Investing in Silver - Why Silver Will Be the Best Investment

From 2001 to the beginning of 2008 the Dowsilver.
rose 15 percent, gold rose 250 percent, and silverUnlike silver, gold only has two basic uses, and
has risen 300 percent. However, after the financialboth are hoarding type uses where the metal
crisis that started late in 2008, the Dow has lostdoesn't get used up..."real money" and jewelry.
that gain while gold and silver have only lost someLess than 10 percent of gold production is used in
of their gains since 2001.industrial applications. 90 percent of all the gold
The point is that we are in the midst of aever mined throughout history is still available for
commodities cycle, meaning that the hot newpurchase somewhere.
asset is shifting from stocks and realSilver, on the other hand, has hundreds of
estate---paper assets, to oil, gold, andindustrial of industrial uses and applications. Here is
silver---commodities. And if you get into investinga small example of the multitude of uses for
in commodities before they really start to heatsilver: batteries, bearings, biocides, brazing,
up, you stand to see alot of upside forcatalysts, coins, electrical conductors, electronics,
commodities if you get in on them at the rightelectroplating, jewelry, medical applications, mirrors
time.and reflective coatings, photography, silverware,
Although oil and gold will rise significantly in price,solar energy cells, soldering, water purification.
it's nothing compared to the gains some believeOf all the uses for silver, only jewelry and
silver will make in the coming years.silverware result in saving the silver used; in all
For the first 2,000 years that gold and silver wereother uses, silver gets used up in microscopic
the primary form of money across the globe, theamounts, thrown away, and eventually ends up in
exchange rate between the two metals averagedthe landfill. That's where those billions of ounces
12 ounces of silver to 1 ounce of gold. In otherwent!
words, silver's value was 1/12th that of gold.In 1980 there were 2.5 billion ounces of silver that
However, it would vary by region and time period.investors could buy, and by 1990 it stood at 2.1
In China, during the Ming Dynasty, for instance,billion ounces. Today, stockpiles are almost
the exchange rate was 4 ounces of silver to 1nonexistent. The point is that for the first time in
ounce of gold, and in ancient Egypt silver had thehistory, of the available quantities that investors
same value as gold; but, on the average, the ratiocan buy, silver is more rare than gold.
has been about 12 to 1.Of the once mighty silver stockpile the U.S. held in
The reason for the 12 to 1 ratio was that goldthe late 1950s and early 1960s, only 0.0056
and silver were money, circulating side by side,percent remains. It has dwindled from 3.5 billion
and the free markets balanced the scales. Theounces to a mere 20 million ounces. And the rest
ratio is set by the marketplace doing what it doesof the world's governments have followed suit.
naturally, which is discovering the fair price ofWe have gone from a world in which every
something.country used silver as money, and also held large
This means that on average there was probablystockpiles of silver in reserve, to a world that is
about 12 times more silver in circulation than goldjust about out of silver. In fact, if you add up all
throughout history. It is simply the market findinggovernment stockpiles of silver worldwide, the
the price/quantity equilibrium based on the relativetotal is only 0.016 percent of what just the U.S.
rarity of the two metals.alone used to hold.
However, in the late 1800s Western silverThe only reason silver is so cheap right now is
discoveries and technological advances addedbecause people "think" it should be cheap. They've
significantly to supplies. This and other factorsbeen conditioned to think that because
caused the value of silver to plummet to 1/100thgovernments have been dumping their silver into
of gold's value.the markets for half a century.
Then, during the Depression, Franklin RooseveltThis extra supply has had the effect of
signed the Silver Purchase Act of 1934, and thesuppressing silver's price, and the low price has
U.S. began to amass the world's largest stockpileresulted in our consuming more silver than we
of silver. There were a few more silverproduced for over half a century. And as of 2007
purchases in the 1950s, and the stockpile peakedgovernments pretty much have run out of silver,
at 3.5 billion ounces.and they've stopped selling just as investor
But by the early 1960s silver's price had risen tointerest is rising.
$1.29 per ounce, not because silver was scare,But as you now know, there is almost no silver
but because currency was too abundant. Silverleft for investors to buy. And Economics 101:
was just catching up to inflation of the currencyWhen there is great demand and minimal supply,
supply. At $1.29 per ounce, the silver content inprices will skyrocket.
U.S. silver coinage equaled the face value of theBut wont they just mine more silver? The short
silver coin.answer is: yes. But the good news for silver
If silver's price were to rise any further, peopleinvestors is that most silver supplies don't come
could make a profit by going to the bank andfrom silver mining operations.
getting a bunch of change, melting it down, andRather, silver supplies are often a by-product of
selling the silver. The government knew this andmining copper, lead, zinc, and gold. In fact, about
began selling silver to keep the price down.75 percent of the supply of newly mined silver
Throughout most of the 1970s silver's priceoriginates as a by-product of mining other metals.
ranged from $3 to $6, buoyed by Nixon'sThe silver is just a bonus to these mining
abolishment of the gold standard and an increasecompanies. So, they sell it on the market; but the
in the currency supply. Many investors sold muchpoint is their business is not dependent on the
of their silver at a profit.price of silver.
