After 22 Years of Bear, A New Silver Bull Market Has Begun


Silver Could Have Even More Upside Potential Than Gold

The following information was obtained from several sources believed to be reliable (for just one, see, Ted Butler's website) and I think the key observation in this information about the surging deficit in the supply of silver versus demand is the relative magnitudes of the numbers, not their exactitudes.  I for one have always had a subconscious prejudice for gold investments over silver, primarily for its major role over history as a monetary vehicle, but also for no other reason than the sheer bulkiness of even a modest silver investment.  One-Thousand Ounce Silver Bars weigh about 70 pounds, and with a 52 year-old back ( The Sage is now 64, written 12 years ago ), I don't relish slinging any from one hiding place to another.  But this is myopic reasoning, because there is compelling evidence that we could see $50 silver at some point not too far down the road, and a 10 times multiplier on gold takes one to $2,750 per ounce, an even more difficult level to imagine.  Frankly, I am very bullish on both gold and silver, but this data reaffirms and increases my bullishness on silver all the more.  But let me run through the facts as presented, and you draw your own investment conclusions:

1.  Silver Is Consumed Industrially, While The Vast Majority Of Gold Ever Refined Is Still Above-Ground

Many of these statistics are estimates, but the world is currently consuming through industrial products and processes around 800 million ounces of silver annually.  However, annual world silver production is approximately 500 million ounces and annual recycling efforts provide another 150 million ounces, leaving a 150 million ounce deficit that must come from existing inventories.  This deficit is not new, but has continued now for the last 10 years, proving that in this very short period, 1.5 Billion ounces of silver have been totally consumed.  Compare this cumulative deficit and annual shortfall with the known remaining silver inventories above-ground of 300 million ounces, and what do you have?!!  A precious metal that is destined for short-supply, unless the very unlikely event occurs where annual consumption and production both decline by over 50%.  Unlikely indeed, since current forecasts call for 1 Billion ounces of silver to be consumed annually by the end of the decade, even with bouts of global recession.

On the gold side of the ledger, there is approximately 3,000 Million ounces (a.k.a. 3 Billion ounces) known to exist above-ground in bullion form, so this precious metal is currently 10 times more available than silver (gold's 3,000 Million versus silver's 300 Million inventory)........ at least on the surface, no pun intended.  I am not going to get into underground global reserves here, since even the most accurate geologist does not have Superman's X-Ray Vision.  And we do know from experience over the last 5 years, that the Central Bankers of the world have sold gold bullion into the marketplace every time it has risen and they will do so in the future.  Even if they lie to us in the process.  And even if Sir Alan Greenspan has admitted to this fact in the past.  But, and here's the rub, Central Bankers don't have an almost limitless reserve of silver to chuck out every time the Bullion Banks and other Inside Conspirators get caught with their Shorts down (pun intended!).  There is not this anti-Free Market force present in the physical silver market as the gold market to unleash limitless physical supplies.  Note that I say "physical" market because the paper or futures market is an entirely different story where it is becoming more and more apparent, at least to this bullion analyst, that the silver market is even more manipulated on the COMEX than the gold market.

2.  The Current Global Recession Is Unlikely To Reduce The Net Cumulative Deficit in Silver

Since 75% of all silver production is actually the by-product of primary mining for such base metals as copper, lead, and zinc (and even gold!), a percentage reduction in demand for these primary products will reduce the annual production of silver also.  So if we forecast that demand for silver is to decline during the multi-year global recession that we are currently in, the supply is likely to decline even further due to the more economically sensitive nature of these three base metals.  Base metal demand is likely to decline more precipitously than silver demand, thus aggravating an already persistent deficit position even in a prolonged recession.  And primary silver mining companies which account for the other 25% of annual production, such as Sunshine Mining, are currently shutting down operations and individual mines due to the unfavorable economics of the lowest silver price, inflation-adjusted, in some 5,000 years of record-keeping. 

Add to this fact that the percent of total cost represented by the silver metal itself in a finished product using silver is small in most instances, that industrial users have no viable substitutes currently, and that they are insensitive, from a total product pricing standpoint, to even significant increases in the price of silver as a raw material, and you have an "inelastic demand for silver at the industrial level".  Plus, in many of the products affected, the manufacturer has Joe Consumer to pass a higher price onto, especially in the still growing number of film photographers around the world.

3.  The Growth In Digital Photography Is Not About To Diminish Net Silver Demand From Traditional Film Photography

According to the Silver Users Institute, film photography accounts for approximately 28% of total annual demand for silver.  Based on our assumptions earlier, that total annual silver demand was 800 Million ounces and growing, that would come to approximately 224 Million ounces consumed by shutterbugs every year.  This amount alone accounts for the annual deficit in silver supply over demand ..... And Then Some.  Even with the advent of digital cameras, a technology that is really more than 20 years old with the introduction of the Sony Mavica, unit sales of films and papers containing silver have continued to grow by 5% to 10% per year.  And if you own a digital camera that originally cost under $1,000, you know that your ability to reproduce a high-gloss/ high-resolution image even with today's high resolution color inkjet printers, is unsatisfactory in many instances.  And color inkjet cartridges aren't cheap, and large format photographs seem to drink ink like government payrolls drink tax revenues.  When you are really proud of the digital image that you shot with on of today's multiple mega-pixel digital cameras, your inclination is to run to the local film processing center and pay for a good old silver-oxide rendition of same on high-quality paper.  Kind of like when it was proclaimed that the computer would create the paperless office.  Just the opposite has occurred, and my recycling bins are a testament to this fallacy.  Add in the demand growth from emerging countries like China, where taking photos is a relatively inexpensive leisure activity for the average citizen, and the affordability of traditional film camera's and processing establish this medium as a growing, not declining industry on a global basis.

