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starwarsgeek171
Penny Hoarding Member
USA
651 Posts |
 Posted - 04/02/2008 : 14:33:05
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Is there a silver shortage? No.
Additional silver can always come from mines which today cannot economically produce silver at today’s low prices, but can when the price increases to a point where it is economic to produce the ore. “The second area of supply side growth will come from the inevitability of new exploration successes and the modern development and geological advancement of historic silver deposits…” (e.g. mines that the Spanish discovered and worked in the New World are STILL being worked today, North Korea's gold and silver mines remain largely untapped, Argentina's untapped potential and mining growth could increase reserves, and Idaho still holds vast untapped mineral deposits. Finally, Mexico is without a doubt still on top of the world right now in terms of precious metal exploration. The country has everything going for it. The economy is strengthening, mineral development has very strong government support, and, best of all, Mexico is still teeming with undiscovered gold and silver deposits after 500 years of mining history. Since 2003 the silver price has increased considerably, and this has led to a revived interest in mines across the US and Mexico that have been dormant or abandoned during the 1990s).
Speaking at the inaugural Global Capital Forum on gold and silver in London, Jessica Cross of the VM group stated that there was an obvious apparent supply surplus occurring at the same time as a steady fall in usage in its principal industrial use in the photography sector (silverless black and white film, xerography, and film with reduced silver content are alternatives to some uses of silver in photography).
Also, remember that there are many silver substitutes: aluminum and rhodium can be substituted for silver in mirrors and other reflecting surfaces. Tantalum can be used in place of silver for surgical plates, pins, and sutures. Stainless steel is an alternate material used widely in the manufacture of table flatware. in addition, non-silver batteries being developed may replace silver batteries in some applications.
There is NO silver shortage, and there never will be:
“In fact, if India were excluded from the global consumption picture, total fabrication last year actually rose by 1 percent.”
by Gary North:
HI, YO, SILVER!
Those of us who are old enough to remember Fred Foy’s introduction to every Lone Ranger episode remember that famous phrase. Yet in the history of silver, this phrase has applied only once: 1979. That momentous, incomparable opportunity to make potfuls of money ended with the worst bloodletting in modern commodity history. To understand what happened, take a look at the chart of silver’s prices, from 1792 to the present.
From 1792 to 1972, silver went essentially nowhere: 180 years of no profits for silver investors. Then silver began moving up. I began selling silver as an agent of a broker (Monex) in 1973. I did this for less than a year. Then I went into writing full-time.
In 1979, silver spiked upward by 10 to one. It hit $50/oz in January, 1980. There had never been anything like this before in silver’s history. Then, beginning in mid-January, 1980, it fell like a stone. It kept falling until 1991, when it bottomed at $3.60.
Search long and hard; you will not find anything to match the spike in silver’s chart.
What happened? Bunker Hunt happened. The multibillionaire oil man started buying silver futures contracts in 1973. He kept accumulating contracts, pyramiding them: using profits in his position to buy more contracts. He then started demanding delivery in 1979, when the price of silver was $5.
Demanding delivery of actual commodities is rarely done in the commodity futures market. Those who have gone long (buyers of future commodities) buy an offsetting short position and take delivery of their money. There are vastly more futures contracts promising to deliver any commodity than there are supplies of this commodity. Some of those speculators who were short silver saw a crisis looming: no silver to deliver. They sold their positions. They did this by buying "long" positions, which drove up the price. It was domino time for silver shorts all through 1979.
Hunt was trying to corner the market on silver. As a multibillionaire, he was feared. He might be able to do it, investors thought. They were wrong.
Two things happened to stop him. First, the FED reversed policy in October, 1979, from monetary inflation to monetary stability: tight money. Interest rates began to skyrocket. The end of double-digit price inflation was imminent. Second, the commodity exchange changed the rules. No one was allowed to buy "long" contracts except to cover existing "short" contracts. Demand for silver futures contracts died overnight.
