that a large stockpile of a commodity helps keep the price in check.  A small stockpile or shortage causes the price to rise.  That’s not happened with silver because of the large short position that holds down the price.  We know that when such a price control is lifted the price surges dramatically.

We know that silver has been depleted by growing industrial use.  For many years the demand for silver outstripped the supply thus creating a deficit.  We know that silver is a vital industrial commodity and without it a modern economy would be crippled.  Silver has been called a ‘miracle metal’ because of its amazingly diverse chemical properties and widespread industrial applications.  We know the world must have silver and plenty of it.  These are the facts and they make a powerfully bullish case for owning silver.

That’s not all.  We can see from the statistic provided by government mints that investor demand for silver coins continues to grow rapidly.  We know that there are at least three exchange traded funds in silver and all are adding to their totals.  This growing demand for the thin supply of silver can lead to a shortage.

If we switch from facts to conjecture we can speculate that a silver shortage would cause the industrial users to acquire silver with a vengeance. Price would be secondary.  They would have to obtain silver or shut their doors.  Since such small amounts of silver are used in each application the price becomes immaterial.  Silver usage is price insensitive.  It will be required and used no matter what the price.  This is just another one of the amazing string of bullish aspects of this phenomenal metal.

Many people also consider silver a monetary metal.  Silver evolved in ancient times as a valued precious metal useful in exchange.  It also became a unit of account and a store of value.  That’s why for thousands of years it served as money.  Any serious outbreak of inflation or deflation causes people to seek security in precious metals.  Distrust of paper currency results in the acquisition of gold and silver.  We are in a period of economic instability.  Any panic buying superimposed on the current demand for the supply of silver would result in prices that can only be left to the imagination.

If it is true that we are entering a double dip recession or depression then all assets will be under pressure.  If China experiences a bursting of its real estate bubble and the world economy suffers a downturn then silver has two unique aspects that offer price protection.  First is the giant short position.  As it unwinds it can easily offset the negative impact of a depression.  Silver can go up when everything else goes down.

A second important distinction is that 70% of silver production comes as a byproduct to copper, lead and zinc mining.  A depression would shut down many of these mines as industrial demand fell off.  That would reduce the amount of new silver reaching the market.  The possibility of an oversupply of silver probably doesn’t exist.  Silver offers unique forms of downside protection unlike any other asset.

As Jack Webb used to say on the hit TV program, Dragnet, “nothing but the facts ma’am.”  There’s nothing like the facts when it comes to silver.  When I add up these facts it’s very reassuring.  It makes me want to buy more.  I’ve tried to convey to you the essence of Ted Butler’s thinking on silver.  Without a doubt he is the leading silver analyst in the world.  On the subject of silver I have no qualms about calling him a genius.  He would have one piece of advice for you.  Buy as much silver as you can.

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