In Ted Butler's Archive


If one is going to hold any asset as a long-term investment, then there must be a compelling reason for doing so, apart from wishing to see your investment grow in value. There has to be a principal long-term vision or core belief about an asset that allows one to tune out the short-term price fluctuations and hold for the long term; otherwise investors are likely to flip flop and risk losing their way. If you invest in stocks or real estate, you have to hold a long-term vision about the companies or properties involved and the same goes for all other assets, including silver.

As it turns out, many hold silver as a long-term investment for different reasons, such as for protection against future inflation, or as a prudent diversification from traditional securities, or as basic financial insurance against any number of monetary concerns. All these reasons are understandable and seem plausible to me and I would never dismiss them out of hand. However, I hold silver for a highly specific reason – the coming physical supply crunch.

And let me be even more specific than that – the coming supply crunch in silver I envision must be in the form of 1,000 ounce bars, the industry and investment standard. Please don’t think that other forms of silver are not suitable for long term investment, it’s just that the price of silver is set by metal in the form of 1,000 ounce bars and it is in that form that the crunch will occur. To be sure, I can’t tell you exactly when the supply crunch for 1,000 ounce bars of silver will occur, but I see no chance that it won’t occur at some point. Remember, I’m speaking of long-term investments, not short-term price fluctuations.

How can I be so sure that a supply crunch will occur in 1,000 ounce bars of silver, driving its price far higher than almost anyone can imagine? Due to a number of factors, which can be easily and independently confirmed, anyone can verify whether what I present is factual. And apart from these factors, we were on the cusp of a shortage of 1,000 ounce bars of silver only five years ago, which is why the price soared to nearly $50 at the time. In a real sense, what I envision has already occurred or nearly so, making the prospect of it recurring more to the point.

Any supply crunch comes down to supply and demand, so let me deal with supply first. The known and fully documented world inventory of silver in the form of industry standard 1,000 ounce bars comes to under 1 billion ounces, worth less than $20 billion. I am including every ounce of silver in every ETF and all verifiable world holdings, including SLV and the silver inventories in the COMEX-approved warehouses and all government holdings. I’m not leaving out an ounce of verifiable silver in this form. It is impossible for anyone to document that more than 1 billion ounces of silver exists in the world in the form of 1,000 ounce bars.

Of course, it is possible and more than likely that there exists more silver in 1,000 ounce bar form than the less than 1 billion ounces that can be documented. After studying the matter closely for more than 30 years, I would estimate there are another 500 million ounces of silver in the form of 1,000 ounce bars, although no one can document that or any other amount, so I might be on the high end. Further, I believe JPMorgan owns most of the 500 million ounces of silver that can’t be documented, but that’s a separate issue.

Bottom line, there are no more than 1.5 billion ounces of silver in the world in the form of 1000 ounce bars, worth less than $30 billion. Not only is this a pitifully small amount of money in world inventory terms (gold inventories in all forms come to more than $7 trillion), very little of the silver is actually available for sale, except at much higher prices. For instance, if anyone tried to buy even 10 to 20 million ounces of silver in the physical form of 1,000 ounce bars in a hurry, to say nothing of higher amounts, the impact would be seen in sharply higher prices. My point is that the supply of 1,000 ounce bars of silver is much more limited and restricted than most everyone is aware.

There may be silver in other forms, such as smaller bars and coins or noninvestment items containing silver, but those forms won’t matter in a supply crunch because the two types of principal buyers will only be interested in buying 1,000 ounce bars. The two principal buyers, as has been the case all along, will be the world’s investors investing in silver ETFs and the world’s industrial users and fabricators needing silver to stay in business. These two classes of buyers define what form of silver will be most demanded.

The SLV isn’t going to buy boxes of Silver Eagles and neither will the silver industrial users. Every big buyer throughout the world, just as they do now, will deal in 1,000 ounce bars, including all ETFs and users, including those attempting to buy via COMEX futures contracts. Let’s face it – it’s a 1,000 ounce bar silver world and not any other form.

What guarantees the silver supply crunch at some point is not some complex and hard to imagine new set of unusual circumstances; but a simple extension of what already exists. The formula is simple and it is inevitable – investment buying is a heck of lot easier to crank up than cranking up the physical supply of 1,000 ounce bars and once the world’s industrial users can’t get timely delivery of physical material, the rush to buy 1,000 ounce bars will be turbo-charged. Only silver has this dual – investment and industrial – demand and the only form that will be demanded will be metal in 1,000 ounce bar form. As far as how high the price of silver could climb when the supply crunch hits, pick a number and plan on guessing way too low.

I’ve studied silver closely from every possible angle for more than three decades and the one thing that hasn’t varied is my conviction of an inevitable supply crunch. If there is a better reason for buying and holding silver as a long term investment, I’ve yet to uncover that reason. I would invite and even challenge you to verify or contest my main reason for holding silver. It could result in a life-changing financial windfall.

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