Losing Faith in Paper Money

I was planning to go into a bizarre and irrational rant against JP Morgan for its obvious scam of manipulating the silver market by massive naked-short positions, and including in my Loud Mogambo Diatribe (LMD) the scumbag government and “regulators” who are supposed to keep this kind of fraud out of the commodities markets.

Preparing myself by taking a long pull on a bottle of tequila, rehearsing every curse word I could remember and loosening up the vocal cords (“Mi mi miiiiii! Get out of my yard, you stupid kids! Yo, Adrian!”), I was almost ready when I got a copy of an email from David Bond, in his role as First Lord of the Treasury for the Island Kingdom of Colemania, who reports the news that JP Morgan has announced that they will accept gold as collateral for margin loans.

The part that saved me from denouncing JP Morgan is when he went on that “Whilst JP Morgan is pleased to now to accept physical gold as collateral for credit, it will NOT ACCEPT equivalent value (or any value) of shares in its own gold ETF in lieu thereof.”

Even I, jaded and cynical after a lifetime of watching one thieving bastard after another foist a screw-job on me, and watching one incompetent, corrupt government moron after another let them, I think that it is all encapsulated in his sentence that the lesson is that “Ergo (or is it ipso facto?) JP Morgan has great faith in physical gold, but concurrently has no faith in its own gold-backed paper.”

Its own ETF! JP Morgan runs an Exchange Traded Fund for gold, giving it complete control over the gold deposited there, and yet doesn’t trust its own fund? Has JP Morgan actually sold the gold that the ETF buyers were told was in there? Hmmm! That would make ME lose faith in it paper, too!

And as far as depositing gold with JP Morgan, Chris Powell of the Gold Anti-Trust Action Committee seems as cynical as I when he says, “Good luck getting it back.”

But suddenly everybody wants gold, especially as the Federal Reserve created more credit (which turns into money when somebody borrows it) last week, and Total Fed Credit went up last week by $19 billion. As to how much actual money this turned into is anybody’s guess since the fractional-reserve multiplier used by banks ranges from here to, literally, infinity.

But $18.4 billion of it turned into cash! I know this because the Fed used $18.4 billion of it to buy government securities to fund the loathsome Obama administration’s deficit-spending insanity!

And, in December, more money was created when revolving debt climbed by $3.5 billion.

And more money was created to allow total personal debt to shoot up $6.1 billion in December, too.

All in all, seemingly impossible amounts of money are being created, which means seemingly impossible amounts of inflation, which means seemingly impossible amounts of capital gains from buying gold and silver rising in price, which seemingly explains why I am seemingly always saying, “Whee! This investing stuff is easy!”

Source: http://news.goldseek.com

Silver Is The Next Big Buzzword Among Investors In 2011

Look what’s creeping back up: Precious Metals! And, we’re a breath away from $31 an ounce for silver. Silver promises to become the next big buzzword among investors in 2011 and beyond, according to one of the investment industry’s most prescient and successful experts on precious metals. Sprott Hedge Fund LP, is heavily weighted in precious metals and has generated an estimated 23% annualized return over the past decade. Other similarly oriented funds under his stewardship have also been stellar performers in recent years. He’s now so bullish on silver that he launched the $575 million Sprott Physical Silver Trust in November of last year as he believes that: “Silver will be the investment of the decade.” “I think that silver could easily get to $50 this year,” This all bodes especially well for publicly traded companies that are already mining silver, he says. Likewise for ones that are developing primary silver deposits or gold deposits with plenty of silver as a byproduct. “If the price of silver continues to go up, silver is going to perform even better,” Sprott adds. One company that’s on the front lines of the drive to ramp-up the world’s silver supply is Vancouver-based Extorre Gold Mines. This high flier benefits from a resource base of 27 million ounces of silver and 550,000 ounces of gold at its development-stage Cerro Morro property in southern Argentina.

Extorre Chairman Yale Simpson says that the investment appeal of his company’s gold assets are beginning to take a back seat to the value of its silver inventory. “We’re continuing to find bonanza grade (very high grade) silver sites, including the Escondida Vein, which averages over 23 ounces per ton of silver. So if silver prices rise further, as so many industry observers forecast, the economics are in favor of this becoming a very low cost mine are enhanced very dramatically,” he says.

