2008-04-16 10:22:38
Rush for silver if you want to make moolah!
Commodity Online
You know this time around white metal may prove to be a better option for you to invest than in yellow metal. There are several reasons for that. Mainly, according to Jason Homel’s Silverstockreport.com, silver has all the monetary properties of gold, and more.
It is interesting to know this. If you want know the enviable properties of silver, read on. The historic price ratio of silver to gold shows that about 10 ounces of silver would buy one ounce of gold, a 10:1 ratio. Recently, the ratio is about a 50:1 ratio (with silver at $20/oz., and gold at $1000/oz.) As the silver to gold ratio returns to historic values, from 50:1 to 10:1, you may make over 5 times more money investing in silver, than gold!
Silver prices may rise to exceed the 10:1 ratio, for the following reasons: More than all of the silver produced by the mines each year is consumed by industry, which leaves little to no room for substantial investment demand. A marginal increase in investment demand will drive prices sky high.
Most silver is produced as a by-product of mining gold, copper, zinc, or lead. Higher silver prices might not substantially increase the amount of silver mined each year. Consider, in 1980, when silver prices went up to $50/oz., less silver was mined than in 1979!
Higher silver prices may not cause much reduced demand. Why? Because most silver consumed by industry is used in tiny quantities in each application, such as in film or electrical contacts, therefore, rising silver prices will not easily slow down growing industrial demand.
Additionally, as paper money continues to falter, people will buy silver and gold without regard to price, or they will buy simply because prices are going up. Because many investors today are momentum investors, and won’t be able to ignore the gains.
Each year, silver mines produce about 650 million ounces of silver. Around 200 million ounces come from recycling and about 100 million ounces come from investor or government sales. That’s a total of about 1000 million ounces. Of that, about 42% is consumed by industrial use, about 28% consumed by jewellery, about 20% consumed by photography and around 5% consumed in coins and medallions. That’s 95% of total available silver each year.
This implies either a “surplus”, or “investment demand”, of about 5% total. At $20/oz., that’s only $1 billion per year of net investment demand.
Since the 1950s, silver use and consumption, has made silver more rare than gold, in above ground, refined and deliverable forms. Estimates suggest there are 200-300 million ounces of refined, above ground silver available to the market at the present time. There are about 125 million ounces of silver at the NYMEX, the big commodity exchange in New York. The ETF SLV has about 180 million ounces.
Each silver contract at the NYMEX is a promise. There are too many contracts, too many promises to deliver silver that may not exist. Each contract is for 5000 ounces. There are often over 200,000 contracts for 5000 ounces, that’s a total of 1000 million ounces of silver promised to be delivered.
With recent market trends of defaults and bankruptcies, these contracts are at risk of default. Yet, the exchange has only about a third of that in real silver. How can they promise to deliver more silver than exists?
If they fail to deliver silver, then confidence in the world’s entire financial system may collapse. Industrial users of silver may have to shut down their factories. To prevent this, users will bid silver prices much higher.
Due to the risk of default in silver Futures contracts, Jason Homel suggests that you avoid buying Futures contracts, avoid options, and avoid storing your silver with anyone else. Take delivery of your silver, and put your silver in your own safe.
Despite silver's intrinsic properties as money, silver began to lose its status as money starting in the late 1800s, as nations stopped using silver, and started using only gold as money. Over 100 years of this “demonetization” has caused a serious drop in silver’s value, and this trend is about to be reversed as investors re-learn that silver is a great store of value because of its intrinsic properties.
As paper money continues to waver, the neglect of silver’s use as money will end. Once again, silver will be valued based on other measures of value, such as a day’s wage, or a ratio to gold. If silver exceeds its historic value, then perhaps a silver dime, a silver quarter, or a silver dollar will be worth far more than a day’s wage, as it once was.
Will you be hurt if silver and gold prices rise? Not if you own some. Remember, honest weights and measures in commerce produce prosperity. But you must act to benefit from this information.
Don’t wait for silver to rise before buying it. Silver prices could rise by over $20/day to exceed $100/ounce at any time if large funds or billionaires buy with desperation.
(Courtesy: Jason Homel’s Silverstockreport.com)
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