The Bullish Case For Silver Appreciation - Arithmetic, Human Nature, Supply & Demand

Guest post from Mark McHugh...

• Mark blogs at Across the Street...

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What The Silver Vigilantes Understand That You Probably Don’t (Arithmetic, Human Nature and other Stuff) - Direct Link

Sorry about the insulting headline, but every last shred of evidence I can find suggests that the most people remain utterly clueless about silver, despite the efforts of the silver vigilantes, led by Max Keiser and Mike Kreiger. Their brilliantly simple plan (go get some physical silver) promises to topple the criminally insane fraud that has become US economy. It doesn’t require politicians or regulators to lift a finger either, you simply take advantage of what is undoubtedly an artificially low price. I can completely understand anyone who is skeptical of that last statement; I’m sure you’ve been burned before, but that doesn’t mean you should stop seeking truth.

Part 1. A little math.

I’m not sure when performing basic arithmetic made you a conspiracy theorist, but here we are.

The 2009 World’s population was about 6.8 Billion. According to the Silver Institute, total silver supply in 2009 was 889 million ounces. That means there was .13 ounces of silver produced for every human being on the planet. That looks like this:

Yep, your fair share of Worldwide silver production is a little less than the silver content of two pre-1965 dimes. That’s all. A bargain at about four bucks when you consider the amazing properties of this element. FYI: World oil production per capita is 190 gallons.

This represents more than ten years of worldwide silver mining production divided by 2009 population. Less than $35, and hell of lot easier to transport than 7,600 quarts of Quaker State. Please note that so-called “World production” includes government sales and scrap. Government sales and “scrap” have accounted for more than 25% of “World Silver Production” from 2000 to 2009. I’m not sure I believe that one out of every four ounces of silver gets recycled, but understand that without that bonus production, demand exceeds supply by 37%.

Part 2. Who needs silver?

Just about everybody, it turns out. Sadly, another way to get yourself labeled a conspiracy theorist is by reading government documents like the Constitution, or the Department of the Interior’s 2009 U.S. Geological Survey which states:

The physical properties of silver include ductility, electrical conductivity, malleability, and reflectivity. The demand for silver in industrial applications continues to increase and includes use of silver in bandages for wound care, batteries, brazing and soldering, in catalytic converters in automobiles, in cell phone covers to reduce the spread of bacteria, in clothing to minimize odor, electronics and circuit boards, electroplating, hardening bearings, inks, mirrors, solar cells, water purification, and wood treatment to resist mold. Silver was used for miniature antennas in Radio Frequency Identification Devices (RFIDs) that were used in casino chips, freeway toll transponders, gasoline speed purchase devices, passports, and on packages to keep track of inventory shipments. Mercury and silver, the main components of dental amalgam, are biocides and their use in amalgam inhibits recurrent decay.

Yet you can actually find dunces out there claiming that digital cameras have made silver obsolete. You should live so long…

Fun Fact: Silver (not gold, copper or anything else) is the element with the highest electrical conductivity.

Part 3. People lie…..

“…I want to make it equally clear that this nation will maintain the dollar as good as gold, freely interchangeable with gold at $35 an ounce, the foundation-stone of the free world’s trade and payments system.”

John F. Kennedy, July 18, 1963

“That we stand ready to use our gold to meet our international obligations–down to the last bar of gold, if that be necessary–should be crystal clear to all.”

William McChesney Martin, Jr. (Federal Reserve Chairman) December 9, 1963

And…..

Lesson: When someone says you can exchange paper for precious metals – make the swap before they change the rules.

Since the invention of paper, people have been writing bogus notes, and if there are two time-tested methods to become wealthy beyond your wildest dreams, they are: 1)Selling stuff that doesn’t exist and 2) Selling stuff you don’t actually own. Unless you believe there has been a sudden outbreak of integrity in the banking industry, there’s no reason to believe these dynamics are not still in play, is there? As recently as 2007, Morgan Stanley settled a class-action lawsuit with 22,000 clients who bought and paid storage on “phantom” silver (check out the Ted Butler article Money for Nothing).