“This means that companies like ours no longer have to think of silver as a mere by-product to our gold mining. Instead, the silver component becomes the dominant economic driver and we could well begin quoting silver equivalent valuations, instead of the converse.”
Meanwhile, Sprott says the big catalyst for surging silver prices in the coming years will be exponentially increasing investment demand, which is already beginning to overwhelm existing silver supplies. The mining industry only produces around 800 tonnes of silver per annum. This is a relatively inelastic supply, regardless of silver prices, he adds.

As household investors are becoming increasingly jittery about the debasement of the U.S. dollar and other major currencies, they are loading up in record numbers on silver bars, coins and silver-denominated exchange traded funds, Sprott says.

However, there’s also a quantum shift in investment demand taking place among big players in the precious metals market, including India (which is aiming to increase its imports by about 77 million ounces per annum), and of course China, Sprott says. China’s net imports of silver were 112 million ounces last year. In 2005, they were net exporters of 100 million ounces. That’s a 200 million ounce shift in an 800 million ounce annual market that seldom ever grows because production hardly ever goes up. So where’s it all going to come from? We don’t know.

In fact, silver promises to outshine gold over the coming years, according to Sprott. Silver is the poor man’s gold. Industrial demand for silver, excluding photography, will rise 18 percent to 478 million ounces this year, according to UBS, Switzerland’s biggest bank. Investors will buy 450 tons of gold through ETPs this year, the Zurich-based bank forecasts. One-ounce silver coin sales from the U.S. Mint jumped to a record last month. Ex Oriente Lux AG, based in Reutlingen, Germany, will start adding the metal to its U.S. ATMs that sell gold in banks, shopping centers and jewelry stores this month.

But with photography alone utilizing 128 million ounces of silver yearly, and other industrial operations accounting for another 312 million ounces, the world’s total obtainable silver (both produced and hypothetical) is steadily – and irretrievably decreasing. Thus while gold is continuously being transferred based on price imbalances and demand alone, silver, as an element, is really vanishing. Gold has had a great run for the past 11 years, and now it seems to be silver that is out performing gold. Currently, there’s more investment dollars going into silver than into gold.

Such a game-changing scenario should recalibrate the gold to silver pricing ratio in silver’s favor, thereby eventually restoring it to its traditional level of about 16 to 1, he says. “It’s the easiest call of all time.”

Sprott adds: Silver as a currency always traded in a ratio of around 16 to 1 compared to gold, when it was a currency in the U.S. and the U.K. The current ratio is 48 to 1. If we go back to a 16 to 1 ratio, the implied price for silver would be $85.62 (per ounce).

On that basis, if gold goes to $1,600, then that would value silver at $100. And we certainly think that gold is going to $1,600. In fact, I’m willing to bet that this ratio will overshoot on the downside. It might even get to 10 to one. The only reason why silver is still trading at a 48 to 1 ratio to bullion’s spot price is that its price is being “manipulated” by big banks, Sprott says. That’s because they don’t want precious metals to become a popular alternative currency to Fiat money (currencies that are not backed by hard assets). Ron Fricke president of Regal Assets says “Silver is the most undervalued metal as gold is breaking through its high from the early 1980’s of $850.00 an ounce silver still has not caught up to its high which is $50 an ounce.”

But time is on silver’s side, he says, as the sovereignty debt crisis deepens in Europe and a continued policy of quantitative easing in the U.S. continues to undermine the value of the greenback. Finally, while silver had a tumultuous January after hitting highs in late December of over $31 per ounce; the market has since undergone a correction. The price of silver at closing on Feb. 1 was $28.620 per ounce, up $0.570 on the day, in New York. The strength of the dollar may have been a factor in the slide over the last month but that is changing. The US Dollar Index is at a 12 week low, which has helped the upward bounce in the overall correction pattern.

The most positive factor for the increased demand for silver going forward is still the Chinese. Looking to increase the relative value of the Yuan, reports show the desire of China to increase it holdings of precious metals. The Chinese central bank, the People’s Bank of China, is chalking out plans to buy gold and silver reserves these days. While the exact figures of China’s silver reserves are hard to come by, reports indicate China is the number one producer and consumer of silver, and any increase in demand from the central bank will surely influence prices of metals going north worldwide.

