If you are an Accredited or Sophisticated investor and want information I may find out about private placement opportunities in some of the very best silver stocks in my opinion, (This is not a solicitation for any stock, and I'm not brokering any securities) you can sign up to receive such a notice by adding yourself to my private placement list at http://www.goldismoney.com/subscription-pp.php

Doug Casey
Wednesday, June 30, 2004

I have said it many times: Mining is an innately risky business. Worse, it’s an impossible business if metals’ prices are too low. In the case of silver, during the long bear market from 1980 to 2003, when silver traded mostly in the $3.50-$5 per ounce range, there were no major, public, pure silver mining companies that generated free cash flow.  None.

The end result was that very few pure silver producers remained in business. With the exception of a smattering of mines in Mexico, Peru and very few other locations, it has simply been uneconomic to produce silver (other than as a by-product).

That is not to say that there haven’t been profitable silver mines, but very large mining companies, such as BHP Billiton, generally own these. These are not stocks you would buy strictly for the silver exposure, however, because silver is a minute portion of the overall value of the company.

Which points to one of the fundamental caveats about silver: namely that around 80% of new production is a byproduct of gold, copper, lead and zinc. So silver is produced almost regardless of its price. That makes primary production of silver even more volatile and risky than mining in general.

Of the primary silver producers (defined as companies in which at least 50% of their revenue is silver), the value of the silver they produce represents only about 3% of total supply brought to market. It’s a tiny sub-sector of mining.

But, understanding the risks, I think silver stocks could provide some of the best, if not the very best, contrarian returns in the years ahead. There are several reasons I say that, but the main one is the ongoing silver supply/demand equation.

At first glance, one of the more remarkable aspects about the silver bear market was that, beginning in 1990, it occurred against the backdrop of a supply deficit. In those years when the global economy could be considered in a positive light, annual silver deficits ran as high as 200 million ounces. When the economy was in recession, the silver shortfall still came in at 40-50 million ounces.

More recently, in 2002, a down year for the U.S. economy, mine production totaled 585.9 million ounces, while total demand hit 863 million ounces. So production has not kept up with demand for a very long time.

For a brief period back in 1997-98, it looked as if the supply/demand imbalance had finally caught the attention of the market when Warren Buffet purchased 129.7 million ounces. Prices moved all the way to the $7.50 level before institutional short sellers and forward selling by base metals producers beat the price back to the $4 range.  Once again, silver could get no respect.

Despite the supply deficits, and overlooking the relatively short-lived rally that took it to $8.29 in early April, the price of silver has been remarkably stable in the $4 to $6 per ounce range. Why no sustained recovery?

Ignoring the conspiracy theories making the rounds, the primary reason for silver’s doldrums has to do with the drawdown of accumulated stockpiles. These stockpiles include old scrap and coin melt, as well as those held by various governments who used to think that backing a currency with something other than cheap talk was the right thing to do.

Speaking of cheap talk, in 1959, the U.S. Treasury held 2.06 billion ounces, the majority of which was sold in the 1960s in a futile attempt to keep the price at $1.29, where they’d arbitrarily fixed it. The balance was used in the minting of Silver Eagles coins from 1986 through 2002. As a consequence, except for a few bars forgotten in some dark corner, the U.S. stockpile is gone. As the government uses 12.5 million ounces a year in coinage, it is (or soon will be) a net buyer.

The largest remaining known government silver inventories are in India, which was reported to be holding around 87 million ounces as recently as 2002.

The largest unknown government inventory is likely held by China, whose currency was the last in the world to be backed by silver. In its usual inscrutable way, the Chinese government has not revealed the extent of its holdings, but we know that it has been a big seller over the past few years, almost certainly helping to keep a lid on the price.  Last year, of a total of 82.6 million net ounces of silver that came onto the market through government sales, 35 million ounces came from China. That on top of over 50 million ounces they sold into the market the year prior.  Some of the most credible silver observers believe that these sales cannot continue for long at the same pace before the Chinese stockpile, too, is depleted...which the fall-off in year-over-year sales may already be indicating.

I would add that the Chinese may very well decide it is better to hang on to what they have left in their stockpile, rather than continue to trade it for increasingly worthless dollars. We should have additional clarity on the Chinese stockpiles later this year once The Silver Institute releases its new comprehensive study on the topic. Regardless, the odds are good that we are nearing the end of the period where government silver sales are much of a factor.

Institutionally held inventories (Comex, CBT, etc), have likewise fallen dramatically. After reaching 245.8 million ounces in 1996, these inventories have dropped by 41.3% to 144.4 million in 2002.

