-- Posted 23 May, 2007 | | Discuss This Article - Comments:

The Wallace Street Journal

By David Bond, Editor

The Silver Valley Mining Journal

Lost Wages, Nevada – We took another swing at Nevada this past week and came up 5 aces – that being the number, times 100, of folks who turned out for a little pre-Money Show “mini Silver Summit” at the Mandalay Bay that David Morgan and I conducted with the Silver Valley Mining Association and several of its members to showcase opportunities that abound in the silver investing sector – whether you are talking physical metal or equities.

What was remarkable about this turn-out – and the huge attention our booth got and the smaller but still enthusiastic turnout to meet the company CEOs the following morning – is that some 2,750 miles away, at exactly the same time, the IIC were holding their annual Hard Assets conference in New York . . . which is where all the mining types were supposed to be.

The Money Show is a much more eclectic collection of investors and presenters than your average resource conference (except, of course, for The Silver Summit we have in Idaho every September), so not everyone there came to hear, or even expecting to find, a pitch for silver mining. But there we were, and there they came. And we were competing for their attentions with the likes of the big investment houses, cruise lines selling staterooms, soybean and asparagus farmers, real estate trusts, engine-makers, even entire nations.

This was our second Money Show – the first being in Orlando back in February, where we had only the booth and gave a brief presentation on China's Silver Silk Road. But if the reception we got at these two events teaches anything, it's that the silver miners – like most businesses – spend far too much time talking to themselves and not near enough time looking beyond their rather narrowly-configured world view.

A jam-packed resource investment conference might pull in 3,000 people (PDAC being the exception) but the Money Show's consistent 8,000-plus attendance shows there's quite a mob of folks out there worried about their phony fednotes who don't necessarily think of silver first when they are in search of a safe harbour where they can grow their wealth. And they won't, unless we bring it to their attention.

And what a helluva safe harbour silver has turned out to be. CPM Group's 2007 Silver Yearbook was released conveniently on the same date as our mini-summit in Las Vegas, so we were actually able to commit News by reading a bit from their press release, which went like this:

“The price of silver rose from a low of $8.87 on 5 January 2006 to a high for the year of $14.35, on 11 May. Silver prices averaged $11.61, up 58.0% from $7.35 in 2005 . . . This rise in silver prices reflects a major shift in the role of investors in the silver market, according to The CPM Silver Yearbook 2007, released today.  Investors are buying so much silver now that as a group investors emerged as net buyers of silver in 2006, for the first time since 1990. The increased demand from investors, and the cessation of the flow of metal from investors, was strong enough to propel silver prices sharply higher in 2006. Furthermore, the report concludes, these trends are continuing in 2007, suggesting that silver prices may remain historically high.” (Emphasis added)

“Investors have been net sellers of silver from long-held inventories for the past 15 years, from 1991 through 2005, CPM Group explains in the report. From 1997 through 2005 the volumes of net selling by investors slowed dramatically, the Silver Yearbook explains. This reflected both increased buying by new investors entering the silver market and decreased selling from long-held silver investment inventories built up from the 1950s through the 1980s. Whereas investors sold 195.5 million ounces of silver on a net basis in 1997, supplying this metal to meet vibrant demand from jewelers, the photographic industry, and other manufacturers that use silver, by 2005 this net flow of silver from investors and other inventories had declined to 31.2 million ounces.

In 2006, the market balance shifted from investors being net sellers to their purchasing around 60.5 million ounces of silver on a net basis. This trend is projected to continue according to the Silver Yearbook, which estimates that net investor buying of silver will total at least 74.1 million ounces in 2007. Investors are buying silver for a variety of reasons. Mostly, they see silver, like gold, as an attractive alternative investment to stocks, bonds, and currencies at a time when the returns of these other investment asset classes are less promising, and the risks inherent in them appear to have increased. Investors also are buying silver as a hedge against inflation, against war and other political dislocations, and as a commodity. Regarding the last point, investors have been buying silver along with other commodities as a broader move into commodities investments. Many of the same factors stimulating investor silver purchases are also behind the broader move into commodities, the report explains.

The significance of the shift in the silver market from net investor selling to net investor buying cannot be over-emphasized, the report concludes. This is the third time such a shift in investors’ role in the silver market has occurred in modern times. The first time was in the early 1960s, when strong fabrication and investment demand compelled the U.S. Treasury to stop producing silver circulating coinage and silver certificates, and to sell hundreds of millions of ounces of silver the Treasury had acquired over the previous seven decades. The second time investors shifted to being net buyers was in 1979, the year in which silver prices rose from a low of $5.92 to $34.45 at the end of the year, on the way to a peak of $48.70 in January 1980. The current, third, shift in investors’ profile in the market is having a similar effect on the silver price and markets at present, according to the analysis in the Silver Yearbook.”

And so on. And just this week, the Silver Institute and GMFS issued their own silver report, reporting essentially the same bullish fundamentals while, as Jason Hommel astutely noted, differing on their estimates of new silver mine output. Whatever the actual newly-mined silver tally will be this year or in the years ahead, it's of vast importance to an understanding of this market to remember that, except in the primary silver sector whence derives only about one-fourth of the planet's silver production, silver mining is not a price-driven activity. Whatever new silver mining activity will we get from the primary silver sector driven  to production by a $13 an ounce price, it isn't going to mean diddly to the 200 million ounce/year shortfall between all new mine production and worldwide demand.

This was news to the folks at the Money Show, who were eager to learn more. So perhaps if the trade shows are beginning to look a bit dog-eared 10^th time around, a change of venue is in order. It certainly lifted our spirits.