In Ted Butler's Archive
By Theodore Butler

If you’ve read prior articles of mine, you know that I try to convince people about the merits of silver. My challenge is to find the right words that strike the right chord to motivate as many people as possible to take advantage of this extraordinary opportunity. I take this challenge seriously, and feel fortunate that I live in a time when both the opportunity and the mechanisms exist to disseminate this information.

For more than 15 years, I have tried to look at every possible angle in the silver market with objectivity. I have tried to rely on facts and figures, and not conjecture. I have sought out, and dissected, any bearish argument I could find. I’ve tried to rely on logic, common sense, and a lifetime of practical experience in the market. I have made extreme statements that defy popular convention. Yet, I have never been forced to retract anything I have ever published. I have done everything in my power to convince as many people as possible to take advantage of this historic silver opportunity.

We are incredibly fortunate there are such unique and special circumstances existing in silver, which don’t normally exist in other commodities. These special circumstances create an amazing opportunity today that’s readily observable.

A lot of people say, “buy silver and gold as an insurance policy against a financial meltdown, currency disarray or inflation.” The people saying that may be right, but I hope they’re wrong (as I’m sure you do). Although they offer many reasons I agree with, I hope, like any insurance policy, we never have to collect on that policy. Besides, I’m a commodity guy, not an insurance agent. I see through commodity eyes.

Silver isn’t an insurance policy to me. It is a once in a lifetime potential score. I say you should buy physical silver, not because it is a defense against the end of world, but because buying physical silver makes economic sense. From a financial perspective, I can demonstrate why physical silver is far superior to any form of paper.

But first let me introduce something we all take for granted. It is our great fortune and our good luck that we are even able to buy physical silver. Think about this for a moment. There exists an infrastructure of supply lines for silver and dealers and distributors in this precious metal. There exists an array of silver bars, coins, units of trade, and a broad, worldwide market. Remember, I’m a commodity guy. To me, commodities are the true wealth and bounty of our world. Yet, of all the commodities in the world (the grains, foodstuffs, fibers, oil, minerals), only in precious metals could the guy in the street even attempt to own the real thing in quantity.

No matter how bullish you might be on crude oil, natural gas, soybeans or cotton, there is no practical way an individual investor could buy the real thing. You could buy the common stocks of producers, or a mutual fund, or even a futures contract or option. But you just can’t buy the real thing. There are too many obstacles for regular folks to buy and hold commodities in their own possession. There is no practical way for the average investor to participate on a real, personal possession basis. You are not given the choice of buying the real thing versus the paper stuff. In the vast majority of commodities, the paper version is all that’s on the menu. But in precious metals you are given the choice to hold the material yourself on a fully paid for basis. It is that very choice which is a gift of special circumstances. And, it is this gift of choice, which goes unnoticed by just about everyone, that has special meaning for silver.

Only silver and gold stand out as practical beneficiaries of this gift of choice. The other precious metals, including platinum and palladium, just don’t compare in terms of markets and broad acceptance by the guy in the street. The gift of choice is bestowed really only on silver and gold. These are the only two commodities where you can buy the real deal, if you choose. In the case of gold, the world has chosen to take advantage of this gift of choice. In silver, the world has turned its back on the gift of choice.

This is no knock on gold (I’m bullish, and it looks dirt cheap in the $260’s), but since just about every ounce of gold ever mined is still in existence, every ounce must be owned by someone. Therefore, the choice of owning it in physical form has been effected, to the tune of maybe 100,000 tons (or over 3 billion ounces of gold). At current prices, that’s almost a trillion dollars. In the world of commodities (my world), that is an extraordinary amount of money. The dollar value of all the real gold in the world, is greater than the dollar value of the annual production or consumption of crude oil, the biggest and most important commodity in the world. Regardless of whether I think that the current price of gold is too low, the world currently places a collective value of a trillion dollars on its gold metal holdings. By this valuation of a trillion dollars, it is safe to conclude the choice of physical ownership has been made in gold. In silver, I contend that choice has not been made – yet.