All told, according to the CPM Group, global non-coin inventory is now in the area of 419 million ounces, with an additional estimated coin inventory of about 487.5 million ounces, but one shouldn’t put too much stock in these figures because much of the world’s silver is now stashed in the lock boxes, drawers, and closets of individual holders.

Speaking of individuals, as is often the case after a long bear market, sellers begin to dry up. Case in point, sales of silver by individual holders fell to 43.5 million ounces on a net basis in 2003, down from 81 million ounces in 2002...and well off the peak hit in 1997 when individuals dumped 221 million ounces back onto the market.

Jewelry demand, silver’s second largest use, was higher at 276.7 million ounces in 2003, compared to 265.9 million ounces in 2002, a rise of 4.06%. Driving growth is demand from Asia, including a 22% increase in jewelry demand from China and a 13% increase in Thailand. The fact remains that, while silver’s fundamentals are very much affected by industrial demand, it is still viewed as poor man’s gold by much of the world — an alternative to the colored toilet paper governments pass off as currency.

For some years now, silver bears have warned that the move to digital photography will dry up that important use of silver. In the long run, that may be true. Yet, the correlation with sales of digital cameras and available silver supplies is not a 1:1 ratio because photographic demand also influences silver supply. As much of the secondary scrap supply is refined from photographic film and chemicals, a decline in photographic demand also impacts secondary scrap supply.

According to the GFMS World Silver Survey 2004, photography, which accounts for the third-largest silver off-take, was down to 196.1 million ounces compared to 205.7 million ounces the year before. But even that relatively modest decline may not accurately reflect the trend because the Iraq war, fear of terrorism, and the SARS hysteria dramatically curtailed tourism and hence picture taking.

That same survey shows that a 2-year decline in global fabrication demand for silver ended in 2003, with demand increasing to 859.2 million ounces, 13.3 million ounces over 2002’s level.

Industrial usage, which is reflected in the fabrication figures, is the largest source of silver demand. It was up 2.87% to 351.2 million ounces. It is always worth noting that unlike gold, where virtually all the metal ever mined still exists, in the case of silver, most of that used in industry is consumed. I’m quite optimistic about silver industrial demand outpacing overall economic growth for the indefinite future simply because, of the 92 naturally occurring elements, it’s the best conductor of both heat and electricity, as well as the most reflective and the second-most ductile and malleable.

As a result, there are new industrial uses for silver consistently being developed, some with the potential to add significantly to demand, including uses as divergent as a catalyst in fuel cells for electric motor cars, high-temperature superconductor wires, and as an anti-microbial agent.

Unless the reported numbers are wildly askew, there’s no question silver is going much higher in price. And that’s not counting the possibility of a monetary, crisis-driven mania, like the mania that took silver to $50 in 1980. I have no reason to believe the numbers aren’t more or less accurate and plenty of reason to expect a mania.


This report originally appeared in the June 2004 edition of Doug Casey’s International Speculator, published by Casey Research, LLC. Reprinted with permission of Casey Research, LLC; 166 South Main St., Suite 2b; Stowe, VT 05672. For more information on the International Speculator, including how to subscribe, visit www.caseyresearch.com.

If you are an Accredited or Sophisticated investor and want information I may find out about private placement opportunities in some of the very best silver stocks in my opinion, (This is not a solicitation for any stock, and I'm not brokering any securities) you can sign up to receive such a notice by adding yourself to my private placement list at http://www.goldismoney.com/subscription-pp.php

May 21, 2004

Dear Editor,

I'm a silver investor.  I believe paper money is fraudulent.  There is over 30 trillion dollars, U.S., worth of bonds in the world, but less than 2 trillion dollars worth of gold, according to gold.org. 

As of April, 2004, the size of M3, the money in U.S. banks, has reached 9.1 trillion dollars, yet due to fractional reserve banking, the total of U.S. currency and coin in circulation is only 724 billion dollars as reported by treas.gov.

At silverinstitute.org and cpmgroup.com, they each report that silver has been in a deficit for about 15 years, where world mine supply has been about 500 million ounces, scrap supply about 200 million ounces, and industrial and jewelry demand about 800 million ounces.  The difference, about 100 million ounces, has come from investor and government selling, drawing down reserves of silver.  Known supplies of refined silver are down to about 250 to 600 million ounces.   At the COMEX, they are down to 48 million ounces of silver left that is registered for delivery, which you can see at nymex.com. 

The governments of the world are printing up too much paper money, and the world is running out of real money, silver.  I believe this will lead to the price of silver rising dramatically in value, around the world.

I urge your readers to verify the statistics I have provided, and to make their own decisions.