At today’s prices, a million dollars in gold weighs less than fifty pounds, but a million dollars in silver weighs more than 2,300 pounds! So ask yourself, how many rich people are storing their own silver? How many hedge funds hold physical silver in their own storage facility? Or have they entrusted the storage to the big banks?

JP Morgan is the custodian of the ishares Silver Trust (SLV), which now holds over 350 million ounces of silver, provides sovereign and corporate investors with precious metals solutions (JP’s website), and is the largest short seller of silver in the history of the world. Berkshire Asset Management’s Eric Fry writes:

Based on some of the latest conjecture, Morgan’s short position totals a whopping 3.3 billion ounces. If, therefore, the buzz about J.P. Morgan and silver is even half true, the prestigious investment bank could be cruisin’ for bruisin’.

For perspective, 3.3 billion ounces is roughly equal to:

1) One third of all the world’s known silver deposits;

2) Two times the world’s approximate stockpiles of silver bullion;

3) Four times the annual mined supply of silver;

4) 30 times the inventory of silver at the COMEX.

If you can, forget about the conflict of interest, and ponder the enormity of the explosion.

Part 4. A little more math.

Estimates of total silver production since the dawn of man range from 46 to 53 billion ounces (roughly 11x gold production), but unlike gold, we’ve used pretty much all of it (although squandered might be a better word). It’s in our cemeteries (fillings) and scattered throughout our landfills. There hasn’t been a significant surplus since 1990. Ted Butler and others estimate that there is far less silver bullion in the world than gold bullion and they back up their case with numbers that the paperbugs have never even bothered to refute. So why does gold trade at more than 45 times the price of silver? Because JP Morgan, the US government, and every other psuedo-capitalist parasite wants it that way. But that’s a truth for another day.

Part 5. Other things you should know.

The Treasury has sold 34 million one ounce American Eagles so far in 2010. Those sales total less than one Billion dollars. Apple (AAPL) trades about that much every hour the market is open. Meanwhile the Treasury has issued more than 1.5 Trillion in new debt (1,500 times more) in 2010. Just for fun, let’s multiply 1500 by 34 million. A transaction of that size would have equaled every last bit of silver ever discovered at $30 an ounce. Yet you can actually find people who believe silver is the bubble.

Treasury doesn’t make it easy to buy silver. They’ll sell you bills, bonds and notes directly online, but not precious metals at anything close to market price. The mint only does business with 11 Authorized Purchasers (a list can be found here), Why the lack of savvy?

China can blow up the COMEXs silver market in the blink of an eye, at any moment. They can do it with their pocket change, as a goof. And if we piss them off enough, they will.

Part 6. So what’s silver worth.

The short answer is: more. If silver were priced based on its occurrence relative to gold, it would be over $125/oz. If it were priced on its availability – somewhere around $2,000. But if you are content to let the likes of Blythe Masters dictate the value based on truckloads of worthless paper promises, you can expect ultra-low prices until the whole thing blows up. Of course at that point, we’ll be so busy killing each other for food no one will have time to say, “I told you so.”

The silver vigilantes just want you to re-learn what the phrases like, “cold, hard cash,” and “payment in full” are supposed to mean. There not asking you to sink everything you have into physical silver, just a little. Silver can’t be printed into oblivion, or stolen by a cyber attack. Why wouldn’t you want to own some of your very own?

A paper dollar from 1960 is worth exactly the same as a paper dollar in 2010, but four quarters from 1960 are worth more than $21. Given the fiscal insanity of the US government, I can’t imagine the US dollar surviving another 50 years, but I’m quite sure that silver will still be useful.

Please consider getting some.

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Comments

[DailyBail]

i agree mark...i think silver will head higher over the next 12-18 months...and that recommendation and $10 bucks will get you breakfast at your local waffle house...buy at your own risk...

