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Silver's Dip will be Brief!

By: Jason Hommel, Silver Stock Report

-- Posted 5 May, 2011 | | Discuss This Article - Comments:

(Silver prices are in an anti-bubble!)

Silver Stock Report

Silver dipped below $36/oz. this morning, down about 8% from yesterday, and down about 27% from the high last week of about $49.50/ per troy ounce.  (A Troy oz. is about 10% heavier than a the more common international avoirdupois ounce.)

Some people are saying "this is like 1980 all over again" and that silver will now crash.  Nothing could be further than the truth.

The truth is that the amount of money they have printed up since 1980 is ten times higher, so if you adjust for inflation, the peak price from 1980 should be more like $500/oz. in today's dollars.

The next key difference is that in 1980, interest rates, the amount paid on bonds, rose to over 20% per year.  Today, interest rates are close to zero.  Interest rates make holding bonds more attractive.

The next thing is that the US government money printing driven inflation is just beginning, it's not remotely close to ending.  The US annual budget is about $3.8 trillion, and the government collects about $2.2 trillion, leaving a gap of about $1.6 trillion that is met by money printing, which makes the value of the dollar go down.  (  (April 7th news item))

$1.6 trillion of new money can also expressed as $1600 billion, or $1,600,000 million.

For comparison's sake, new investment demand for physical silver last year was only 250 million ounces, at, let's say an average of $35/oz., was just under $9 billion, or only $9000 million.

Silver is not in a bubble in terms of prices.

The bubble in stocks in 1929 was caused by debt financing.

The bubble in housing in 2007 was caused by debt financing.

You cannot borrow money to buy silver. Thus, silver is NOT in a bubble.

Exceptions:  Yes, you can borrow money to speculate in silver, but no silver is ever purchased at the time that you purchase futures, or options on silver.  And the futures market is known for having an overall open interest of over 800 million oz. of silver, while less than 40 million oz. of silver are available for delivery!

Yes, also certain private firms, who have horrible reputations in my opinion, will let you borrow money "to buy silver", but you must keep the silver with them, and it's doubtful that they ever actually purchase the real silver either.

In silver's case, the availability of debt, and use of leverage is used to prevent you, distract you, dissuade you, from actually buying silver.  This makes silver an "anti-bubble"; the opposite of a bubble.

This article claims that silver was worth about $1218/oz. in the Ancient Roman World!

One article last week noted that "8 years of global Silver supply changed hands last week".  He could not calculate how much silver traded hands in the OTC or "over the counter" markets that are unreported and unregulated, which are typically 20 times larger than the visible markets like the COMEX and the ETFs.

That article shows that the amount of paper trading of silver has recently grown to perhaps 1000 times larger than the real silver market. 

At last week's rate of about one year of global silver supply traded in a day, with 250 trading days in a year, suggests 250 times as much paper silver trading than real silver, but that's not counting the much larger OTC markets.

Again, with all the flurry of news articles on silver this last month, nobody has mentioned the BIS report that I've highlighted for the past 1-2 years that shows that world banks have liabilities (that's debts) in "other precious metals" (mostly silver) of anywhere from $100 to $200 billion, and that was way back when silver was $20/oz.  That's about 15 years of annual world production, with swings into and out of the banking system of 8 years of annual production in less than 6 months. 

Thus, mostly all of the silver in all major LBMA banks in the world is thus likely fake silver, all fraudulent paper silver, nothing is real there.  I would love to know how much real silver they do have, as obviously, they have to have at least some silver to function with their "fractional reserve silver banking" that they do.

Thus if a bank holds your silver, I'm 99% certain that they don't physically hold YOUR silver for you, and that you know nothing about the real fundamentals of the silver market.

When you read that an commentator or analyst is "long SLV" you can know for certain that that commentator knows almost nothing about the silver market.

When debt is used to actually buy real silver, the extra buying would artificially push the price up.

When banks actually owe silver that they neglected to actually purchase, their lack of buying artificially pushes the price down.

Again, silver is the opposite of a bubble.

People have not yet learned that silver is payment in full.  Silver is not a promise to be paid.  Owning a promise to be paid in silver is about as bad as owning paper dollars -- the value of both of which has (primarily and fundamentally) only one way to go, which is down.

Government is in a bubble.  US paper money is in a bubble.  The US bond market remains in a bubble.

Somebody just posted to my facebook, "everybody is selling out", "Soros is selling  his gold", etc.

No, the opposite is true.  Nobody was ever in. 

The real fundamentals of silver show that less than 6% of 1% of paper money in the USA even bought any real silver last year. 

That means that silver buying would have to be 20 times more, just to get to about 1% of people buying silver!

Silver the opposite of a bubble.  This dip will be brief.  Silver at $200/oz. is still a "price dip" compared to where the silver price is headed.


I strongly advise you to take possession of real gold and silver, at anywhere near today's prices, while you still can.   The fundamentals indicate rising prices for decades to come, and a major price spike can happen at any time.

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Or Youtube!


Jason Hommel

-- Posted 5 May, 2011 | | Discuss This Article - Comments:

Last Three Articles by Jason Hommel, Silver Stock Report

The Dollar is Done - Deal with It
7 November, 2011

BIS Changed Silver Data (From $203 to $93 Billion in Silver Liabilities?)
6 July, 2011

Dear Capitalists of the World
26 May, 2011

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