 

Source: http://www.publicgold.com.my

China to drive gold toward $2,000 by 2015

CAPE TOWN - 

But what happens in China is critical. The rise of consumers in that country, as well as costs like wages will be transformative, Hale says.  This poses tests for commodity markets. But in the long there is a demand for gold and other commodities that is, for now, unstoppable.

Global economist David Hale discusses ‘the state of the world' and theorises on how global economic conditions will impact inflation and monetary policies and how these will impact the price of commodities, in particular gold.

He is predicting a rise in the price of gold - to as much as $2,000 per ounce by 2015. The factors driving this rise are economic and geo-political. The biggest driver of gold prices, he says, is China, and to a lesser extent, Africa.

Much depends though on the risk of inflation and its impact on growth in the developed and developing world. In the developed world, he says, inflation risks are benign and most countries are following an expansionary monetary policy to stimulate growth.  But, in the faster growing developing world, inflation risks are rising. Monetary policy is tight, with many developing countries, including China, raising interest rates as they try to stave off inflation - how they manage this will impact commodity prices.

In the US the corporate profits are up thanks to unprecedented cost cutting and productivity improvements. US businesses are now hypercompetitive and very profitable. But economic growth is likely to remain at a subdued 3,5% for this year. So interest rates, he says, are unlikely to rise in the medium term and the monetary policy is likely to remain expansionary for the next 12 to 18 months.

Similarly, the inflation outlook in Europe is also benign. "People are concerned about food inflation, but that is a transient problem". Instead economists are watching events like the current round of wage negotiations in Germany for signs of an inflation push. So far there are no ominous signs. "The first big agreement, at Volkswagen, was settled at 2,5%."

The European Central bank remains constrained by Greece, Ireland and Portugal and other, as yet unseen, problems. "I don't think Jean-Claude Trichet [the president of the European Central Bank] will want to raise interest rates this year. It is too uncertain." 

Japan's export led economy showed initial signs of recovery, but slowed again last year. Interest rates are unlikely to change and the government will support an expansionary fiscal policy. "So the Bank of Japan cannot raise interest rates."

Around the world the possibility of monetary tightening is very slim.

But the picture is quite different in emerging markets - which now account for 50% of global output. "There we may have tightening." China could raise interest rates by another 75 basis points this year. Inflation concerns are growing. A bubble in the property market remains a risk. Wage pressure is another concern. In eastern China there is a labour shortage of 20m workers. "We are talking wage gains of 20% to 30%," Hale says.

China is shifting its strategy of export-led and investment-driven growth to a more balanced pattern of economic development, one more dependent on Chinese consumption. As a result, China's growth rate may be lower - around 6% -  but more sustainable.

At the same time the Chinese government is pushing to internationalise the Chinese currency and reduce its reliance on a weakening US dollar.  "It is not yet a fully convertible currency, so it's not yet a rival to US dollar." says Hale. But it could be in the near future.

The upshot of this, as well as of the depreciation of the US dollar, is that China will want to increase its gold reserves. The Chinese central bank has been quietly buying gold for the two to three years, but last year it upped its purchases, buying 450 tons. (So too did Russia, India and Mauritius, but in smaller quantities). China now has more than $2400bn of foreign exchange reserves, but a fraction of this is invested in gold. The IMF projects that China will run a current account surplus of $2600bn during the next five years. If it does, Hale says, its forex reserves could rise to the $5000bn-$6000bn range. And even if it keeps the gold share of its reserves constant, it will have to buy another 1000-1500 tons. In fact, some in the Chinese government have suggested that the central bank should increase its gold reserves to 10 000 tons. "This would give China larger gold reserves than Fort Knox."

The massive expansion of China's foreign exchange reserves has resulted in faster monetary growth and helped drive China's inflation rate up. This triggered a rise in the private demand for gold. Private holdings have rocketed from nothing three years ago, to 300 tons now. "This could easily increase to several hundred tons, with China rivalling India as the largest private buyer of gold in the world."

But where are the other emerging economies in this?

They too are facing inflationary pressures. Brazil's growth rate was 8%  last year. There are signs of monetary tightening in Peru and Chile. Indonesia and Thailand are raising interest rates. "This is a balancing act as no one wants to see their currencies appreciate."

