In Jim Cook's Archive


There was a fairly negative article on silver in the Wall Street Journal last week. We see it as a further sign of a bottom in silver. The article points out that bearish bets on the metal have increased fivefold (managed money hedge funds), but utterly fails to conclude that’s why the price went down. Instead we get the same old litany of reasons that silver has declined; China, slowing world economies, rising interest rates, falling investor demand, increased production, and digital cameras. None of this matters because the price of silver is held captive by big computer driven funds operating on the COMEX. At the same time the article mentions that demand for silver coins from the U.S. Mint is going through the roof.  Like most silver commentary, the author doesn’t have a clue.

A more realistic analysis would point to the scarcity of silver. According to silver analyst Theodore Butler, approximately one billion three hundred million ounces exist in the above ground supply in the form of thousand-ounce bars. That’s 20 billion dollars’ worth of silver. The recent drop in Apple stock exceeds that amount. Apple stock at $650 billion is worth thirty-two times this amount of silver. Bill Gates is worth 4 times the world’s supply of silver.
Granted, there is an unknown additional amount of silver in the form of coins and jewelry. However, the price of silver is based on thousand-ounce COMEX tradable bars. This is what matters from the standpoint of demand. There would be a lot more of this silver around if the technical hedge funds and the big banks hadn’t kept the price depressed all these years. According to Mr. Butler, the equilibrium price would be around $60 if the free market were to rule in silver.

If you will remember during the Second World War there were price controls on goods. When the war ended and markets were free again, the price of goods exploded and inflation soared. That’s what can happen to silver if the COMEX manipulators relax their grip. Bear in mind that the biggest manipulator of all has greatly reduced its short position and has acquired a monumental amount of silver. JPMorgan knows how little silver exists above ground. That’s why they are still accumulating physical silver.

The artificially low price of silver has created a cornucopia of bullish factors. Less is mined. More is used. Substitutes have not been developed. A shortage could be around the corner, especially if investment demand surges. Mr. Butler has suggested the price could go up ten times or more from here. You can believe a cub reporter at the Wall Street Journal or the world’s foremost silver expert who has spent a lifetime analyzing the silver market. It’s a no-brainer.

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