4.  Net Demand For Silver Likely To Increase, Not Decrease, Even During Current Global Recession

I have noted previously than silver consumption, normally that usage recorded outside of the pure investment demand arena, is forecast to hit the 1,000 Million Ounce per year level in the not-too-distant future.  My mention above of the largest emerging market for photographic use of silver, China, provides just one, albeit the one with the greatest potential for growth, in the years ahead.  Certainly, disposable cameras are within reach of more and more Chinese who may not be as drastically affected by the engulfing recession around the world. The cheap and cheaper goods that China is now famous for (we will be kind in the interest of the Anti-Terrorism Coalition and not speak about Q-U-A-L-I-T-Y!) will have greater demand than high ticket item goods from such exporters as those in EuroLand where more advanced technologies and manufacturing processes could command premium pricing during an economic expansion.  Plus the United States will be spreading a lot of tax dollars around the world in the years ahead to attempt to nip Anti-American sentiments in the bud in emerging/ submerging/ developing countries.  The Get-At-The-Root-Of-The-Problem strategy, but I must always ask, "What are the leaders, both governmental and business, in these countries doing to mitigate poverty and ignorance???"

Back from the political front, high technology uses for silver are growing each year, but applications such as Super-Conductivity where a sheath of silver weighing as much as 900 pounds enshrouds super-cooled conducting fibers or wires may depend on continued Applied Research funding that is uncertain during an economic slowdown.  And if you have read these commentaries carefully over the last several months, I think that the upcoming "slowdown" could be like a Navy jet hitting the grab cable on an aircraft carrier.  From 600 mph to zero in five seconds.  So some of the more esoteric uses may have great promise in the future, but I can't see utilities spending millions and billions on this application when net demand for power declines along with industrial activity.  

However, you can count on the military and security technology sectors to provide a significant increase in silver usage/ demand as the United States and her allies strive to minimize military and domestic casualties by using electronic technology to seek and destroy terrorists and enemies.  Silver is the best conducting naturally-occurring material with superb heat and durability characteristics, and price will be no object in the years and campaigns ahead.  In fact, since the United States has now used up its entire Strategic Silver Reserve for the U.S. Mint, and the Mint must now enter the silver market as a new and substantial buyer, I envision a reversal of this sad trend in silver stockpile depletion in the U.S.  Major efforts and monies will be expended to accumulate silver at the national security level. 
The United States Government had 6 Billion Ounces of Silver in 1942, and thanks partially to the price-depression efforts of the Silver Users Institute and the manipulations on the COMEX over the last 15 years , that historic hoard is down practically to zero. 

Write or call your Congressmen to insist that this raw material for national defense be acquired in quantity at the earliest possible date.  See Item #5 below for one reason why delay will cost the American taxpayer dearly.  As a nation, we have a habit of only reacting in time of crisis.  Aren't you a little sick of lax airport security, floodgate immigration, military demoralization, etc., etc., etc.?!!!

5.  The Biggest Short Squeeze In History Is Going To Ignite In The Silver Trading Pits

I have followed the numbers carefully in the gold bullion market over the last several years regarding the net short position of 10,000 to 12,000 tonnes in gold bullion (or about 350 million troy ounces with 32,151 ounces per metric tonne), which represents significantly more than one year's annual gold production.  However, the net short position in silver is almost 1,000 million ounces (yeah, that is 1 Billion ounces!), which represents over two year's of annual production!  And remember that annual production is likely to decline, not increase, over the next several years due to global recession.  While one could possibly conceive, based on the recent history of shenanigans via governments, government agencies, and bullion banks, that the stops could be pulled out to cover the gold bullion short positions after a moratorium on physical settlements for a period of time, IT AIN'T GOING TO HAPPEN WITHOUT A MASSIVE PRICE INCREASE ( OR COMMUNIST-STYLE RATIONING) IN THE SILVER MARKET!  Simply because silver is being consumed each year to the tune of 650 Million ounces after recycling (all gold ever produced still in the vaults somewhere, but not in Fort Knox), and these users of silver aren't going to sit on their thumbs for two years while the shorts are allowed to cover.  If all of the available produced silver for the next two years is provided to the massive short-players so they can cover their butts in the upcoming SQUEEZE OF THE MILLENNIUM, where does the silver come from to satisfy industrial and consumer demand?  And this is not Fuzzy Math.  Conceivably, it could take a decade for the shorts to cover without sending silver to $50 per ounce, but speculators and excessive risk-takers are seldom given this opportunity to slowly deflate their positions.  Mr. Market can be a cruel lesson giver.  Just ask Long-Term Capital Management.  Or Enron for that matter.

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