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The Logic of Silver

By: Israel Friedman & Theodore Butler

-- Posted 9 January, 2007 | | Source:

By Israel Friedman

Too few people are using logic as their first tool for investment decisions. I look for logic first before deciding on an investment. Letís take the real estate market as an example. When the interest rates started to fall sharply several years ago, due to Federal Reserve actions, logic had to tell you that real estate would be a good investment. Prices exploded. When interest rates started rising, logic would say it was a signal to take profits.

Another example was when China and other countries started to expand dramatically and consume energy like never before. It was only a matter of time before oil prices rose. Likewise, the strong growth from the developing countries exerted a strong demand for industrial commodities of all types, particularly metals. Inventories of everything declined and logic told you higher prices were in store.

My logic tells me that, to satisfy the appetite of hundreds of millions of new consumers with billions of dollars to spend, the need for raw materials will remain strong. This underlying demand wonít easily go away. In the metals, my opinion is that silver will fall into short supply and most of the people who are predicting modest prices for silver will be wrong. You cannot easily predict a price for a material in short supply when the material has a strategic importance. The rare combination of a shortage added to an item that can be invested in directly by millions of people around the world will come to make current modest price projections for silver look silly.

Today, you can buy 12 Gold Eagles for the same money you can buy 500 Silver Eagles (a Mint box). You have the potential to make much more money with silver, dollar for dollar. That is one of the keys to sound investment Ė getting the most bang for your buck. The beauty is that you donít have to invest a big chunk of money for a potential home run.

Most of the time, I am asked when silver will be in a shortage. My answer is that I donít know right now, but it can come at any time. I donít rely on technical charts, news and other things to analyze silver. To me logic is the most important tool. What is the logic in silver? For thousands of years it was produced and we accumulated billions of ounces in world stockpile. In the last 50 years we consumed more than we produced, and the worldís stockpiles have been shrinking year-by-year. This is the logic behind holding silver, and all the other reasons are only stories. We have almost depleted the world stocks of silver. Logic will also tell us, at some very high price, when silver is no longer a logical buy, but a sell.

To remind you, silver had a fantastic year in 2006, with prices improving from $ 8.82 to $12.82, a gain of 45%. I wish that this next year will be as good or better, but remember a 45% compounded annual increase in silver prices would bring a price of $82 in five years. This has been my opinion only. You must use your own logic.


By Theodore Butler

In silver, we are presented with 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.

The prior article was written by my friend and mentor, Izzy. Heís more bullish on silver than I am. Izzy challenged me to analyze silver 20 years ago. 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 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?

Not long ago Izzy 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.

His reasoning was brilliant, take approximately $15,000, 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 to a quarter of an ounce per person remaining on earth will be motivation. 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 9 January, 2007 | |

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

Last Three Articles by Israel Friedman & 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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