GOLD, SILVER, PLATINUM, PALLADIUM AND DIAMONDS

            Over the past 24 years, there has been a silver shortage. Moves in the price of silver can be very dynamic. Five months ago, silver prices reached $8.20 an ounce, that was a 103% increase over 28 months. Over the same period, gold was up 53%. The major difference between gold and silver is that central banks may still hold about 7,000 tons of gold whereas the time is fast approaching when there will be no above ground silver inventory left. On the other hand, there is no question that gold is a monetary metal and silver is considered semi-precious. The two firms normally referred to in conjunction with the precious metals are CPM Group and Gold Fields Minerals Services. After 45 years in financial markets and particularly in gold and silver coins and shares, we believe very little of what these two firms call facts. They are closely connected to elitist interests that are suppressing gold and silver prices. Up until two years ago, there hadn’t been gold exploration due to stagnant prices and the lows hit in 1997. That is 10 years of very little exploration. As a result, gold production is dropping and will continue to do so for the next several years. South Africa, the world’s largest producer, has seen production fall 40% over the past 10 years and now the black power has demanded a large chunk of every mining operation; there is little incentive for exploration. Zimbabwe just demanded 51% of all gold mining properties as well. Over the past several years production has also been falling in the US, Australia and Canada, and rising in China, Russia, Peru, Indonesia, Ghana, Papua New Guinea, Mali, Tanzania and Argentina. It is expected that recycled gold scrap will decline 10% this year. Twenty-five percent of all the gold in the world is in India and they continue to be strong buyers. The Swiss who have been selling off 50% of their gold into the market have finished selling and under the new Washington Agreement of European Central banks they will have a hard time coming up with 500 tons of gold for sale each year. The reason is that they have either sold or leased it all or their citizens are against sales. We really don’t know how much gold central banks have left, because they lie about everything. The US Treasury gold hasn’t been audited since 1950 and we know Fort Knox has no gold. China, Russia and Argentina continue to add to gold reserves putting upward pressure on prices. At this stage of the gold bull market, jewelry sales and industrial use become less important. They are important in declining languid markets. In the Middle East and South Asia gold is money and a store of value. Producer hedges are being reversed, which will continue to put upper pressure on gold. In all likelihood once the Blanchard lawsuit against Barrick Gold and JP Morgan is adjudicated, Barrick will be forced into bankruptcy and all their shorts will have to be covered. Morgan will probably be bailed out of the Fed, which will just print more money. Those events and the biggest financial scandal in history should drive gold back to $850.00 and silver to $20 to $50 an ounce. 2005 is going to be a very exciting year for gold and silver. Remember, you have to be in the game to be a winner.

Silver production and recycling produced about 730 million ounces in 2003. Demand was approximately 775 million ounces for a shortfall of 45 million ounces. The deficit this year, thus far, leads us to believe the deficit will be 60 million ounces. The big question about silver is how much inventory is left. No one really knows. Seven years ago we estimated that by the end of 2003 there would be little inventory left, or perhaps only as much as 300 million ounces. What ever is left it isn’t very much. Seventy to seventy-five percent of silver production comes from the mining of gold, copper, lead and zinc as a byproduct. There are few pure silver mines in the world. When silver hit $8.20 an ounce four months ago, it was the highest price since August 1987. Based on the ever-shrinking inventory, lack of exploration for the last 15 years and increasing usage, silver is poised for higher price increases in the future. Newly mined silver production dropped more than 3% in 2003 with primary silver mines accounting for 26% of available silver. The price of silver over the past several months is acting as it did in 1978 just prior to the boom in prices that occurred in 1979-80. Each time prices retreat and back and fill it is at a progressively higher price level. When silver ran last time, it jumped from $10 to $20 an ounce in a very short period of time, because there were few sellers. Perhaps the market may act in a similar way again in 2004. Having been in these markets for 45 years, we believe there is a good chance of that happening. It is also our opinion that India will end its ban on silver exports. When Japan ended its ban consumption increased because market liquidity increased and we believe the same will happen in India. People do not want investments that are illiquid. Over the past 33 years, silver demand has exceeded supply by 5%. Based on that silver prices should average $15 to $20 an ounce in normal circumstances and in times of economic and financial turmoil, sell at much higher prices. Silver is inelastic. Supplies cannot increase quickly due to major price jumps. After $20 an ounce the price of silver is based on psychology. Since we became involved in silver in 1960, we haven’t put much faith in the gold-silver ratio, so we pass on the discussion. We do put faith in the belief that there is a silver cartel among the major dealers to suppress prices. The CFTC and our government are well aware of this, but it won’t be long before they will be eating their shorts. That short position in silver, like the gold bullion dealer short in gold, will catapult prices in the future. You can only manipulate markets for so long and finally markets win out. Today’s prices are as low as silver prices are going to get. You should own gold and silver coins and stocks. In gold coins, we prefer numismatic coins at this stage of the market. Ninety-five percent of silver 90% bags have been melted, making them semi-numismatic and they offer the lowest buying premium.

James Turk, who publishes a brilliant newsletter, said his interview and article in Barron’s was very disappointing, because they edited out his discussion of the Sprott Special Report on the rigging of the gold market by gold bullion banks, the Fed and other central banks. So much for free press.

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