In Ted Butler's Archive


The possibility exists of extraordinary gains in silver. We’re talking about the likelihood of $200 silver. That’s because the silver story is phenomenal. It starts with an investment asset known since the dawn of civilization that morphed into an important industrial material starting about 50 to 100 years ago. As a result of this industrial consumption, due to chemical and mechanical properties unique to silver, the world’s 10 billion ounces of bullion was depleted by 90% because production could not keep up with demand for 70 years. The depletion of world silver bullion inventories was so severe that there is now more gold bullion in the world (three billion+ ounces) than there is silver bullion (one billion+ ounces). Despite this imbalance in inventories, gold trades at more than 50 times the price of silver.

Most amazing of all is that silver’s phenomenal story remains largely unknown. Most investors would stare at you blankly if you told them that there was three times the amount of gold bullion in the world than silver bullion. A depleted inventory is probably the most bullish thing you could say about any asset. There is little awareness of the real silver story which means there is a long way to go before it is recognized. But the depleted state of the world’s silver inventories is only a part of this amazing story.

Strong investment buying has commenced in the last six years both in the U.S. and Asia. At the same time industrial demand has continued to grow. Most of the new silver produced each year is already spoken for in industrial fabrication and is unavailable for purchase by investors. Because there is relatively little remaining new silver available for purchase, it would take a much smaller number of investors to drive prices to overvaluation than were involved in the real estate and Internet bubbles. Throw in allegations of a downside price manipulation and the possible regulatory resolution of a long term silver investigation and there exists multiple silver stories which could develop into a full blown bubble.

Silver is used in industrial applications in very small quantities relative to the total cost of the finished product. Substitution of other materials is impractical in short periods of time, so a sudden price spike would not be met with a dramatic drop-off in industrial consumption. In fact, heavy investment demand would likely cause industrial silver users to rush to buy in order to build inventory levels that assure continued functioning of assembly lines. There would undoubtedly be efforts to increase silver mine production in response to a price spike, but opening silver mines takes a lot longer than it does for a silver buying panic and a price blow off.

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