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Silver Rules, Here's Why

By: Bill Hamilton

-- Posted 24 August, 2006 | |

Why I think silver is a good investment right now. I have long been a silver bull, and it just so happens I have about doubled my money in about two years. In many instances doubling money in a matter of two years would be a sign that Silver is overpriced and that it is a good time to get out, this article is to inform you.

If you look at the history of silver, you find that the U.S. government bought around a billion ounces of silver about a hundred years ago to keep the value of silver falling with the significant discoveries of silver, especially in Nevada and improved mine techniques. This silver has all been distributed to the public either through coinage or by direct sale, this sale of silver ended in 2003.

It is no coincidence that the current bull market in silver started in 2003, the original intention to keep silver prices high during a glut of silver had to have the exact opposite effect while it was being distributed back to the public. This factor is still intact, and is one of the great reasons to own silver.
Now that silver has risen, you could ask the question, "What about mine production, won't it increase with increased silver prices?" The answer is yes, silver production will increase, but it takes about six years to develop silver mine, and currently we use more silver than we recycle and mine. This situation is expected to continue for two more years until more silver mines are fully developed.

So in two years there will be less silver than now as most of the silver we are using is in electronics or jewelry, and that is not likely to be brought out to the market at anywhere near the current prices. Even the silver coins being minted by the U.S. government have a coin collector premium over the pure value of the silver. Even if the price of silver rises, this premium will rise also.

A few months ago what is called silver ETF was created, where certain types of investors, who were prohibited from owning physical silver stocks, or futures contracts, could buy silver. They have listed to sell shares equivalent to 130 million ounces of silver, and have sold 90 million worth of stocks so far, so we can expect for the other 40 million ounces to be sold in the next two years. So you see the developments building on one another.

The next development is a highly concentrated short position of 175 million ounces in four or fewer traders being sold short, which means that they are selling this silver for future delivery. The short version of the story is there is no way they have anywhere near that amount of silver. There is from 300-500 million ounces of silver (in bullion form, the only form accepted on the ETF or on the COMDEX where the sellers are short) total in the world. 90 million ounces is in the ETF, they would have to have virtually all of the silver in the world to be able to deliver on those contracts. You see the evidence of this because at the end of each month when deliveries are due silver increases in price.

The economy is another factor; there is record government, personal and business debt in America. We export about six hundred dollar of wealth a month to other countries for every person in America Our dollar is just a promise to pay, not backed by silver or gold, but of future tax revenues, which are of course payable in dollars. So the value of the dollar is all psychological, and eventually the factors which are at work against the dollar have to bring its value down. What do investors do when the dollar is falling? They invest in precious metals, like silver. I think silver will be a great investment, but if you consider investing in silver, you should be aware that it is very volatile, and will fluctuate wildly. I thank and Ted Butler for the information I have summed up for you.

please drop me a line at

-- Posted 24 August, 2006 | |

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