In Jim Cook's Archive



Precious metals, and particularly silver, remain the most undervalued of all the commodities. Silver will surpass $20 per ounce in 2007, $48.70 per ounce before 2012 and $130 per ounce in the next 8 years. The reasons for our bullish outlook on silver are due to continuing and increasing global geopolitical risks; silver’s historic role as money and a store of value; the declining and very small supply of silver; significant industrial demand and most importantly increasing investment demand.

Gold and silver have been used as money for longer periods than paper currencies. Silver has been used in more regions and countries, and for longer periods, than gold. Nobel Laureate Milton Friedman said, “The major monetary metal in history is silver, not gold.”

In 1900 there were 12 billion oz. of silver in the world. By 1990 that figure had been reduced to around 2.2 billion ounces. Today that figure has fallen to about 300 million ounces in above ground refined silver. It is estimated that 95% of the silver ever mined has been consumed by the global photography, technology, medical, defense and electronic industries. This silver is gone forever.

CBS Marketwatch published an article in March 2007 entitled ‘Silver may shine brightest among metals’, in which Kevin Kerr wrote that “Due to current supply/demand trends, the amount of silver above ground is projected to shrink to a critically low level in 2010. As supply shrinks, prices will keep rising steadily to new highs. Many in the investment world are unaware of this part of silver’s story. Industrial demand has been outstripping mining supply for the past 15 years, driving above ground supply to historically low levels.” Silver production was flat this year and is expected to be flat again next year. The U.S. government’s stockpile is all but gone, and sales from other official sources, such as China, Russia and India, are declining, too. Refined silver stocks are near an all time low.

The supply of silver is inelastic. Silver production will not ramp up significantly if the silver price goes up. Supply didn’t increase in the 1970s when silver rose 35 fold in price – from $1.40/oz in 1971 to a high of nearly $50/oz in 1980. Some 80% of mined silver is a byproduct of base metals. Higher prices for silver will not cause base metal miners to increase their production. In the event of a global deflationary slowdown, demand for base metals would likely fall, thus decreasing the supply of silver.

There are only a handful of pure silver mines remaining. We cannot expect significant mine supply to depress the price after silver rises in price. It is extremely rare to find a good investment or commodity that is price inelastic in both supply and demand. This is another powerfully bullish aspect unique to silver.

Another important factor as to why silver is likely to outperform is increasing industrial demand. Silver has a number of unique properties including its strength, excellent malleability and ductility, its unparalleled electrical and thermal conductivity, its sensitivity to, and high reflectance of, light and the ability to endure extreme temperature ranges. Silver’s unique properties restrict its substitution in most applications.

Silver is used in film, mirrors, batteries, medical devices, electrical appliances such as fridges, toasters, washing machines and uses have expanded to include cell phones, flat-screen televisions and many other modern high tech devices. Increasing industrial demand for silver is forecast due to strong economic growth in China, India, Vietnam, Russia, Brazil and Eastern Europe. Growing middle classes are now demanding the standard of living enjoyed by many in the West. The demand for silver will increase.

Investment demand for silver has also been rising rapidly the past few years with investors hedging themselves against rising inflation, currency devaluation and geopolitical risk. Investment demand is starting to have a real impact on silver prices. There are some $50 trillion worth of bonds and $40 trillion worth of paper money in the world. Money supply is increasing at extremely high levels globally. This has given rise to increasing inflationary pressures, a huge liquidity bubble and ripe valuations in stock and property markets.

Hedge funds have started moving into the silver market. Artemis Capital Management is seeking to raise a $300 million hedge fund to invest mainly in silver. Artemis Silver Fund will put 80 percent of the fund’s holdings in silver.

Silver remains historically undervalued. Despite the incredibly bullish fundamentals outlined, silver has so far underperformed nearly all the other commodities. Silver has gone from below $5 to some $14 and is up some 190% in the last 7 years. This seems like a lot but, compared to other commodities and metals, it is very little. Many commodities are up between 5 and 13 fold. Silver is not even up 3 fold. If silver were to catch up with these other less rare and less precious metals, it would have to increase in value by some 500%.

Rarely are there ‘no brainers’ in life, and very rarely are there ‘no brainer’ investment opportunities. Invariably, ‘too good to be true’ investments turn out to be just that. However, this is not the case with silver. It remains the investment opportunity of a lifetime.

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