This caused the peak price in January. Then down went silver. Hunt could not cover his pyramided long positions. The commodity exchange sued to collect. The FED intervened and provided a billion-dollar loan to Hunt to give him time to liquidate his oil holdings and meet his silver contracts’ obligations. He had to collateralize this loan with his oil holdings. Hunt and his brother soon went bankrupt. He had to liquidate everything except his home, which was protected by the Texas homestead law. All that remained was his famous quip regarding the billion-dollar loan: "A billion dollars just doesn’t go as far as it used to."
ALL THAT SILVER IS ALMOST GONE!
There is a story that the U.S. government at one time owned 1.5 billion ounces of silver. It no longer does, or so the story goes. It is not clear exactly when it was sold, or how, or to whom. You get different stories from different silver bulls.
There should be only one story: The government sold it into the market at particular times at particular prices in specific quantities. There must be public records. If there are, then we know when it was sold. If there aren’t, then all we have is a really good sales brochure story.
The standard account is provided by the Silver Users Association. In 1970, the government authorized the sale of its remaining silver hoard, which was converted into commemorative coins. By the early 1980s, the government had sold off all but 139 million ounces of its silver. This was finally sold by 2000. By the end of 2000, silver's price was down to a little over $4.50. The following December, it bottomed at $4.10. It began its upward move, one month after the retroactive official end of the 2001 recession. It ended 2002 at $4.75. Silver users could buy all they wanted from above-ground supplies, just as they had been able to do since 1980.
It is always the same story among silver bulls: "Next year, silver will be in short supply." I ask: Why was this story wrong for over two decades?
When Hunt began buying, the price of silver responded rapidly. By late 1979, people were selling their silverware to silver users, who were melting down these spoons and forks. If there was any silver in the world to sell, people were selling it to commercial silver users.
This is why the familiar story of the hundreds of supposed hundreds of millions of ounces of silver serving as an overhang, 1968–2001, is not credible, apart from specific evidence that it was being sold into the market by the government, in dribbles and drabbles, all the way up and all the way down.
If a specific quantity of any commodity is available for sale, then it is in people’s inventories. It is therefore in the market. It can have no future effect on price until it gets sold off and used up to make things that leave behind no scrap.
It costs money to hold silver in inventory. You lose any interest on the money you did not invest. You pay for storage and insurance. Why would anyone in his right mind have held silver in inventory after 1980? Only for short-term reasons. If speculators held 1.5 million ounces of silver inventory throughout the 1980s, they were dumber than Congress.
My point is simple: Only economic ignorance or the fear of an imminent cataclysm kept silver bullion hoarders from selling their silver to silver users, 1980–2003. If we are now facing an imminent depletion of above-ground silver supplies, then the reason has to be that the poor dumb clucks who held silver bullion are at last dying off, and their heirs are selling silver to users. But this has been going on for years. What is new?
When any commodity is sold to final users, the inventory shifts from speculators to the final users. If silver is used in jewelry, it is still in buyers’ personal inventories. If it is used for most industrial products, it is still available as scrap. Only as the old products are junked and buried in landfill does silver cease to be in someone’s available inventory. It may not be in bar form. It may have to be melted down and poured into bars. But it is still in someone’s inventory.
We saw this form-transformation process in action in 1979. Silver came out of personal inventories all over the world. Bunker Hunt had no possibility of ever cornering the silver market, even if the exchange’s rules had not been changed. Either at $60 or $80 or $100, he would have faced the reality of the silver market: Demand calls forth newly available supplies, which keeps prices from rising. When that day arrives, those who are "long" are trapped.
We are told that the COMEX used to have 1.5 million ounces in reserve. If true, this means that silver was in an easily accessed form: labeled bars. But the fact that these bars have been bought by silver users and converted into new forms of silver is not proof of a major decline in the quantity of above-ground silver. It only means that silver will be more expensive to purchase. It means that converting scrap silver to bars of silver will have to be paid for.