But in 1979, prices began to rise rapidly. PeopleIf a copper miner gets one percent of his income
stopped selling silver, and for the second time infrom silver, he's certainly not going to dig up ten
history the public became net buyers of silver.times more copper to increase his silver
The first time the public became net buyers ofproduction by a factor of ten. So, the burden to
silver it forced the government to discontinue thesatisfy silver demand falls on the shoulders of
issuance of the last "real money" (silver) in thewhat are known as primary silver producers, and
U.S. and replace it with copper and zinc tokens.they're rare.
This time, public buying of silver would cause theCurrently silver mine production stands at a little
metal's price to explode to upward of $50 perover 500 million ounces per year. Primary silver
ounce.producers only produce 25 percent of that, or
The point of giving this background information is125 million ounces per year. If you could freeze
to show how events in the past will lead up todemand where it is today, and the primary silver
silver being the BEST investment in the comingproducers were able to double production, it would
years.take more than 15 years to get silver inventories
So when investors became net buyers of silver inback to the level they were in 1990; but demand
the 1960s, it forced the government to abandonis rising because the rest of the world wants the
silver as money, and when investors became netsame standard of living as the Western world.
buyers of silver in 1979, the price catapulted toBut wont they just open more silver mines?
over $50. Well guess what? In 2006, for only theAgain the short answer is: yes. But the world
third time in U.S. history, the public became netwide average for taking a mine from discovery
buyers of silver once again.to production is 5 to 7 years, and in countries
But there are huge differences between 1980 andwith strong environmental laws, it can take much
today. This silver bull market will make the lastlonger.
one seem insignificant.In the U.S., for instance, even if you found a
For most of the 1980s, the public did what theydeposit of pure silver or gold, if it were in a state
always do. When they should have been investinglike California, you wouldn't ever get a permit to
in stocks, they chased yesterday's news andmine due to the state's stringent environmental
continued buying gold and silver. But that changedlaws. Additionally, the big prospecting wont start
as we entered the 1990s.until the price is at much higher levels.
Investors who had paid $5 to $50 per ounceAnd to top it all off, due to the long bear market
were caught up in the stock market craze thatin precious metals there is a severe shortage of
had started in the 1980s, and they sold theirexperienced workers with the specialized
silver, usually at a loss, to purchase stocks. Fromknowledge required for mining operations.
1990 to 2005 investors sold more silver than theyAlso, the world isn't just running out of silver
bought...a lot more. Conversely, they bought a lotaboveground either, it's also running out of silver
more stocks than they sold...a lot more.IN the ground. Minable deposits of silver are
According to the CPM Group (one of the leadingbecoming harder to find.
commodities market research and consulting firmsAccording to the United States Geological Survey
in the precious metals industry), investors sold 1.6(USGS), at current rates of production, the two
billion ounces of silver from 1990 to 2005. That'smetals we will run out of first are gold and silver.
almost nine times the amount investors sold inAt these rates gold reserves will be exhausted in
the 1970s.30 years and silver in 25 years. At current rates
And it's not only the public that has been sheddingof production, there is less minable silver left in
their silver holdings. Governments around thethe earth's crust than any other metal.
world have stopped using silver as coinage andAs the dollar continues to lose value, big investors
have been selling off their stockpiles.will first turn toward gold and dramatically drive up
In fact, since the 1960s, a time when everyits price. By the time the general public catches
government on the planet had significant silveron, gold will look pretty expensive to them. But
reserves and used silver as coinage, and a timeeverybody will then start hearing about silver
when the U.S. controlled 3.5 billion ounces (thebeing rarer than gold.
single largest silver stockpile in history), allIn a frenzy, people will dive into silver, just as
governments have been selling off their silverstockpiles are practically diminished and production
inventories.has practically stopped. That is when silver will
This extra supply has had the effect of artificiallyexplode.
depressing the price. Today governments aroundSo it's a safe assessment to say that silver is
the world are essentially out of silver. Theseextremely undervalued at the present time. And
government fire sales were accompanied byremember that for the first 2,000 years of
investor sales of around 1.6 billion ounces fromhistory that the exchange rate between gold and
1990 to 2005.silver was 12 ounces of silver to 1 ounce of gold
This had the effect of artificially depressing silver'son average.
price to such low levels that in many cases theNow here's the exciting part. Given enough time,
price was below mining costs, putting somevalues always revert to the mean. But when
primary silver producers out of business.something is severely out of whack, it will usually
So if the government was selling silver, andovershoot the mean before settling back in. The
investors were selling silver, just who was buyinglonger and further out of whack it is, the further
silver?it will usually overshoot.
The answer: industrial manufacturers. The silverFor more than a century, the gold/silver ratio has
that was sold was used to make consumerbeen very out of whack, currently the exchange
goods.rate between silver and gold is almost 70 to 1.
Of all the elements, silver is THE indispensableYou can bet that when a run on silver happens,
metal. It is the most electrically conductive,this ratio will come screaming back, and I'm pretty
thermally conductive, and reflective. Modern life,confident that it will snap way past the historical
as we know it, would not exist without silver.average of 12 to 1.
Photography, batteries, electronics...these things allAnd, because there is less silver than gold for
came of age, and became widely available, during,investors to buy, I believe it may even go so far
or shortly after, World War II, and then absolutelyas to meet or exceed the price of gold. Now you
exploded in use after the 1960s due to scientificknow why silver really is a "precious" metal.
discoveries regarding the industrial applications of