In Ted Butler's Archive


There’s something in the back of my mind regarding silver that I don’t write about enough. I spend most of my time analyzing current factors most influential to the price of silver, such as COMEX and JPMorgan goings-on. However, I need to write more about the great value that exists in silver. What do I mean by great value? Basically, the word itself – silver must be considered very valuable by a number of standards. Those who invest in silver and hold it for capital preservation and appreciation consider it to have value, otherwise they wouldn’t hold it. The same can be said of gold. But the kicker in silver is that the metal is also used extensively in thousands of industrial and chemical applications; so much so that most of the new silver produced each year throughout the world ends up being consumed in these applications and only a small percentage is “left over” and available for investment.

With 90% of newly mined silver used by industry and other fabrication demands like jewelry, there is not much new silver available. Even when recycling is added there’s only 100 million ounces a year made available for investment purposes. That may sound like a lot, but in dollar terms it is not much – less than $2 billion – or less than 25 cents for every world citizen. Two billion dollars is peanuts in world investment terms. Think of it this way – if the world’s investors decide to buy more than $2 billion worth of silver, as they have done on numerous past occasions the world’s industrial users will not step aside and shut down their operations to make room for silver investors. There will be a fierce fight over available silver.

At that point, the only source of silver would be from existing owners. There was an industrial consumption deficit in silver for 65 years, from 1940 through 2006, in which close to 10 billion ounces of above ground world silver inventory were depleted. That’s why there isn’t much silver left in world inventories. No more than 1.5 billion ounces exist in the form of 1,000 ounce bars – the only form that matters to price. I would concede that most of this inventory is available for sale at a high price, but very little is available at the current price. It will take sharply higher prices to bring this silver to market.

Moreover, some 40% of the 1.5 billion ounces of silver that exists in the form of industry standard 1,000 ounce bars, or 600 million ounces, is now held by one entity, JPMorgan. This has been acquired by the bank over the past six years. Considering the measures JPMorgan employed to acquire the 600 million ounces, such as illegally manipulating the price lower through its dominant role in COMEX paper trading, and recognizing that JPMorgan exists primarily to make as much money as possible, we can assume it will only sell its silver at much higher prices.

Nothing encourages investment demand like higher prices. We are a long way from silver being priced at unrealistically high levels. In fact, we haven’t even started the silver move higher. What makes silver a great value, in essence, is that the current price in no way reflects that there is so little of it available from current production or above ground inventories. When investment demand kicks in, the true value of silver will become obvious. In the meantime, the current low price presents the two things most important to investors, incredibly low risk and incredibly large profit potential.

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