In Ted Butler's Archive


By Theodore Butler

(The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

Because silver is such a fascinating topic, there is a strong force that pulls us to focus on it on a daily basis. This force is normal with any issue we find interesting. Fortunately, this intense scrutiny can be profitable. I personally know many people who have made many thousands, even millions, of dollars on the price moves in silver over the past year or so. By closely studying the COTs, they take advantage of low risk buy points. To be fair, these large gains have come from large positions in all sorts of silver investments, including physicals, highly leveraged futures and mining stocks.

Not only is silver a fascinating topic that causes many of us to monitor it daily, the opportunity to profit only intensifies that attention. Once you come to really understand silver, it’s hard not to follow it closely. The problem with this intense daily scrutiny is that it can cause one to lose perspective. It’s hard to see the forest, if you are studying individual trees. It’s hard to think years ahead in silver, when the next tick may mean serious money.

Rarely are we presented with the unique vantage point, like the view from the top of a mountain or from the air, to actually see the whole forest, or the years ahead in silver. For that, we need imagination. We don’t need wishful thinking that leads to fantasy. We need common sense and bedrock verifiable facts. I have consistently implored people to rely on common sense, and the available facts, to determine whether they should invest in silver. Now, more than ever, common sense and the facts are what matters. But to look successfully into the long term, I think you have to use your imagination as well. I think it is very hard, or impossible, to achieve a long-term goal without vision or imagination.

The imagination I am going to ask you to employ is simply a conscientious effort, on your part, to peer deep into the future. I am trying to get you to develop your own long-term silver vision. I think it is very important that you have your own long-term vision, and not rely on anyone else to hold your vision for you. In fact, what I’m asking you to do, in essence, is to blot out everyone else’s opinion of the long-term future, including mine, and create your own. Read everything you can and study the facts and arguments, but strive to be in control of your own vision.

In addition to blotting out other opinions in the quest of developing your own, you must also try to remove any other influence that may distort your long-term vision. The chief influence most likely to cloud your long-term vision in silver is the current price. The price is the primary destroyer of long-term vision and imagination. Nothing damages the ability to peer correctly into the future than the current conditions and price. You must disregard the natural human emotion of assuming the current price equals the true value of silver.

Price and value are two different things. Sometimes they coincide, sometimes they don’t. Sometimes the price overvalues, undervalues or fairly values an asset. That’s what investment analysis is all about. The point is obviously to buy undervalued assets and sell, or avoid, overvalued assets.

How does one do that? There is only one way as far as I am concerned. Always assume the price is wrong. Then, having disregarded the price, study the underlying facts to determine what the real value is, in order to determine how the current price compares. If the price is low compared to the real value, then you have a good candidate for investment. If the price is high compared to the real value, stay away. Look at value first; price always comes second in legitimate analysis. Admittedly, it’s hard to do, because we see the price first, long before we even attempt to decide value.

I’m not trying to imply that long-term vision and imagination is a walk in the park. The vast majority of people can’t even hope to guess the future correctly. How many foresaw the 15 to 20-fold increase in real estate over the past 30 to 40 years? How many foresaw the 25-fold increase in crude oil over the past 30 years? How many foresaw the 40-fold increase in silver from 1970 to 1980? It’s obvious just how rewarding such insight would be to you. The reason I am harping on the long term is because that’s the only real chance the average investor has for meaningful gains.


OK, now you’ve disregarded the current silver price and the price action for the past 2 decades. You’ve also attempted to blot out and ignore all opinions by me and everyone else. This is about your money and your imagination and your vision. You must now take a critical look at the facts and let those facts dictate your vision. It is the facts that you must let your imagination work on.

What are the facts in silver? I’m going to give you the facts as I see them. I will warn you, up front, that I will present them in a manner designed to influence your vision. So be on guard. But I also promise you that I will only present what I truly believe to be the complete and verifiable facts.

Silver is a material known, mined, used, and valued since the dawn of civilization. It will be used and valued until civilization ends. For the past 150 years or so, tremendously varied and new uses were discovered for this age-old material, which contributed to the progress and modernization of our society. This came about because silver is the best conductor of electricity and heat, the best reflector of light, is integral in the photographic process and has important health benefits. Because of all these new, growing and unanticipated uses of this material, demand has greatly exceeded production for more than 60 years. This has necessitated the draw down and consumption of almost all the silver that was mined and accumulated for 5000 years. Every measure of total known world inventories in the past half-century show declines of greater than 95%. The facts clearly indicate that silver has been in a structural deficit for 60 years. No commodity has a similar profile.

Added to this known elimination of almost all above ground inventories, we are given credible evidence that we may be exhausting underground inventories as well. This in a time period that’s a tiny fraction of silver’s known years of production history. What is a couple of decades compared to 5000 years? If you are letting your imagination work freely, you should be starting to ask yourself – what kind of price should be assigned to a vital commodity that faces both above and below ground depletion?