OK, what am I saying? I’m saying of the only two commodities in the world where it is even possible to invest in the genuine article, only in silver has the choice not been made – yet. I say yet, because someday the world will decide to buy the real thing in silver. To repeat, the world will attempt to buy the real deal in silver. That, in essence, is what makes silver so darn attractive. It’s cheap because the world hasn’t tried to buy it yet. The perception that there’s plenty of silver in the world is pervasive. In fact, no matter what statistics I may introduce to document that there is much less silver in the world than there is gold, nothing will change the world’s perception that silver is not more rare than gold, in terms of above-ground inventories. Only a silver price explosion will garner attention and change perceptions.

While it is easy to document more than 3 billion ounces of gold in existence, I would challenge anyone to verify more than 300 million ounces of bullion-equivalent silver in existence. That challenge has been open for months, with no takers. (I doubt anyone could document more than 50 million ounces, if you exclude the COMEX’s 95 million ounces). And please keep in mind this dynamic – while the physical stock of gold in the world vastly exceeds the physical stock of silver, the incredible truth is that, by definition, gold’s overall physical inventory is growing, while silver’s is shrinking. Silver, by virtue of its long-term industrial deficit, is seeing the tiny remaining inventory destroyed on a daily basis. Silver, with its tiny inventory is shrinking further still, as a result of the industrial deficit. It’s hard to believe the price of silver has not exploded, given the incredible supply and demand inequity.

I want to point out WHY the world has not exercised the gift of choice in silver. Why hasn’t the world rushed to buy this age-old material in spite of its virtual disappearance? Why hasn’t the world taken advantage of this gift of choice? It’s all there – the facts concerning the evaporation of real silver, the reality that there is so much less silver in the world than gold, the existence of the ability to buy real silver. Why hasn’t the world rushed to capitalize on a sure thing? My answer will surprise you.

The world hasn’t rushed to take advantage of this incredible opportunity for one reason only. By buying real silver, you get too much for your money. In fact, you get so much silver for your money, even relatively small amounts of money, that it creates a logistics problem of where to store it. Please, don’t laugh. Think this through. It is a “pain” that’s not typical in our daily lives. Modern investment decisions do not include a provision for storage. Billions and trillions of dollars are invested in items that can be reduced and simplified to a stamped envelope and a statement. Most contemporary investments are reduced to this paper. Not silver and gold. While silver and gold CAN certainly be transformed into the paper realm, they can be held in a different realm – the tangible realm. This is a diversification of assets, unique and rare in the world. Held in your hand, they are in the unique position of being no one else’s liability. I’m not talking the end of the world. I’m talking about a remarkably diversified asset when compared to everything else.

Only with silver and not gold do you get too much for your money. For $25,000, you get roughly 7 lbs. of gold. That’s seven pounds of a dense material. No big problem arises from storing $25,000 worth of gold. Or $100,000 (save security). But $25,000 worth of silver weighs a minimum of 350 lb. (at $5). It is heavy. In terms of portability, silver loses compared to gold. Let me state it this way – you get so much silver for your money, that soon you won’t be able to lift it because it’s too heavy. It takes up too much space. If I buy another ounce, my wife is going to shoot me. If I buy more here, I’m going to first have to clean out the closet, or straighten out the basement. I’ll have to update the homeowner’s insurance policy. But that’s why you can make so much money with silver. You’re getting so much of it. When it rises to $100 an ounce no one will be able to acquire the quantity that you can now.

The simple fact of the matter is that most people see silver’s bulk as a problem. I would ask you to look at this “problem” of bulk, in terms of common sense and life’s experiences. When has it ever been a problem that you’ve gotten too much for your money? How often has the price of anything been too low, that you postponed buying it? Too many people forego being correctly positioned in the right form of silver because it’s a pain making room for it. But that’s the essence of the opportunity. You get so much for your money.

Look at the largest short position the world has ever seen. Look at the billions of ounces of silver collectively held short on the COMEX and the leasing game and by all the banks and metal firms who have issued certificates. Look at those billions of ounces of silver held short, and then look around and see how much real silver you can see. There appears to be a collective short position in silver that is ten to twenty times the amount of real silver in the world. That means ten to twenty times the amount of real silver must be purchased. Scratch your head and ask how in the world is this mismatch going to be resolved? Can the silver paper in the world survive such a ratio?