The World Bank forecasts growth of 5% in Africa for the next two to three years too. Growth and capital investment in infrastructure will drive demand for natural resources and will support commodity prices.

Long term, in Africa's favour is its labour force: While European, Japanese and US labour forces are in decline, and China's will decline from 2016, Africa has a large and growing pool of labour, and consumers. "Africans will either move to work in Europe or business will move to this continent."

Hale predicts the latter. "I can see China moving textile factories here. They cannot remain competitive in China, wages are just too high."

The emerging markets are the global growth story. But what happens in China is critical. The rise of consumers in that country, as well as costs like wages will be transformative, Hale says.  This poses tests for commodity markets. But in the long there is a demand for gold and other commodities that is, for now, unstoppable.

 

Source: http://www.mineweb.com

Gold Prevails As The Fed Takes On The US Debt Issues

“Fed passes China in Treasury holdings,” says The Financial Times. So, who’s the biggest holder of US debt? The Fed! And since the Fed doesn’t have any real money to speak of, how did it get all those US bonds? It simply created the money to buy them, out of thin air. In other words, the US didn’t really borrow the money at all. It just printed money. Isn’t that what Zimbabwe and Reichsbank did, and what Banana Republics do…just before they go bust? They can’t pay their expenses honestly, so they just print up some extra currency and hope nobody notices. But people do notice, eventually. And they dump the currency. Well, maybe this time it is different? But that hope is dashed. The Fed just keeps printing money. It has a mandate I remind you to buy $600 billion of US Treasury debt in the first half of this year.And surely that isn’t just noise, is it? No, it’s something important. Something we all need to pay attention to. It’s something that affects the value of every dollar we’ve ever managed to save. Maybe it’s why commodities are so high. And maybe it’s why the euro is back up to $1.38. And maybe it’s why the smart money is in buying gold .

Gold is what you buy when you fear the authorities are up to no good. But so far, very few people own gold. Ask your friends and neighbors. Many will have never considered buying gold…and they’ll look at you as though you were a kook for suggesting it.

In the average man’s mind – he trusts the government, because government is a good thing. It is there to ease his suffering…it will make sure that the rich don’t get too rich…and that he will have a retirement pension, public libraries, fire departments, and food tasters. If his car has a defect, he’ll count on the feds to make sure it gets called in and fixed too.…and his money? Despite the evidence of 100 years of Fed stewardship – in which the dollar lost 97% of its purchasing power – he still believes that the feds are on the case, and that they’ll make sure the US dollar is a valuable and reliable way to store wealth.

And if he’s wrong? Well, then the feds will turn out to be less reliable than he believes. And he’ll be out beaucoup dollars. The average man has a foggy view of the government…a bit of Mystic Knights of the Sea combined with the Rights of Man, Democracy, and supporting the home team. To say that he doesn’t think clearly about it is misstating the situation. He doesn’t think about it at all. And why should he? He has better things to do – like earning money and watching television.

Today’s modern governments have struck a bargain with the common man. They keep order, of course. But there is more to it than that. Keeping order doesn’t cost very much. And governments today, as Paul Krugman puts it, are “big, ambitious and expensive.” No gimmick will ultimately eliminate the currency crisis trade, but it buys the Fed some time with the public before they lose confidence in the central bank. A quote from Reuters: The change essentially allows the Fed to denote losses by the various regional reserve banks that make up the Fed system as a liability to the Treasury rather than a hit to its capital. It would then simply direct future profits from Fed operations toward that liability…”Any future losses the Fed may incur will now show up as a negative liability as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible,” said Brian Smedley, a rates strategist at Bank of America-Merrill Lynch and a former New York Fed staffer.

And, recently, the Wall Street Journal Found a hedge fund that had liquidated a massive spread of contracts. These positions resulted in a net 100% loss to the hedge fund manager, and he just decided it was time to cut his losses. The selling appeared to panic jittery longs, cascading into more selling.

So is this the end of the great gold bull? I don’t think so.