If looking ahead 20 to 30 years seems difficult, then try looking back that amount of time. 25 years ago (almost to the day) silver hit a price over $50, up from a buck and small change 10 years earlier. I know it was manipulated up by speculators, but there are not many things that have increased 40 fold in less than a decade. It doesn’t mean it will happen again, but it also doesn’t mean it can’t happen again. Let us look at the known facts since then.

In the past 25 years, we have used up 2.5 billion ounces in world silver inventories. Stated differently, there is 2.5 billion ounces less in the world today than there was in 1980, when silver hit $50/oz. I think there is less than a billion remaining, and no one can show more than 150 million ounces in verified bullion form.

In that same time, the world has removed 12 billion ounces from the earth (using an average world production of 480 million ounces a year.) At the current world-mining rate (600 million ounces), we will extract another 15 billion ounces over the next 25 years. The U.S. Geological Survey, chief geological statistician for the U.S. Government, projects the earth may contain only 8.5 to 18 billion ounces.

Current world silver demand runs 900 million ounces a year. Assuming no growth in demand (in other words, forget that China and India exist), in 25 years that comes to 22.5 billion ounces. Even allowing for a scrap recovery component of 5 billion ounces over the next 25 years, here is what we face – the exhaustion of all possible silver everywhere. What is your imagination telling at you about the future price?

Although you should not need additional facts to stoke your imagination, I must present one more. Silver has the largest short position ever seen in any item. From COMEX, to leasing, to banks and brokers selling unbacked silver certificates, there are billions of ounces sold on paper that don’t even exist. Billions of these ounces must be bought back by the sellers, lest they get consumed in a significant price rally. The fact is this giant combined silver short position exists and it dwarfs the verifiable silver currently above ground. Someday there will be a scramble for silver that will be talked about for centuries.


In order to put these silver facts into perspective, it would be useful to compare them to other commodities. The most comparable material to silver is gold. Not only do they share a common 5000-year history and association, they are joined in the minds of most, much like, “love and marriage” or “horse and carriage”. I don’t know of a better match to compare silver’s facts than gold.

(Let me interject here that I am not putting a knock on gold. As my recent articles have hopefully conveyed, I think gold is, or has, formed an important bottom and could easily rise $50 or more in the next COT-driven rally, with a much greater equivalent rally in silver. But this article is not about my personal price expectations, but about using real facts to determine your own vision.)

Gold is also a material mined, used and valued since the dawn of civilization. It too will be with us forever. While it has many potential varied uses in the modern world, due to its high price, it is principally used (as it has been through the centuries) as an investment and jewelry item. Because so little gold is lost in modern industrial applications, it can be said that most of the gold ever mined still exists.

Since 1980, world gold production has added 1.5 billion ounces to above ground gold “inventories” for a total of 3 to 4 billion ounces. Looking out over the next 25 years, current annual production will add another 2 billion gold ounces, bringing above ground stocks to 5 to 6 billion ounces. The U.S. Geological Service also predicts a severe depletion in below ground gold reserves.

The important point here is that at the end of the next 25 years, there will be a significant increase in gold in existence, while silver above ground will certainly have been exhausted long before that. One is priced above $400, the other is priced below $7.

What price do you put on an item marked for extinction? Maybe the best calculation is not even to pick a price. Maybe it’s best to let your vision focus on time, and not price. Maybe you should let your imagination set a long enough timeline and ignore the daily, weekly, monthly and yearly price changes. That certainly would have been the right approach in real estate and oil. If the silver price rise becomes too compelling, then take some money off the table. Just be sure to remain true to your own vision.

I’ve tried to present the facts clearly and objectively, but also provocatively. I want you to use your own imagination and form your own vision, in the hopes that you can cope with the long-term in silver the best way possible. As for me, I have my own vision on which I will rely. I have my own price and timeline, and you should have yours. I will tell you that even after 20 years of analyzing silver, not only do I find my premise about silver consistently reconfirmed, the more I think about it and let my imagination run freely, I still tremble with excitement about the certain conclusion I see ahead. The more I study silver, the more an extreme situation and future price resolution comes into focus.

In closing, there is one thing I further ask you to consider. If you decide to buy and hold silver, make sure it’s in the right form. I have been hearing disturbing new stories that people are still buying unbacked bank silver certificates and unallocated pool accounts. If there’s one thing I can see destroying a legitimate silver vision, it’s buying the wrong type of silver. Here’s a simple rule – if you’re not holding it in your own possession, or don’t have the serial numbers, weights and specific descriptions of all stored silver, you don’t have silver.

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