You see, I’m not saying buy physical silver because of the end of the world, just the end of the world for the silver short sellers. The shorts have created this opportunity. They suppressed the price by selling what they don’t have and that’s why we have $5 silver. This is what you want to take advantage of. But, you must be careful how you take advantage of it. If you pick the wrong form of paper silver, you may go wrong in a price spike. If you pick real silver, in your hand, you can’t go wrong.

At $5, real silver holds minimal risk and the potential to radically change your standard of living for the better. It’s one of the only investments that offers the choice of being held in form that can’t be compromised. Ask yourself – how lucky can you get?

My greatest concern is not the risk folks are exposing themselves to at $5 silver, but what form of silver people taking my advice might buy. In the coming price explosion, owning the wrong form of silver may actually be worse than not buying it at all.

From the beginning, I have extolled the virtues of owning physical silver outright. I say get the real silver safely stored or in your possession. It’s not that I condemn speculation on a leveraged basis. I am a speculator. I love the risk and reward that leverage provides. But, there is a world of difference between true investment and borrowing to enhance returns. When you borrow money to finance a purchase of silver, or anything else, the very nature of the transaction is altered, whether you are dealing in paper contracts on the COMEX, or in private financing with a metals firm.

It becomes a different game, with different financial and emotional aspects. For the vast majority of people, the turbo-charged effect of leverage on silver isn’t necessary. You can go for the ten or twenty times gain in silver without borrowing. In fact, I think I can show why the average person will make more in silver, in the years to come, by not leveraging.

I’m saying the average person will be better off paying cash for $5000 worth of real, unencumbered silver, than $25,000 of leveraged silver. How can I make such a statement? Given the price explosion I see coming, why wouldn’t I suggest loading the boat with as much silver as possible? Aside from the greater risk in a near-term price decline (which I admit isn’t great) from current levels, there is a hidden, and far more insidious risk to a leveraged position. That is human nature and emotion.

The real risk in a leveraged silver position is precisely what happens in a price explosion. You lose control. The paper profits that develop on a leveraged basis in the coming price explosion will be so breath-taking and exhilarating, that you are bound to abuse it. You will either sell too soon or add to your position and sell too late, or succumb to the desire to trade (or your broker’s desire to trade). You will incur tax liabilities, where none would accrue to a paid-for position. You will quickly lose perspective, and develop a short-term, day to day mentality. By leveraging, you will distort the very reason for buying silver in the first place. In thirty years of professional market involvement, I can count on one hand how many fortunes were made by commodity investors who borrowed heavily.

But my main point is not just that borrowing, or leverage, works against the average person, but that holding silver in almost any paper form (which leverage always entails), may be setting up the average person for heartache. To me, what form of silver to invest in is as important a decision as whether to invest in silver at all. If you choose to invest in the real deal, fully paid for and held in hand, you won’t have to worry about the many things that can go wrong with paper silver. You can look beyond short-term fluctuations and focus on the long term and never have to worry about a default.

There is no FDIC, FSLIC or SIPC (the government agencies insuring bank and securities accounts) for silver. No form of paper silver is insured by any government agency. Buying silver in most paper forms is like putting your money in a bank with no FDIC insurance. Why take the chance? Real silver is real. It doesn’t need insurance to guarantee its value. Its value is determined by its necessity in modern life. What makes silver valuable is that we need it and that the world doesn’t produce enough to prevent a persistent and shocking shrinkage of above-ground inventories. We’re running out of real silver.

If you see with your own eyes a possible shortage developing in something, human logic dictates accumulating a stockpile of that item, if possible. There may be a shortage of natural gas, but it is not possible for you to accumulate natural gas. Our great gift is that it is possible to personally accumulate silver.

Every one of us has the opportunity to hold our own inventory of an age-old, universally recognized and needed element. An element that our voracious industrial appetite is consuming at an alarming rate; an element more needed than at any point in history; an element available at rock-bottom prices due to complex financial shenanigans; an element that we can buy and put away, for the long term; an item so different in form from almost all other modern investments that it will actually enhance, through its unique physical characteristics, the overall safety of any investment portfolio.

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