In Ted Butler's Archive


With more financial uncertainty in the world than in memory and with price volatility going through the roof, it’s hard to think about the long term. The only problem is that our lives are still measured in the long term. In financial terms, starting families, raising and educating children, preparing for retirement and preserving hard-earned wealth are not day to day considerations; we are forced to look ahead. In looking and planning ahead, there is no crystal ball; no guarantee that things will turn out as we expect. All we can do is to make assumptions based upon what we now know and then try to position ourselves for what may come.

Imagine that you are going on a journey for ten years and will be out of touch for that time. With no short term trading allowed, what assets would you choose to invest in until your return? Silver is an asset that can offer spectacular returns and preserve value with low risk. It is a vital resource and essential industrial material in addition to being a precious metal. And because so few investors are familiar with the real silver story, it is a near certainty that silver will become more appreciated over time.

There are limitations on the future supply of silver. Every metal resource in the world becomes more expensive to produce each year. That’s due to the growing cost of extraction and because ore grades have declined (the biggest and cheapest deposits have already been found and exploited). The grades for silver ounce per ton of ore 150 years ago at the Comstock Lode were hundreds of times richer than grades being discovered today. It takes greater effort and expense to extract metals from the earth, to say nothing of new environmental restrictions.

The world population now stands at seven billion. Over the next ten years, the world will add another 750 million and perhaps a billion people on top of that over the twenty years. That’s six times the equivalent of the current population of the U.S. That will most likely be accompanied by an increase in the standard of living throughout the world. One measure of an increased standard of living includes greater use of electrical appliances and electronic devices of all types, from TV’s, refrigerators, washing machines to computers and cell phones. Since silver is the best conductor of electricity it is sure to be in greater demand. Plus silver has other important attributes. It’s the best reflector of light, the best transfer agent for heat and has important biocide properties, making it indispensible to modern life.

Silver performed better than any other asset over the past decade. But don’t buy silver because it did well, buy it for the new forces in place in the world. Ten years ago, there was no net investment in silver. Only in the last five years has the world taken to investing in silver. Over that time, over 600 million ounces of silver have been bought in Exchange Traded Funds (ETFs), with hundreds of millions of additional ounces of silver bought in coins and bars. Five years in a worldwide investment movement is a very short time frame. In per capita terms, the world only bought one-tenth of an ounce of silver per person. It would be accurate to suggest that a worldwide movement towards investing in silver is in its infancy.

There is more investment capital today than ever before. Between the banks, large investment pools, and hedge funds, that capital base is more concentrated than ever. We are talking about many trillions of dollars. All the silver bullion in the world is valued at less than $35 billion. Despite silver’s great investment performance over the past 5 and 10 years, it has yet to attract investment from these big concentrated pools of wealth. It is only a matter of time before the really big guys wake up and make a move into the metal. Considering how little silver exists to accommodate them, the effect on price when it occurs should be explosive.

One thing that didn’t exist ten years ago is the growing unease over government debt. For the first time in living memory, sovereign debt in the developed nations has come to be questioned and shunned. This is not going to go away or be resolved easily. It is not hard to imagine the distrust of paper growing. A distrust of paper is a distrust of someone else’s promise to pay. The only escape route is to switch to assets not dependent on someone else’s promise or ability to pay. Silver is a premier example of such an asset. The kicker with silver is that without any rush from paper assets it will still be great.

The growing distrust of European sovereign debt is occurring at the same time there has been a rush to deposit money in government paper obligations and insured bank accounts. Given volatile stock markets, a troubled real estate market and broad economic malaise, people are voting for safety, despite historically low returns on deposits. Investors are flooding the banks with deposits that earn little or no interest. Money is piling up on the sidelines like never before. In due course, it will seek better investment returns than the near zero returns currently offered on insured deposits. Silver will attract some of this money. Either we’ll come out of this economic mess and all the money currently flooding into the banks will increase industrial demand for silver; or we’ll slide into further distrust of paper which could set off a buying panic in silver. In either outcome, it’s hard to see how silver won’t be the place to be.

The outlook for silver looks better than ever. There are important regulatory changes afoot that promise to powerfully impact the price. There will also be closure to the current CFTC investigation of wrongdoing in the silver market. The manipulation to the downside in silver has many times the awareness that it did a decade ago and there are fewer counterarguments to explain it. Take advantage of the current low prices to establish a long term position in silver; I doubt you’ll regret it. As unsettling as financial events may be, they are actually quite positive for silver.

The reason for recent price drops rests with a group of around 20 commercials on the COMEX, including JPMorgan, that know how to suddenly rig prices lower (usually in the middle of the night or at some other thinly traded time). Knowing that this will scare some people into selling and keep others from buying, this small group of commercials then sits back and waits to buy what they can scare others into selling. I call this financial terrorism because it causes fear among investors. The proof is that government data consistently reveals that these commercials are always the big buyers on any sharp sell-off in silver. No exceptions. Some might call this just luck on the part of these commercials. I call it manipulation and financial terrorism.

It’s ironic that most silver and gold investors originally bought precious metals as protection against exactly the type of financial crisis we are going through now. In other words, the price of gold and silver should be soaring based upon current conditions. Instead, the manipulation is so pronounced that the crooked commercials on the COMEX have managed to convince the market that a flight from paper assets is somehow bad for precious metals. That’s preposterous and you should not be fooled by their crooked games. The proof is that these commercials crooks are buying hand over fist on the contrived sell-offs. You should do exactly the same. These rigged price drops are an opportunity like no other. The fact that it is being artificially suppressed means you are getting a chance to buy it much cheaper than it would be in a free market. That has to change and when it does it will be like a sling shot in the other direction. The facts are more bullish than we can fully comprehend.

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