This will mean a rising price for silver if demand continues to rise, but not necessarily a spectacular increase. It is not that purchased silver has disappeared. It is only that it has moved from owners who hold it for commercial purposes to owners who use it for decoration.
Silver users are not fools. They have more incentive to monitor statistics relating to silver than almost anyone else does. Yes, they have bid up the price of silver since April, 2003, when it bottomed for the year at $4.37. Silver has had a nice move upward. But let us not mistake a move that was preceded by gold’s move by two years as some sort of alarm bell on an imminent shortage of silver.
Here is my main point: I have heard this same argument about silver’s imminent shortage ever since 1973, when I sold silver for a living. All through the early 1980s, silver guru (emeritus) Jerome Smith told people in a series of books that $50 silver was only the tip of the iceberg, that silver would be at $100 an ounce by 1986, and on and on. It was all nonsense. Silver was headed for $3.60.
When a wise man hears the same argument used over and over, decade after decade, to buy silver, yet the price only once has moved far out of a trading range of a few dollars, then he grows suspicious every time he hears the argument.
GOLD IS A SAFER BET THAN SILVER
I am a gold bug. This means that I believe that the dollar price of gold will eventually rise, because the purchasing power of the dollar will decline by a much greater percentage than is presently expected by conventional investors.
Price inflation alone will not drive up the price of gold or silver, as we can see in the prices of both metals after January, 1980. There was steady price inflation and also a price collapse of both metals for two decades. Unexpected price inflation is the deciding factor.
I think the economy is getting closer to a recession. So, I think silver – an industrial metal – is more vulnerable to a decline in price than gold is, which retains its status as money for central banks.
I warn everyone not to accept as proven the assertion that the alleged decline of inventories of silver in bar form is the same as a decline in the above-ground supply of silver. There is a transfer of silver going on: from professional speculators (few) to users (many). There are also inventories held in bar form by silver users.
Decade after decade, part-time silver speculators (readers of newsletters) have been assured that silver is running, out that a shortage will soon emerge, and prices will go up.
From 1792 to 1972, this was not a problem. Bunker Hunt came and went. Then silver’s price collapsed back to the level it had traded in since 1792.
Don’t get your hopes up for a killing. Some profits, yes, but not until after the next recession. Is it better than owning fiat money? A few thousand dollar’s worth, yes. You have probably heard that Warren Buffett supposedly owns all that silver that he bought in 1997: 139 million ounces. But, as a percentage of his wealth, this is peanuts. It is worth noting that this investment performed poorly for five years after he bought it – one of the most well-publicized clunkers in his career. Finally, he probably leased out 50 million ounces.
I have seen it all and heard it all since 1962, and I even participated in 1973 as a silver salesman. Silver is always running out. A new generation of part-time silver speculators is always lining up.
By Antal Fekete:
Whenever the price of silver significantly lags the rising price of gold, there may be panic short covering and the leased silver will be returned to the lessors in a hurry. If the lessors were not prepared for this avalanche of silver (because they expected that the leases would be rolled over), then they may not be able to absorb the silver flowing back to them. In this case the silver lease rate drops dramatically and may even dip into negative territory.
It is important to be able to interpret this correctly. As I said, silver is delivered faster by the lessees than the lessors are able or willing to absorb it. Admittedly it is a market aberration, but whatever it means, it does not mean a shortage of silver. Far from it. It indicates a relative redundance of silver that momentarily cannot find lessees in view of an impending rise in the silver price.
The verbiage about silver manipulation is just so much tilting against the windmill. In his latest commentary dated September 18 Butler distinguishes between upside price manipulation or cornering the shorts, and downside price manipulation or cornering the longs. He adds that while the former is fairly common, the latter is exceedingly rare. Downside manipulation results in much lower prices than would otherwise prevail and, when it ends, the price explodes upwards. Butler is right on. A corner on the longs is in fact so rare that it does not even exist, except as a figment of the imagination of some analysts. The longs cannot be cornered, especially in a corner lasting for years.