Yesterday, the euro had the trap door sprung underneath it, while most of the other currencies traded in a tight range. At one point in the day, I looked up, and noticed that gold had turned around… I was excited that gold had just moved $20 in 10-minutes! WOW! I laughed, semi-seriously, that gold must have reached a low enough price to entice the Chinese to buy! I mean who else could buy enough gold to move the price that quickly and by that much? In the face of today’s economy, for those that experienced the risk assets that have prevailed the first two days of this past week, this has taken a breather, and that’s OK… Even after the worst January for precious metals in two decades, investors still have a $102 billion bet on higher prices, hoarding more gold than all but four central banks and more silver than the U.S. can mine in almost 12 years.

The five analysts ranked by Bloomberg as the most accurate over two years expect silver to rise as much as 23 percent before the end of 2011 and gold 20 percent, the median of their estimates show. UBS AG predicts the strongest industrial demand for silver since at least 1990 and the second-highest sales of exchange-traded gold products on record. Once written off as demand for photographic film waned, silver found new uses in everything from solar panels to plasma screens, making it the precious metal most used in industry. As stocks rose 9 percent and Treasuries returned 67 percent since the end of 2000, gold surged fivefold and silver sixfold.

“I had to chuckle when I saw reports that it was over for gold,” said Michael Cuggino, who helps manage $10 billion at Permanent Portfolio Funds in San Francisco, and has about 20 percent of his assets in gold. “Some investors have taken money off the table after a significant run-up in 2010. If you look at the macro environment, the instability around the world, the worldwide currency devaluation, these factors all bode well.”

Gold has had bigger monthly slumps four times in the last decade and plunged 34 percent from March to October 2008, before jumping 47 percent in the following four months. Silver posted larger monthly declines nine times over the same period and plummeted 57 percent over three months in 2008. It rallied 73 percent in the next four months.

Silver will climb as high as $36 an ounce this year, from $29.235 now, and gold will reach $1,620 an ounce, from $1,350, according to the Bloomberg survey of analysts. “Silver is the most undervalued metal and 2011 will be the year for it to shine” states Ron Fricke President of Regal Assets. “Investors of silver saw it grow as much as 50% in 2010 alone and the luster for silver has just begun”. “Gold is going quiet,” said Pete Sorrentino, who helps manage $13.8 billion at Huntington Asset Advisors in Cincinnati, Ohio. “It’s good and healthy and characteristic of gold’s stair-step rally.” “I don’t see any resolution to the debt crisis when the Fed is buying debt again and again,” said Thorsten Proettel, an analyst at Landesbank Baden-Wurttemberg in Stuttgart. “Most people will be loyal to their investments in gold and silver, because the fear doesn’t evaporate.”

 

Source: http://goldcoinblogger.com

Chinese Silver Buying Just Beginning

Just a few decades ago, China the Giant was barely a mortal.  It produced most of what it consumed, and the corporate mega-producers installed during the darkest days of Asian freedom and democracy produced all the commodities the country might need within its own borders.

One such commodity was the one we all love: silver.  In fact, China produced so much that it couldn’t use all of it, nor was it interested in holding onto the metal.  The country was a net exporter until four years ago, when at the height of the most recent credit bubble, net imports materialized.  Today, China consumes more silver than it ever has in history.

It’s not that China isn’t still producing silver—it is, but it’s consuming and hoarding more of it.  Through 2010, net imports increased some 15%, while exports fell by nearly 60%.  Such a fast swap from exporter to importer means additional strain on the silver markets.  From 2009 to 2010, total net imports surged three hundred percent in just one year.

Demographic Complexity

Of the more than one billion people who live in China, most live at or near poverty, while only recently a select few have been moving to middle class.  While the number of people advancing through society in raw percentage terms is declining, the number of people who are achieving greater purchasing power is exploding in nominal terms. 

If, for example, only 5% of the Chinese population were to rise to the ranks of “middle class,” it would be the equivalent of one out of five Americans doing the same.  Such an increase is mild, to say the least, but it commands even more from an already limited silver market.  Imagine what happens when many millions or even billions of newly middle-class Chinese demand cell phones, personal computers or other electronic devices.  Each contains silver, and each is a hot commodity in the developing world.

Rising Middle Classes

As has been covered previously, not all of the new demand is purely consumption.   As gold continues its rise, silver is slowly becoming the new “poor man’s gold,” a trend that appears not only in the developing world, but in the developed world as well.   In fact, it is becoming increasingly common for jewelry to contain diluted gold to reach consumer-level price points.  What are jewelers using for such dilution?  Silver.

