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Buy your Grandkids a House - for Ten Grand [silver]

By: Theodore Butler

-- Posted 18 March, 2003 | | Source:

While this is an article about silver, it is, to some extent, an article about investments in general and about how they impact your life and the lives of your loved ones. This can be an emotional topic because it is personal and I will try my best to stay objective and present my case as logically as possible. Nothing is more personal than your own hopes and expectations of the future. It is important to have goals and vision. Otherwise, we wouldnít be able to monitor our lifeís progress, both the successes and the failures. We are our own guardians, and in this life we answer to ourselves.

Our future goals and visions involve things that cost money. And, as you know, it seems the better the vision, the more money it costs. Iím talking about the important things: college for your children, a more secure retirement, a better current standard of living, a house for each of your grandchildren. If you have no family obligations, then you may have visions of making the world a better place through charity. Unless youíve figured out a way to take it with you.

Whatever our personal goals and vision for the future may be, chances are there is not enough current money available to accomplish those goals. So we plan and save and structure our finances. We put off current consumption, so that we may be able to consume in the future. Deciding how to invest those savings and accumulated capital, in most cases, will determine how successful we are in achieving our goals. The decision of what to invest in is the critical ingredient. Pick the wrong investments, and a lifetime of savings and discipline and hard work can be all for naught. Pick the right investments, and goals can be achieved.

The first rule of investing is to not lose big. The second rule is to remember the first rule. Itís not necessary to win big on every investment, but it is necessary to not lose big. Thatís a very big reason I like silver as a long-term investment. I find it hard to imagine how silver prices could go down much further from current levels.

I understand the attraction of gold. While Iím not a true "believer" in gold (I was raised as a devout commodity supply/demand disciple), I think it has value precisely because so many people believe in it and that it has stood the test of time. Certainly, many more people currently believe in gold as an investment than believe in silver. I base that upon the size of each market, where the above ground dollar value of gold is some 200 times greater than the dollar value of above ground silver. That tells me there is much more potential in silver, as smaller markets are easier to move than larger ones.

By virtue of the $100 rally in gold prices from the lows, there is more risk in gold than there was at those lows. But that doesnít mean gold canít go up more, and maybe a lot more. As I have written previously, all it would take for gold to climb in price is more buyers than sellers. Current conditions in the world make that very plausible. And if gold does go up big, that would be good for silver. Silverís historic low price, vis-a-vis gold, should attract enough buying, at the very least, to keep pace with gold. So, I hope for higher gold prices. And, considering the current lack of attractiveness in other investment categories, gold doesnít look bad. I think the gold people are pretty sharp. With higher gold prices they will look increasingly at silver as a value play. There is nothing closer or more similar to gold than silver.

In silver, we are presented with ultra-low risk and enough potential firepower to the upside to make our personal long-term dreams and goals come to fruition. While anything is possible, I just canít see stocks, bonds or real estate rising 10 to 20 times in value over the next 10 years. But within that time period, and probably much sooner, such a rise is unavoidable in silver.

The more I write about silver, the less disagreement I get. Sure, some people think my price projections are extreme. Others ask, "if itís so good, why is it so cheap?", even though I have spent years, and great effort, to explain that the answer is manipulation caused by leasing and COMEX short selling. I wish there was more disagreement with my facts. However, no one has stepped forward with a legitimate free market explanation for how a market could remain in a structural deficit, where consumption exceeds production (and where inventories have declined precipitously), without the increase in price dictated by the law of supply and demand.

But this isnít about me being right or wrong about silver. Itís about you fulfilling your future goals by using real silver as your vehicle. I am trying to help you achieve your goals by pointing out the merits of silver.

You may be surprised to learn that I know someone more bullish on silver than I am. He is a friend who challenged me to analyze silver 20 years ago. Iíve written about Izzy before. He made a profit of ten times his money on real, fully paid for silver in 1980. Try telling him that silver canít climb 10 to 20 times in price over the next few years. Heíll laugh at that. He got ten times his money with no leverage and with no shortage of silver. Back then the world had two billion more ounces above ground than it does now. Two Texas oilmen bought around 100 million ounces and silver hit $50. If there was no shortage and much more silver around when the price went to $50, what price could it go to in a genuine shortage, with no visible inventory and the largest short position in history?

My friend just got back from a month-long visit to his family. He was out of touch with silverís daily goings-on, and had time to reflect on things. Upon his return, he told me that he made arrangements to purchase houses for each of his grandchildren when they grew up. I know heís a devout family man so that didnít surprise me, but I did ask him what he meant. Izzy then told me he had bought 1000 Silver Eagles for each of his grandkids. According to him, by the time they grow up, 10, 15, or 20 years from now, the value of the coins will likely be worth the same as a regular house. Maybe not in Manhattan or Palm Beach, but a regular house in a regular town.

As I said, Izzyís more bullish than I am, so in writing the title of this piece, I upped the quantity of silver to 2000 ounces (or approximately 1500 Eagles, accounting for the premium), or roughly $10,000. But his reasoning was brilliant, take a relatively small amount of money, put it into something safe (with ultra-low risk), allow for sufficient time, and watch it grow into a dream. Isnít this the very purpose of investing in the first place? Hold, and then give the law of supply and demand a chance to work.

We are talking about a valuable natural resource that is disappearing from the face of the earth. What has taken 5000 years to accumulate has been brought to the edge of extinction in the last 50 years. The accumulated production of 5000 years (billions of ounces) was consumed in just 1% of the time it took to produce those billions of ounces. Silver is used in a variety of vital applications now necessary to modern life, like photography, medicine, industry, communications, electronics and defense. There are no practical substitutes for these silver applications.

Common sense and geological fact also tells you that most of the "easy" silver has been removed from below the earth, like any mineral mined since antiquity. And while the inventory and mineral depletion continues unabated, world population is the highest in history, and growing. Silver is truly a world commodity, known to everyone. Thanks to our remarkable modern communications systems, the coming rise in the price of silver will be noticed everywhere on our planet. It will not be long before intelligent people the world over learn the true story of silver, precisely because the rising price will compel them to investigate. They will uncover a story of manipulation, structural deficits and nonexistent inventories. The realization of how there may be no more than an eighth of an ounce per person remaining on earth will be motivation to investigate further. It will dawn on them that this is an item to be sought after and held closely for their old age, and for their heirs. Except, they wonít be able to buy it at anywhere near current prices. They wonít be able to get it the way you can today. Do you have a dream? Fund it with silver. And please, please, make sure itís real physical silver.

-- Posted 18 March, 2003 | |

This article is brought to you in part by Investment Rarities Inc.

Last Three Articles by Theodore Butler

Warnings Ignored
4 September, 2009

The Voice Of The People
25 August, 2009

Walking the Walk
20 August, 2009

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