Silver

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investorzzo's picture
investorzzo
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Silver

Last year, I observed silver’s past, or the time period covering thousands of years up until about 5 years ago. I tried to describe how silver was always  a highly desired precious metal, valued for its beauty and value in jewelry and ornaments and as money, much like its fellow precious metal gold. And, starting 100 to 150 years ago, how silver evolved into a vital and strategic industrial commodity. This transformation of silver into a modern industrial material was predicated upon its physical and chemical properties. These properties included it being the best conductor of electricity, the best transfer agent of heat, the best reflector of light, the most efficient photographic chemical and the most versatile biocide. In fact, silver is used in more industrial applications than any other metal.

Because of the wide range of uses in which silver is the preferred ingredient, it began to be industrially consumed in prodigious quantities. So great was the industrial consumption of silver, that the world used more, starting around the beginning of World War II, than it could produce from mining and recycling. That over-consumption mandated that previously produced silver, in the form of world inventories, be consumed, in addition to mining and recycling. The net result was that over 60 or 70 years, the above ground inventories of silver were depleted by 90% or more. In other words, we have only 10% in world silver bullion inventories of what we had back 70 years ago. We had 10 billion ounces of silver bullion inventories then; now we have 1 billion ounces remaining.

At the same time, gold inventories grew dramatically over the past 70 years, as gold’s industrial consumption did not develop like silver’s did, mainly because gold was and is one of the most expensive materials in the world. It’s not that gold didn’t have its own special physical and chemical properties; it’s just that you don’t use an expensive material unless you have no other choice. The bottom line, silver’s inventories were used up; gold’s inventories grew

The net result of this was one of the most incredible situations ever witnessed in world history, namely, that a comparable commodity that was rarer than another commodity could be much cheaper than the more plentiful commodity. In above ground bullion inventories, gold is more plentiful than silver, yet silver is less than 1.5% the price of gold. Common sense should tell you that such a relationship is absurd and cannot last indefinitely. Investment sense should also tell you that price relationship is absurd and unlikely to last, creating the best reason to buy underpriced silver.

Finally, despite the ease by which these relative gold/silver world inventory statistics can be verified, less than one-tenth of one percent of the world’s citizens are aware of the fact that silver is rarer than gold. I would guess that a good percent of those who do know, are in this room today.

http://www.investmentrarities.com/ted_butler_comentary02-16-10.shtml

Nacci's picture
Nacci
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Posts: 194
Re: Silver

Investorzzo, fine post.  This is a link to expand upon what you have just told us: http://www.silverbearcafe.com/private/silverheist.html

jshayinma@comcast.net's picture
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Posts: 11
Re: Silver

It makes me a bit squirrely to see the rhetorical slide from the declining ABOVE GROUND INVENTORIES of silver vs those of gold to the use of the word "RARE," which would evoke things like, "abunance in the earth's crust," difficulty in finding, mining and refining it, etc.--which is exactly the rhetorical move that Investment Rarities wants you to not notice.

As Butler so rightly points out, silver has a dual role: monetary and industrial, whereas gold is almost exclusively monetary.  That means that when economic activity is high, silver benefits more than gold and vice versa when economic activity falls.  To believe that within the next two years the gold/silver ratio [now around 69] is going to revert even to its recent zone of 40-50 or to its historic value of 16 is to believe that 

1] Economic activity around the world is going to be growing strongly

2] That there CANNOT be a strong supply response to the rising price.

I totally agree that IN THE LONG RUN [5-10years+] silver will outperform gold in percentage terms, but in the shorter term it will underperform, because neither of the above is true [for silver--might be for gold, but probably not true, and probably irrelevant--for gold].

Bob Hoye expects a GSR of at least 100 before the current enconomic/banking/financial markets troubles are over.  That does not mean that the nominal price of silver will not be higher than it is today, but it will, for a while, lag in percentage terms.  When a real recovery takes place it will strongly outpace gold in percentage terms.

Ted Butler has performed great services, and I respect him.  It disappoints me that he has lent his name to Investment Rarities.

tocoadog's picture
tocoadog
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Re: Silver

Friends - what is your recommended approach for investing in silver?  I assume bullion? I understand there have been several topics on this, but I would appreciate your thoughts.

Since about early-2009, I have been purchasing American Silver eagles [non-proof, random year] every 2 months up until November where I started to purchase 10 oz bars. 

Now I was told by the coin guy that American Silver eagles are recognizable and that they should get close to spot price if I ever want to sell them.  Is this the case?  Or do I have other alternatives.

Also...I am thinking long term...rainy-day 20+ years sort of thing [capital preservation].  Is this the right approach? [I'm in my upper 30's]

Maybe I should ask the question - if you guys had $500, how would you invest that in silver?

Thoughts are appreciated.   

Nacci's picture
Nacci
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Re: Silver
tocoadog wrote:

 should get close to spot price if I ever want to sell them. / If you guys had $500, how would you invest that in silver?

