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Monday, July 21, 2008

Silver is like TNT for 5 years running

Silver Stock Report
Jason Hommel July 11th

Whenever silver prices take a dip, people lament the delay in the rise in prices and ask me "When will silver prices explode?"

Well, it's been exploding for 5 years now. In 2003, silver's low point was $4.15/oz. in the spring. This year, silver is "about" $18. From $5 to $18 over 5 years is an "average" annual gain of a whopping 29%. It may not seem like a lot because we have such high expectations for silver (along with waiting during price consolidations lasting 1.5 years at a time), but let's see what 29% gains per year really look like over the next 15 years. Most people don't seem to understand the power of compounding gains. So, I made two charts to illustrate the points.

In the second chart, a lot of people think that most of the gains come later. That's not true. This shows a 29% gain, every single year.

I would not expect such "regular" gains, silver prices will show more ups and downs than this projection.

But clearly, silver will do better than that, for several reasons, as follows.

1. Most people today are trend investors. Silver's price action so far is a good trend.

2. Silver's price action is more than justified by the fundamentals. With only about 60 million ounces of annual investment demand, which is less than 1/10th of overall annual silver demand, any newly increased investor demand is sure to have a high impact on the price.

3. Annual investor demand for silver of 60 million ounces is only about $1 billion. That is so small in the scale of world finance, it's scary.

4. More than 90% of people are concerned about rising prices and inflation, and will be looking for ways to protect their money. Silver is the natural choice, and more people are discovering silver every day. As they do, investment demand can grow substantially and quickly.

5. In the U.S., there are about 4000 coin shops that can help people find silver to buy. www.find-your-local-coin-shop.com

6. Just this year, investment demand for American Silver Eagle 1 ounce coins has doubled, from 10 million/year to 20 million. The public really got excited about silver and gold when prices hit $20/oz. for silver, and $1000/oz. for gold, with customer volumes increasing 10 times a many coin shops. Just wait to see how excited people get when silver gets past $50, and then, they realize that the inflation adjusted high price for silver from 1980 when silver was $50, is now nearing $400/oz.!

Conclusion? Don't "wait" for silver to explode before acting. It's exploding already. Get some. As soon as you can. The longer you wait, the more you will pay.


Jason Hommel

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