[DailyBail]

« The Great Housing Bamboozle: A Look Behind The Numbers Shows Home Ownership To Be A Poor Investment »

http://dailybail.com/home/the-great-housing-bamboozle-a-look-behind-the-numbers-shows.html

a previous story from mark...

[nick]

A well put article as to why you should buy silver. For a while now I have been buying silver, initially because I no longer wanted to keep my money in the Bank. Anything over or above what I need to live on, goes on silver. I am no longer willing to let Banks use my money to make themselves fractional banking fortunes, for which I get paid almost nil. This is not right, in fact I feel that Banks charge us for using our money to make themselves huge fortunes.

Until this changes I shall continue to buy silver and keep it out of the Banks reach, and make a profit in the long term. 2011 the year of the whistleblower ...

[fliteshare]

Metric please !

[Dave Wilber]

THE GREAT SILVER HEIST. In 1933, congress passed the Agricultural Adjustment Act with its Thomas Amendment. That amendment provided a tax of 50% on all private sales of silver when silver supposedly had a "price" of 90 cents an ounce. At the same time, government was paying 50 cents an ounce. So naturally all sales of silver were to the government. But what was government paying? When the dollar was fixed by law as being about 3/4 ounce of silver, 1/2 dollar was 3/8 ounce of silver. So, if government was paying 50 cents per ounce, they were paying 3/8 ounces for 8/8 ounces and in fact, stealing 5/8 of all silver produced. The people never caught on because decades earlier they were convinced that the dollar was a piece of paper! Why nickels were made of silver for 3 years during World War II is another. We thank the late Tupper Sauccy for bringing this to light. There were certain books that were out of print and Franklin Roosevelt wanted them to stay out of print. To keep them out of print was to melt the copper plates used to print them but our misleaders must always justify their actions as Bust justified his actions in Iraq. It was declared that there was a shortage of copper for the war and to offer a "token"of evidence, nickels were made of silver for three years and cents were made of zinc coated steel for one year. If ever see a pile of nickels and one or more appear dark, it could be a silver coin that tarnished. To prove it is silver, look for a mint mark over Monticello, Jefferson's home. A "D", "S" or "P" will prove the coin is silver. My teacher was Merrill Jenkins, Monetary Realist. author of 7 books the first being "Money", The Greatest Hoax On Earth and he invented the dollar bill changer that was erroneously called a "currency changer" when the only currency we ever had was silver coins.

[Laturb]

OK, you've got my interest, but where do you safely buy silver, and should the purchase price match the market value at that moment?

[Brian Kaschenoff]

Here's a guy named Ed Freeman that invented a way for people to buy a one ounce silver eagle a month. The way to spread the idea is through the website that explains how you can buy the silver from him and with this purchase he gives you a free mirror website like his that allows that person to refer someone else. The motivation for spreading the word is that when two people make the purchase he (Ed Freeman) sends you a free one ounce silver eagle. That's an easy way to spread the word about buying silver. Here is the link to the website: http://silverclub.info When you open the site it has Ed Freeman with a gentle voice explaining how you buy your first coin and why it's a good idea. This seems to me to be a very good idea for people who don't know how to buy silver and want a quick and easy way to educate themselves about why and how to get started. You can cancel at any time and it has a money back return policy. Yes, I recieved my first one ounce silver eagle from him.

[S. Gompers]

Excellent post as usual Mark.

Laturb,

Unless you set out a sign in your front yard saying "buying silver", and hope people come, you will be paying market price plus spot. Look in the phone book for coin stores, that is a good place to start.

[Laturb]

BK & SG many thanks for your responses.

[mark mchugh]

LaTurb,

The most popular methods to buy silver are from local dealers or online. If you buy online, there's going to be shipping, handling and different places accept payment differently. For small quantities, I'd recommend a local dealer. Mine charges $3 over spot for US mint eagles (the mint charges $2 over spot its dealers). You can buy generic rounds or small bars cheaper, but you should always expect to pay over spot.