Tocadog, I like 1oz. Canadian Maples.  The are .999 fine, have a 5$ face value and are fine looking coins.  I usually pay 6% above spot to purchase them and could get 3% above spot from a coin dealer if I sold them back, which I do not.  The advice you received stating that you should get "close to spot" when selling back  "Eagles" seems off to me, they are selling for well above spot on eBAY as we speak.  The difference between the "spot" price and "street" price of silver is never more apparent than on eBAY.  500$ should buy you a nice pile of Maples.  

plato1965's picture
plato1965
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Posts: 615
Re: Silver

 

 Agree with your choice Nacci , one minor nitpick they're .9999 fine.. that combined with the higher face value (in a currency backed by a nation with huge natural wealth but less debt than the US $)  makes them a no-brainer for anyone _outside_  the US..

 Inside the US.. got to be eagles or junk.. and if I had to choose.. I think I'd go for junk... just for the history, divisibility...

  like land.. they're not making them any more.. so they do well in a prosperous future (metal + antique / historical stuff thrives),

and a SHTF future... recognisable + divisible..

 

 For anyone with very little cash to spare.. I think looking at tools to increase self sufficiency are probably a better idea,

anything that can change your lifestyle to one where you need less $ or energy to live, whether it's cooking equipment, a stove, insulation ... the ROI will beat PM's in the short term and allow you more to invest in the medium term..

 

 

 

earthwise's picture
earthwise
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Re: Silver

 

A question for the silver bugs: I've put most of my PM allocation in Krugerands, but not all. Would you advise the remainder go into silver, and should that be pre-1964 (junk) silver coins?

Nacci's picture
Nacci
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Joined: Apr 22 2009
Posts: 194
Re: Silver

Seems wise to keep some powder dry for future Silver allocation.  When the Fed raises key interest rates we should see immediate strength in the Federal Reserve Note that very morning and a corresponding decline in Gold and Silver spot.  This initial shock should be a good time to be at the coin dealer.  Does this seem reasonable? Any insight?

ao's picture
ao
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Re: Silver
Nacci wrote:

I usually pay 6% above spot to purchase them and could get 3% above spot from a coin dealer if I sold them back, which I do not.

Nacci,

Where are you finding maple leaves for 6% above spot?  That's an excellent price.

SteveW's picture
SteveW
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Posts: 490
Re: Silver
earthwise wrote:

 

A question for the silver bugs: I've put most of my PM allocation in Krugerands, but not all. Would you advise the remainder go into silver, and should that be pre-1964 (junk) silver coins?

During hyperinflation junk silver is better than 0.999 silver which is very soft and not useful as a transactional currency.

 

Nacci's picture
Nacci
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Joined: Apr 22 2009
Posts: 194
Re: Silver
ao wrote:

Nacci,Where are you finding maple leaves for 6% above spot?  That's an excellent price.

ao, private message sent.

Nacci's picture
Nacci
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Joined: Apr 22 2009
Posts: 194
Re: Silver
ao wrote:

Nacci,Where are you finding maple leaves for 6% above spot?  That's an excellent price.

I am wrong here, 6% above spot is for gold purchases.  For silver I pay 2$ above spot for 1oz. rounds and 3$ above spot 1oz. coins.  I apologize for my carelessness and will take any criticism on the chin.

Ken C's picture
Ken C
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Posts: 753
Re: Silver
Nacci wrote:
ao wrote:

Nacci,Where are you finding maple leaves for 6% above spot?  That's an excellent price.

I am wrong here, 6% above spot is for gold purchases.  For silver I pay 2$ above spot for 1oz. rounds and 3$ above spot 1oz. coins.  I apologize for my carelessness and will take any criticism on the chin.

I was hoping that you really had a source for 6% above spot on 1 oz coins. Actually, you can do a little better than $3 above spot on the coins. I have seen $2.50 recently.

Ken

 

LogansRun's picture
LogansRun
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Joined: Mar 18 2009
Posts: 1443
Re: Silver

First of all:  www.coloradogold.com has them for $2 over spot so go at it.  As for the reasoning behind buying Maples over Eagles, I agree wholeheartedly with the Maple argument.  They're .9999 fine, and have a face value of $5 in comparison to the Eagle that is .9990 fine and only has a face value of $1.  

As for buying "junk" over a Maple or Eagle.....I disagree.  Buy the pure piece.  Yes, you can get smaller face value in "junk", but it still has to be smelted.  Now I do think that everyone should have some "junk" on hand.  But the % of silver holdings should be no more than 20% IMO, as they will only show their BEST advantages during a time of barter.  Not that pure won't be acceptable and/or useful during a barter situation, but being that you can get smaller denominations/amounts in junk they are more useful in that situation.  

As to buying Silver over Gold?  My purchase allocation changes quite frequently, but today I'm at a 70%/30%, silver/gold ratio.  And of that, 75% goes to bars and the other 25% goes to Maples (sometimes AMark Rounds, but not that often).  I have also bought some Philly's recently so......

Hope this helps!

Tserendash's picture
Tserendash
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Joined: Mar 5 2009
Posts: 178
Re: Silver

Sometimes there are a couple dealers that deal in silver and gold at gun shows.  I picked up a little over a thousand in silver eagles, silver dollars and halves for about silver spot.  I wish I had had another thousand on me as they had more.

investorzzo's picture
investorzzo
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Joined: Nov 7 2008
Posts: 1182
Re: Silver

Gammon's Marrion expects strong rebound in Silver.

http://goldbasics.blogspot.com/2010/03/silver-price-will-shoot-up-says-gammon.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FDVTI+(Gold+%26+Silver)

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