Rumor-mongering about present or future silver shortages do not bring credit to the analyst. He should go back to his textbooks and study the market in greater depth. Above all, he should learn the elementary differences between monetary metals and non-monetary commodities.
Don’t believe the silver hype. Will it go up? Yes. Will it outperform gold over the long haul while equally protecting your net worth? I don’t think so.
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CoinHunter53562
1000+ Penny Miser Member
USA
1805 Posts |
Posted - 04/03/2008 : 08:02:23
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| Interesting article, but to be honest for every article that says there is no silver shortage, there seems to be plenty that claim there is. We really dont know for sure, but thanks for the interesting read. As we stated in another thread, you really cant go wrong buying PM's, right? |
My hobby: collecting real money 1 copper cent or nickel at a time.
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tmaring
Penny Collector Member
USA
302 Posts |
 Posted - 04/03/2008 : 08:50:48
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I didn't actually manage to wade all the way through that article, but skimmed off the gist of it.
As a geologist and mineral explorationist I find it interesting to hear that there are all these massive silver deposits ready to mine... because this is what I do for a living and I've been having a hard time finding a silver deposit worth messing with.
From what I can see... there actually ARE a lot of huge low grade gold deposits around, especially in Nevada... holding reserves of tens of millions of ounces of gold. These are amenable to industrialized open-pit mining and heap-leaching, and can respond to changes in price fairly quickly. (3 to 5 years)
But silver is a different animal and does not form the sort of massive low-grade deposits that gold does. All those old silver mines were chasing down thin veins of tetrahedrite or argentite or argentiferous galena and there is no practical way of exploiting those ores by other than traditional underground methods... which are expensive. Add to this that all those old mines are flooded now, and it is a huge investment to go in and try to pump them down.
So what I'm saing is that on the supply side, there is a LOT of gold in the ground and in process of being extracted. By comparison the amount of silver is small. Therefore I see silver poised to RISE against the value of gold... the exact opposited of the article. |
Tom Maringer
Shire Post Mint
Springdale, Arkansas |
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CoinHunter53562
1000+ Penny Miser Member
USA
1805 Posts |
Posted - 04/03/2008 : 10:24:42
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| Starwars - I know you and I agreed that you cant go wrong with buying PM's. However between this thread and the silver vs gold thread you started, it seems that you are high on gold and just ok on silver. But it almost seems like you are trying to prove something to justify your purchasing of gold vs silver. I think the rest of us would agree that you do not need to justify that among us. I think its great that you like gold and are buying it up, but alot of us prefer silver and it will take a lot more than a few articles to convince us otherwise. |
My hobby: collecting real money 1 copper cent or nickel at a time.
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starwarsgeek171
Penny Hoarding Member
USA
651 Posts |
Posted - 04/04/2008 : 09:40:17
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I just wanted to show that there are two sides to every argument. I thought I was going to be torn to shreads for presenting this information, yet I was pleasantly surprised to see the few intelligent responses I received.
Yes, CoinHunter, we are in complete agreement re: both are great buys! Also, you are correct. I think I am trying to convince myself, as much as I'm trying to convince others.
tmaring, I still hold a fair ammount of silver, so I hope that you're right!
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CoinHunter53562
1000+ Penny Miser Member
USA
1805 Posts |
Posted - 04/04/2008 : 20:33:49
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No worries Starwars...I 100% like both. So like you said: buy, buy, buy!! I dont think there is such a thing as too much, so I plan to keep acquiring what I can.
I wanted to ask you though, are you buying in hopes of unloading at a certain level or are you more into for the long haul? I am not sure myself. Part of me says sell if silver hits $25/ounce but then part of me says hold on to as long as possible in case TSHTF. What are your thoughts? |
My hobby: collecting real money 1 copper cent or nickel at a time.