Asian societies, governments, and populations have always had respect for gold and silver that is perhaps unmatched by any other geographic region.  For centuries and for many millennia, gold and silver were used exclusively for trade, as a currency and store of value.  Even through modern times, gold and silver are appreciated for their beauty and significance of wealth.

It would be wise to expect that any net increase in tangible wealth in the Asian markets will be met with nearly equal shifts in the consumption or savings of precious metals.  Timing is of the essence here.  With both India and China expected to achieve nearly double-digit growth rates, many millions more people are soon to join the growing class of silver stackers.

 

Source: http://news.silverseek.com

The Rarest Earth

Those who keep up with business news will have no doubt read about the recent developments in the category of minerals known as rare earth elements (REE’s). These are minerals that are vital to modern industrial applications, ranging from lasers, batteries, alternative energy, and superconductors to all sorts of important high-tech applications. There are 17 minerals classified as REE’s with exotic names like scandium, yttrium, lanthanum, cerium, and praseodymium. Don’t worry, this is not a technical discussion and this will probably be the only time I write about rare earth elements.

 

Actually, these minerals are not all that rare, in the strictest sense of the word.  Many are quite abundant in the earth’s crust. What makes them rare is that they are generally not concentrated in ore bodies offering economically feasible extraction. The first rare earth mineral was discovered around 1800, in a village in Sweden named Ytterby, and several REE’s are named after that village. Up until about 1950, most rare earth production came from India and Brazil. In the 50’s, South Africa was a big producer, then California took the lead from 1960 through the 1980’s. Then, China came to be the dominant producer by far, and currently produces 97% of world production.

 

Due to booming world demand, production has strained to keep pace.  This was recently exacerbated by China’s new export restrictions, due to falling ore reserves and environmental concerns. This sent the price of rare earth elements soaring by hundreds of percent, prompting a world-wide effort to ramp up production.  However, you just don’t flip a light switch and begin new mine production. It can take years to develop a mine and begin production. In the meantime, industrial consumers must compete for available supplies by bidding up the price. This is the essence of the law of supply and demand.

 

Since I’m not a REE expert why am I writing about them? The answer has to do with silver. Silver shares many characteristics with the rare earth elements and there is a lot to learn from them in our analysis of silver. In fact, the purpose of this article is to make the case that silver is the rarest of all the rare earth elements.

 

One of the common characteristics between silver and the rare earth elements is that many REE’s are mined in conjunction with other minerals, the same as silver with its by-product mining profile.   Mining for both tends to concentrate on the easiest to exploit properties first.  Consequently, the remaining properties tend to be lower-grade and more expensive and difficult to develop.  Both silver and REE’s have seen the emergence of China as the chief producer of each.   (In the case of silver, the production reliance includes the processing of scrap material not mined in that country.)  Silver production from China is nowhere near 97% of world production, as it is in the rare earth elements, but it still is significant.  Environmental issues and restrictions inhibit the production of both silver and the REE’s. And with both, higher prices don’t automatically guarantee immediate new production. For instance, last year on an 80% increase in silver price, the mine production of Peru (the world’s largest miner) declined 7% or 12 million ounces. That’s a million silver ounces less per month than from a year earlier. Recently, the price of REE’s skyrocketed, due to China’s sharply curtailed exports.  Should any major silver producing country sharply restrict the export of silver, the price would soar.

 

In most industrial applications, there is a small, but necessary amount of silver and rare earths used which is resistant to substitution. The chemical properties of silver and rare earth elements are usually unique in the specialized industrial applications which mandate their use. Generally, the consumption of silver and rare earth elements is price-inelastic, meaning sharply increasing prices of each do little to discourage consumption, due to the lack of substitutes. As was seen recently in the rare earth elements, the industrial users panicked when the supply was curtailed. This will also happen in silver, as I have long predicted.

 

Where do I get off with the statement that silver is the rarest earth element of them all? This point is the easiest of all to make and should prompt you to rush out to buy silver immediately. What separates silver from the REE’s is the one stark factor which is unique to only silver.  You can actually buy and hold silver in its purest elemental form, unlike other rare earth elements. Try calling some dealer to invest in pure yttrium, or promethium or gadolinium. And if by some miracle you can find someone to buy from, try to imagine how you could possibly sell or determine a fair price?