For online purchases, I check out the following in no particular order:
Apmex.com
bulliondirect.com
kitco.com
tulving.com
monex.com

Tulving has prices for both buying and selling. Once you know what you want and should expect to pay, go talk to a local guy to see what he has available and what he can do for you.

hope this helps.

[mark mchugh]

Sorry fliteshare,

Here in the land of apple pie, we don't do metric. Besides, the troy ounce is how gold and silver are quoted worldwide (that's not metric or english).

For everything else, there's conversion calculators....

[Mike Gordon]

I went to http://silverclub.info and this guy Ed Freeman , I spoke to him and got a website and a silver eagle coin. This is a great concept, why isn't everyone doing this? This seems to be a good way to get the word out to people to buy silver.
Why not? The more people that buy silver the more the control of Goldman Sach's has on paper silver will be threatened. Why not jeopardize Goldman's Sach's and other big banks control of the silver market. Like Ken Keiser
said "break the banks" I'm all for getting manipulation of the silver markets out of the big banks hands. They have been shorting silver for 40 years now so said their spokesman (I forget the guy's name). He thinks that's normal. I don't.

[Laturb]

Thanks Mark M, I appreciate the suggestions and links.

[Cheyenne]

Great piece McHugh. I've been honking up silver of late, 1 dollop at $23 and the next at $26. Yeah, I'm feeling chalky. I go for the '64 Am. coins, easy to track on coinflation.com (melt value). No one in my family could believe how much a few shitty dimes were worth.

DB--I got busy helping Jankovich in Chicago's 43rd Ward. He's real tight w/Lira and about a 99-1 shot b/c the tote board's limited to 02 digits. Lots going on. Tomorrow's my last day of office work. Then I'm on my own, betting on myself (h/t Steven Crist).

Leaving work was a lot like vomiting. The waiting's way worse than the act, which in fact is liberating.

[mark mchugh]

@ Mike and DB.

I'd be very, very suspicious of things like silverinfo.com. The US mint doesn't need help selling eagles and no one in their right mind sells them under spot. If you "Sell two to get one" you're going to be gouging people. Not cool.

Like I said before, 3 bucks over spot for US government minted coins isn't hard to come by. Less for generics.

[DailyBail]

sent you a few emails cheyenne...

[mark mchugh]

The reason I wrote this article is because there doesn't seem to be much we can do about the rampant corruption in our financial system. It has infected our politicians and justice system as well.

As someone else observed, silver is the achilles heel of the banksters. They're lying about how much they have and how much it's worth. Getting them to make good on their phony price (or pretty close to it), may the closest thing to justice we get.

[Canuck]

Link to my photobucket saved img

http://img.photobucket.com/albums/v321/zayga/View021.jpg

[mark mchugh]

That $8.80 a gallon, Canuck!

And it should be "pre-1965", shouldn't it?

20 cents is too much when paying with silver coins. I like the idea though.

[john]

Keep a sharp eye out on all metals.

http://www.themoscowtimes.com/business/article/guinea-politics-looming-for-rusal/427970.html

[john]

Some of the latest metals news.

http://business.zaplurk.com/2010/12/norilsk-buyback-may-disadvantage.html

and a flashback:

http://www.businessweek.com/news/2009-12-29/billionaire-kuok-nat-rothschild-said-to-buy-into-rusal-ipo.html

[john]

And furthermore:

http://chinaenergysystems.blogspot.com/2010/03/rare-earth-metals-chinas-search-in.html

[john]

And finally:

http://www.globalresearch.ca/index.php?context=va&aid=7957

This is pretty much applicable everywhere.

[Canuck]

>>>That $8.80 a gallon, Canuck!<<<

LOL!! Yeah could be Canadian where it's pre '65, but stll too much. Still, it gets the point across eh?

[DailyBail]

@canuck...great photo...loved that one...

http://img.photobucket.com/albums/v321/zayga/View021.jpg