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starwarsgeek171
Penny Hoarding Member
USA
651 Posts |
Posted - 04/04/2008 : 21:12:54
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| I want to be very secure in my old age, so I hoard all PMs on top of a serious retirement and investment plan. Don't tell anyone, but I really do like silver a lot. Whenever I sell any PM, it's always to trade up. |
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CoinHunter53562
1000+ Penny Miser Member
USA
1805 Posts |
Posted - 04/05/2008 : 00:12:12
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| Excellent...one guy I work with got into the silver buying with me a bit last year when silver was closer to $11. He wants to sell at $21 but I want to hold on to them for the long haul like you. I sold some silver last year and a couple of gold coins and looking back I wish I had just kept them instead. Ugh |
My hobby: collecting real money 1 copper cent or nickel at a time.
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wolvesdad
1000+ Penny Miser Member
USA
2164 Posts |
Posted - 04/05/2008 : 04:17:55
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Starwars,
Thanks for these articles.
A couple points.
I find the Gary North article seriously flawed on a couple of things. His comparison of profit according to the price since 1792 is absurd, and he should know better. There are no profits in the buying and holding of PM's when they are your monetary medium. Inflation is what makes profit potential in things like PM's. And from what I know/understand, that inflation didn't start until the 1930's for Gold, and mid 1960's for silver.
Next, "If it is used for most industrial products, it is still available as scrap." This assertion only applies to silver used in film, so far as I know. Most other industrial applications DO GO INTO LANDFILLS or are locked in a form that wouldn't be worth recovering until silver was $150 or $200 an ounce....hmmmm, that would mean that silver would have had a PRICE EXPLOSION.
And, he also fails to explain very well why COMEX or 1000 oz bars are fewer than before...To me, it seems those bars wouldn't be touched unless mining was not providing sufficient resource. I mean, I could be wrong, but I don't think that industries would pay the premium for these 1000 oz bars, when it seems that they could get silver at a lower premium, and in a more user friendly form directly from the smelter/mints that process mined ore.
And he says "is not proof of a major decline in the quantity of above-ground silver" but he doesn't deny that it could very well BE the case, that above ground silver has had a major decline over the past 10, 20 and 50 years.
One thing he is right about, as a commodity used in industrial applications, a slowdown in the US or world market could negatively impact silver more than gold. But it would also mean a decline in mining activity, and that coupled with(what I still believe is/could be)declining silver inventories, would mean significant price growth when the market economy started to recover. Whereas gold would rise much slower, or could even go down as the market became more 'safe.'
Finally, I would say that I don't think Gold will ever do "Far and away" better than silver. In the least, silver will always tag along. But I do believe the upside potential for silver(because of a shortage or whatever!) is FAR greater!
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"May your percentages ever increase!" |
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wolvesdad
1000+ Penny Miser Member
USA
2164 Posts |
Posted - 04/05/2008 : 04:30:25
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I'd like to say one thing...
I am by far no expert!!!! I just follow what I read, hear and that which makes sense according to what I know.
To me, the whole predominately 'near surface' deposits of silver, many of which have been all but 'picked clean'; the price hindrance to recovering silver once used/processed or utilized in industrial production and applications; and, according to Ted Butler, the huge unsubstantiated paper and short positions in silver all seem to be bullish for silver in a way that the world has not seen before.
So what if the insight hasn't come to fruition in just 30 years, all the more it makes the men that see it coming to be prophets and wise men! I mean it is good for mankind that it has not fully matured/happened yet. Silver is an awesome metal(and not much is used in vanity mirrors anyway, use Aluminum, who cares) but it does have properties that are unique and beneficial enough that it will never be replaced by Aluminum, Rhodium, or Stainless Steel. Perhaps only Gold will ever serve as a substitute for silver, and I'm not sure if even it can do that. Renewable energy is big, right? Check out next generation solar panels that will be significanly more efficient, because of silver!