 

The thing that separates silver from all other REE’s is that you can invest in it directly. Sure, you can buy stocks in companies that mine silver or REE’s, but only silver has the dual role of basic investment asset and industrial material.  That’s what makes silver the rarest of the rare.  What separates silver from any other natural resource is thousands of years of primal attraction, held by man as a form of wealth, and simultaneously a vital and strategic industrial material necessary to modern life. It’s just not practical for the average investor to buy a pound of a rare earth, a barrel of oil, or a bushel of corn for investment purposes. I suppose a case can be made about investing in platinum or palladium, both important industrial metals, but there has never been any evidence of a world-wide rush to buy these metals as there has been in silver. Buying or selling an ounce or a pound of actual silver is as easy as falling off a log.  The United States Mint sells Silver Eagles by the millions of ounces every month. And while many invest in gold, it doesn’t have that investment asset and industrial material dual role unique to silver. That’s what makes silver so rare.

 

The amazing thing is how few of the world’s potential investors appreciate the uniqueness of silver’s rare dual role.  The ease of investing in silver is taken for granted by the world. Just a few decades ago, silver was in common coinage. This explains why people have difficulty comprehending how such a formerly abundant material could be considered rare today. How many people know that world silver stockpiles are down 90% since 1940?  That’s precisely what creates the investment opportunity of a lifetime – seeing something before the crowd.

 

It seems preposterous that a material like silver, which the common man carried in his pocket for bus fare or a newspaper could somehow transform itself into a rare material about to enter into a profound shortage. That shortage is virtually guaranteed by silver’s unique dual role. The coming rush into silver by investors seeking profits and industrial users looking to stockpile a vital manufacturing component makes a shortage almost certain. There is no way production can ramp up nearly as quickly as the combined force of investment and user demand.

 

For all intents and purposes, silver has been the best investment over the past decade.  Those investors who studied the facts objectively and bought silver, have reaped multiples of their original investment. Silver will likely be the best investment of the next decade as well.  Those who study the facts and act on them by buying silver will be generously rewarded. There is no way anyone can turn the clock back to single digit silver.  Those days are long gone. But in some ways, the more exciting time lies ahead.

 

Ten years ago, it was difficult to convince people to buy silver. The stock market was flying high and real estate was just entering a major bull market. Crude oil was sliding towards $20/barrel and most commodities were flat. Silver was under $5, gold under $300, and the term rare earth was mostly unknown.   Anyone investing in natural resources needed to have their heads examined. Even though silver was in a deficit consumption pattern, there was little interest in buying it as an investment.

 

Today, things are different. Natural resources are more widely appreciated, in light of burgeoning world populations and the growth in living standards.  Now it is a question of which natural resource will experience the next supply and demand crunch, rather than will there be any crunches.

 

In the last decade, silver rose due to the cumulative effect of a 60 year deficit and the start of net investment demand. This decade, it will be investment demand driving silver higher, along with the end of the short selling manipulation. This termination appears underway. Thanks to great price performance, more investors will be drawn to silver. Thanks to the Internet, a great manipulative force that restricted the price cannot last much longer. While it may be hard to achieve the 7-fold increase in price from the extreme lows of ten years ago, the gains will still be spectacular and should come quickly. At some point the buying momentum will overwhelm those shorts trying to hold back the tide.  The big shorts look tired of the manipulation and appear ready to stand aside on the next big rally.

 

How many neighbors and friends and relatives and fellow citizens do you know that have made a serious investment in silver? I doubt you can discover one in a hundred, or one in a thousand. Despite the impressive price gains over the past 5 or 10 years, silver is still vastly under-owned and under-appreciated. The investment flows into silver, compared to any other investment class, have been tiny. However, the amount of real silver available for investment is so small that the small investment flows to date have been sufficient to power silver higher.  As more investors become aware of the silver story, the money coming into silver will only increase, propelling the price to levels once thought impossible. Importantly, the money flowing into silver appears to be for physical buying and not margin. Bubbles only occur when people are so enamored of an investment that they recklessly borrow to buy as much as possible. We’re a very long way from that in silver. That’s yet to come.

