Wednesday, June 16, 2010

The Silver Story

Dear Everyone,
People are asking about the difference between Gold and Silver as an investment in this crash.
As most of you know, I have greatly favored silver over gold.  Gold is good but silver is a multiple of good additional than gold and the reason is related to what analysts call "The Silver Story".
When the Silver Story is known, it will go up. 
When silver goes up, the silver story will become known. 
It is just a matter of time.
The below items are what I consider to be direct and credible access to the silver story, which should be self explanatory as to why there are so many hard core silver fanatics out there.
My primary source is Ted Butler so if you find fault with his analysis I would be keen to know:
  1. - Table in the middle of the story shows industrial drawdown of silver
  2. - Shows 3 categories of silver market demand
3. The above, taken together, leads us to the conclusion -

"The amount of silver used in each industrial application, while vital to the finished item, is a tiny percentage of the product's total cost. This means industrial users will not readily substitute other materials for silver in a price rise. If the price of silver jumps significantly, they will be more inclined to build inventories.

"When the inevitable silver shortage hits, it will be only a matter of time before industrial users try to protect themselves from delays and price increases. They will attempt to build inventories of silver. You don't risk the shutdown of an assembly line for want of a single, low-cost component.

"As industrial users try to immunize themselves from assembly line shutdowns, extraordinary demand will make the supply tighter.

"This is how panics occur. The price of palladium rose to over $1,100 an ounce because industrial users panicked and built inventories. Silver is used in many more applications than palladium. That increases the chance that silver users will panic and try to build inventories. If a panic does develop, there is only one known cure - it must burn itself out at extremely high prices."

4. In addition to the above trend, we also have a wholly separate bullish factor of the historic short position to consider, as follows:
In his most recent commentary, "The Smoking Gun, Part II", Butler lays out the obvious (and heinous) facts. The Comex criminals (composed of a gang of four banks), now control at least 72.5% of the Comex "short" position. To provide some context, this is more than five times as large a concentration, as when the Hunt Brothers were accused of "cornering the market" in silver – on the long side... the greatest "short-squeeze" in the history of markets (at least on a percentage basis
So the silver story basically is a "perfect storm" scenario of the following factors coming together:
  • Massive industrial drawdown of supply
  • Increasing and diverse demand increasing
  • Easy to get silver already gotten with cheap energy
  • People ready to shift because currency losing value
  • Unprecedented concentrated short position speaks to a bullish rise when manipulation gives way to physical shortages
  • Safety in a 6,000 year history of money
  • Large market from buyers globally - Poor man's metal
Gold is also good, I don't think anyone denies that.

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