....anyway, I've gone on long enough. Gold and silver, great! (we all agree on that) ...but I do believe, according to what I know, that silver has much more going for it. |
"May your percentages ever increase!" |
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NotABigDeal
1000+ Penny Miser Member
USA
3890 Posts |
Posted - 04/05/2008 : 19:35:13
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Okay, payed my coin dealer a visit today. We talked about this "shortage". He says if these is a shortage, he isn't seeing it. There have been a lot of sellers recently he said. He said on a slow week he sends 3k ounces of silver to the refiner. Now, there is a shortage of 2008 SAE's now. Mint is out until end of April I think. I'm no expert, just passing on some of my conversation. Side note: I picked up a nice mix of 90% junk dimes from him. $1.10 each. I bought all his Barber's, Mercury's, and most of his Roosevelt's. All the same price. Good deal if you ask me.
Deal |
Live free or die.
Plain and simple.
"If you love wealth more than liberty, the tranquility of servitude better than the animating contest of freedom, depart from us in peace. We ask not your council or your arms. Crouch down and lick the hand that feeds you. May your chains rest lightly upon you and may posterity forget that you were our countrymen."
- Samuel Adams |
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CoinHunter53562
1000+ Penny Miser Member
USA
1805 Posts |
Posted - 04/05/2008 : 21:06:15
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quote:
Okay, payed my coin dealer a visit today. We talked about this "shortage". He says if these is a shortage, he isn't seeing it. There have been a lot of sellers recently he said. He said on a slow week he sends 3k ounces of silver to the refiner. Now, there is a shortage of 2008 SAE's now. Mint is out until end of April I think. I'm no expert, just passing on some of my conversation. Side note: I picked up a nice mix of 90% junk dimes from him. $1.10 each. I bought all his Barber's, Mercury's, and most of his Roosevelt's. All the same price. Good deal if you ask me.
You got a great deal from him at 11x face. Current melt is about 12.8x face so you did well. |
My hobby: collecting real money 1 copper cent or nickel at a time.
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JSutter
Penny Pincher Member
214 Posts |
Posted - 04/05/2008 : 21:16:36
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| I attribute the shortage of SAE and Silver Maple Leafs to the fact that they are one of the few approved rounds that are eligible to be held in IRA's according to the standards set by the government. To hold silver in your IRA it has to be a .999 fine round or bar issued by a government or a COMEX listed supplier. Most people have heard of the SAE and went for that when deciding to get some of their IRA money out of stocks and into metals to hedge against the rough market and inflation. |
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starwarsgeek171
Penny Hoarding Member
USA
651 Posts |
Posted - 04/06/2008 : 09:11:14
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| I'm opening an ASE IRA in May. I don't think I'll regret it. |
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Saul Mine
Penny Collector Member
USA
343 Posts |
Posted - 04/06/2008 : 11:30:59
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Ok, so we have a well written essay from a respected analyst saying one thing and equally good essays from equally credentialled analysts saying the opposite. As usual, they are not talking about quite the same thing.
A shortage exists any time the demand exceeds the supply. There are different opinions about what "supply" is and about what "demand" is, and most people tend to forget that investment is a very real demand. Some people assume that silverware and jewelry are part of the supply, forgetting that they are also part of the demand. That is to say, if someone has silver and declines to sell it then it doesn't count. Likewise if an investor wants to buy silver that is a demand and that silver is removed from the market.
You can prove anything if you confuse your supply with your demand and then assume that any silver anywhere is available at any time it suits your proof. Does this sound a bit muddled? That is exactly my point: the reasoning is muddled. Mr. North is usually a clear-headed commentator, but he has muddled the concepts of supply and demand, assuming that some buyers don't count and that holders will become sellers at whatever time suits his theory. It doesn't work that way. |
A penny sorted is a penny earned!
Please use tinyurl.com to post links. Long links make posts hard to read. |
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