 

There are now $2 trillion in assets in hedge funds (the pre-financial crisis levels). This is hot money that comes into any promising investment theme in a flash. It is big money, always on the prowl for a good investment idea. To my knowledge, there has been no rush yet into silver by the hedge fund sector. Remarkably, silver recorded an 80% gain last year and a 170% gain over the past two years with no visible participation from the biggest and hungriest investors of all. There is no doubt in my mind that before the silver price saga is finished, the hedge funds will have come into silver in a big way. If silver can climb 80% and 170% without them, what can it climb with them knocking down the doors to get in?  The silver story is just getting out.  Please take the time to study the facts and act before the big surge.

 

Source:http://news.silverseek.com

Yesterday's Top Story: Silver to outperform gold in 2011

Author: Marc Davis
Posted:  Tuesday , 08 Feb 2011

VANCOUVER B.C. (WWW.BNWNEWS.CA )  - 

Silver promises to become the next big buzzword among investors in 2011 and beyond, according to one of the investment industry's most prescient and successful experts on precious metals.

Eric Sprott is the founder of the Toronto-based investment firm, Sprott Asset Management LP. His renowned hedge fund, Sprott Hedge Fund LP, is heavily weighted in precious metals and has generated an estimated 23% annualized return over the past decade. Other similarly oriented funds under his stewardship have also been stellar performers in recent years.

He's now so bullish on silver that he launched the $575 million Sprott Physical Silver Trust in November of last year as he believes that: "Silver will be the investment of the decade."

"I think that silver could easily get to $50 this year," he tells BNWnews.ca.

This all bodes especially well for publicly traded companies that are already mining silver, he says. Likewise for ones that are developing primary silver deposits or gold deposits with plenty of silver as a byproduct.

"If the price of silver continues to go up, silver stocks are going to perform even better," Sprott adds.

Meanwhile, Sprott says the big catalyst for surging silver prices in the coming years will be exponentially increasing investment demand, which is already beginning to overwhelm existing silver supplies. The mining industry only produces around 800 tonnes of silver per annum. This is a relatively inelastic supply, regardless of silver prices, he adds.  

As household investors are becoming increasingly jittery about the debasement of the U.S. dollar and other major currencies, they are loading up in record numbers on silver bars, coins and silver-denominated exchange traded funds, Sprott says.

However, there's also a quantum shift in investment demand taking place among big players in the precious metals market, including India (which is aiming to increase its imports by about 77 million ounces per annum), and of course China.

"China's net imports of silver were 112 million ounces last year. In 2005, they were net exporters of 100 million ounces," he says.

"That's a 200 million ounce shift in an 800 million ounce annual market that seldom ever grows because production hardly ever goes up. So where's it all going to come from? We don't know."

In fact, silver promises to outshine gold over the coming years, Sprott says. "Silver is the poor man's gold. Gold has had a great run for the past 11 years. But I absolutely believe that silver will outperform gold this year. Currently, there's more investment dollars going into silver than into gold."

Such a game-changing scenario should recalibrate the gold to silver pricing ratio in silver's favor, thereby eventually restoring it to its traditional level of about 16 to 1, he says. "It's the easiest call of all time." 

"Silver as a currency always traded in a ratio of around 16 to 1 compared to gold, when it was a currency in the U.S. and the U.K. The current ratio is 48 to 1. If we go back to a 16 to 1 ratio, the implied price for silver would be $85.62 (per ounce)." he adds.

"On that basis, if gold goes to $1,600, then that would value silver at $100. And we certainly think that gold is going to $1,600. In fact, I'm willing to bet that this ratio will overshoot on the downside. It might even get to 10 to one."

The only reason why silver is still trading at a 48 to 1 ratio to bullion's spot price is that its price is being "manipulated" by big banks, Sprott says. That's because they don't want precious metals to become a popular alternative currency to Fiat money (currencies that are not backed by hard assets).

"Then there's also a huge short position out there on silver," he adds.

But time is on silver's side, he says, as the sovereignty debt crisis deepens in Europe and a continued policy of qquantitative easing in the U.S. continues to undermine the value of the greenback.

 

Source: http://www.mineweb.com