Sincerely,

Jason Hommel
Grass Valley, USA
Goldismoney.com
(530) 274 3450

Consider the gold market for a moment:  Even short selling at the COMEX is nothing compared to monetary demand.  The short position most certainly helps to depress the price of gold as the short position is growing larger.  However, it adds fuel to the fire if there is short covering, and thus, it can boost the gold price later.  But the commercial short position on the COMEX is next to nothing compared to the non-reported "over the counter" trading that is done that does not appear on the COMEX.

(Numbers in metric tonnes, 32,152 oz. per tonne.)

870 tonnes -- the paper position at the COMEX, 280,000 contracts for 100 oz. each.
5,000 tonnes -- the official number admitted that the central banks have sold.
15,000 tonnes -- the number GATA research shows that central banks have sold / or leased.
30,000 tonnes -- the number of official central bank gold, minus either the 5000 or 15,000 tonnes.
145,000 tonnes -- all the gold mined in the history of the world.
2,600 tonnes -- annual mine supply
4,000 tonnes -- annual demand

And all of that is nothing compared to the amount of dollars out there that exist that could buy gold. $20 trillion bonds, $9 trillion M3 = $29 Trillion.  A mere 1% is $290 Billion, which, at $500 /oz. is a massive demand of 18,039 tonnes.  Do you understand what that means?  That means that far, far less than 1% of dollars, in either bonds or M3 can buy gold, because there simply is not that much gold available. 

Long before 1% of U.S. paper dollars tries to buy gold, gold will be going up well over $1000/oz., and silver will be headed up over $50/oz.

$26,400,000,000,000: World stock market, June 2002: http://www.nyse.com/press/1044027443845.html
$20,200,000,000,000: U.S. bond market, yr end, '02:  http://tinyurl.com/vr7g 
$11,447,800,000,000: U.S. GDP, 2004 q1 http://www.bea.doc.gov/bea/dn/home/gdp.htm
$11,300,000,000,000: NYSE U.S. stock market, April, '04 (363 bill/s x $31.14/s ave.) http://nyse.com (See: Market info: quick facts)
  $9,101,000,000,000: M3 (money in U.S. banks) April, '04  http://tinyurl.com/vra0
  $7,183,392,668,476: US debt, 5-18-04   http://www.publicdebt.treas.gov/opd/opdpenny.htm
  $2,360,000,000,000: U.S. annual budget 2005 http://tinyurl.com/3xbd2
  $2,572,160,000,000: Marcos/Phillipine "black/unofficial" gold: 200,000 (to 500,000) Tonnes @ $400/oz. (Book: "Gold Warriors")
  $1,860,000,000,000: World "official" gold mined in all of history, 145,000 T @ $400/oz. http://tinyurl.com/vrcc
     $300,000,000,000: Estimated silver mined in all of history: 30-40 million oz?  @ $10/oz.
     $724,174,342,365: Total U.S. paper currency & coin in circulation, Dec. 31, '03  http://www.fms.treas.gov/bulletin/index.html
     $700,000,000,000: U.S. annual budget deficit (current). 
     $272,000,000,000: Market Cap of Microsoft (03-2004) http://tinyurl.com/vrcn
     $222,000,000,000: M3 increase (money in U.S. banks) from Jan 2004 to April 2004 (in three months).
     $180,000,000,000: Debt of Ford Motor Co. (03-2004) http://tinyurl.com/vrd1
     $104,400,000,000: US gold, 261 mil oz., @ $400/oz. http://tinyurl.com/vsr9
     $100,000,000,000: all the world's gold stocks/equities (estimated?)
       $75,000,000,000: Money flowed into Equity funds in the first quarter, 2004
         $8,226,000,000: all the world's "primary" silver stocks (80 of them on this list, as of June 25, 2004)
         $6,710,000,000: 671 mil oz. of "identifiable" silver bullion left in the entire world, according to GFMS @ $10/oz.
            $650,000,000: 65 mil oz. of "registered" COMEX silver bullion @ $10/oz.  http://tinyurl.com/vrcw

Note, the "registered" silver at the COMEX approved wearhouses increased significantly this week, up from 44 million ounces to 65 million ounces.  The combined total of eligible and registered remained the same, at just under 120 million ounces.  I heard this shift was in response to a 21 million ounce delivery request.    The one taking delivery may just decide to keep their silver in the COMEX approved wearhouse, Brinks' in this case, and they may also keep it in the registered category.  So we may not see the number move down, unless the buyer removes the silver away from the exchange.   Who knows at what price that silver will be available for sale?  The silver at COMEX may not all be available and for sale at today's prices.  The "available" silver may be far less than what is at COMEX.

There is a link, regarding delivery notices, here:  http://www.nymex.com/media/delivery.pdf
Interestingly, it says, "SO FAR FOR JULY", Silver, 7273.  Delivery of 7273 silver contracts is 36.4 million ounces of silver.