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Saturday, October 18, 2008

Silver 5X More Rare than Gold. Peak Price $250-$5000 oz


by Shelby Moore III

Careful analysis of the official historical supply & demand reports for silver, proves without a doubt that silver is between 0.25 to 5 times more rare than gold above ground, in terms of metal that can be brought to market within several years after a drastic rise in silver price (to that 0.25 to 5 ratio to gold price).

For example, with gold at $1000 per oz, the minimum peak price we could expect for silver is $250 to $5000 per oz, and very soon.

The above statement will seem ludicrous, until you understand the intricate details of the supply & demand analysis, and then understand the motive for the bankers to suppress the "spot" price of silver so severely. In this new era of $trillions of (hidden & publicized) bailouts, the motive of the bankers is becoming naked for all to see (as I will explain).

Boz = billion oz (i.e. 1000 million oz)
Moz = million oz

The 1991 official CRA study
, concluded that there was worldwide 1.4 Boz bullion + 1.2 Boz old coins (e.g. 90% silver, 40% silver, etc) + 16.5 Boz of silverware/art for total of 19 Boz. David Zurbuchen corroborated (the total silver above ground in) that CRA report, using multiple data sources. Of that 2.6 Boz of above ground investment silver in 1991, an official report stated that 1 Boz of it had been consumed by industry as of 1998:

...Between 1990 and 1997, cumulative silver fabrication demand has exceeded mine production by 2.2 billion ounces. That gap has been filled by recycled silver scrap and by the drawdown of more than 1 billion ounces of silver bullion inventories...

From 1998, there was 347 Moz coin fabrication minus 191 Moz more "Net Disinvestment" from above ground investment silver:

World Silver Supply and Demand
(in millions of ounces)
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Mine Production 542.2 556.9 591.0 606.2 593.6 600.6 621.1 643.8 647.4 670.6
Net Government Sales 33.5 97.2 60.3 63.0 60.3 88.4 60.2 67.5 78.2 42.3
Old Silver Scrap 193.9 181.6 180.7 182.7 187.5 184.0 183.7 186.0 188.0 181.6
Producer Hedging 6.5 -- -- 18.9 -- -- 9.6 27.6 -- --
Implied Net Disinvestment 48.2 44.8 87.2 -- 10.8 -- -- -- -- --
Total Supply 824.3 880.4 919.1 870.4 852.2 872.9 874.6 925.0 913.7 894.5

Industrial Applications 316.3 339.0 374.3 335.2 339.2 349.8 367.3 405.3 424.8 455.3
Photography 225.4 227.9 218.3 213.1 204.3 192.9 178.8 160.3 144.0 128.3
Jewelry 140.6 159.8 170.6 174.3 168.9 179.2 174.9 173.8 166.3 163.4
Silverware 114.2 108.6 96.4 106.1 83.5 83.9 67.3 67.8 61.2 58.8
Coins & Medals 27.8 29.1 32.1 30.5 31.6 35.7 42.4 40.0 39.8 37.8
Total Fabrication 824.3 864.4 891.7 859.2 827.4 841.5 830.7 847.4 836.0 843.7
Net Government Purchases 0.7 -- -- -- -- -- -- -- -- --
Producer De-Hedging -- 16.0 27.4 -- 24.8 20.9 -- -- 6.8 25.0
Implied Net Investment -- -- -- 11.2 -- 10.5 44.0 77.6 70.8 25.8
Total Demand 824.3 880.4 919.1 870.4 852.2 872.9 874.6 925.0 913.7 894.5

Silver Price
(London US$/oz)
5.544 5.220 4.951 4.370 4.599 4.879 6.658 7.312 11.549 13.384

SOURCE: World Silver Survey 2008

Thus, as of 2007, there was 2.6 Boz - 1 Boz + 156 Moz = 1.75 Boz of above ground investment silver in world. However, of that original 2.6 Boz, the CRA study concluded that 1.5 Boz could not come to market "Under any set of foreseeable realistic market conditions", and the remaining 1 Boz not for less than $20 in 1991 dollars (which is $80 in 2008 non-liar inflation adjusted dollars). Yet as stated in that official report above, 0.85 of that 1 Boz has already come to market at less than 25% of that $80 price. The CRA study apparently did not anticipate the alleged diabolical selling of bullion at "spot" prices, that is still promised to paper silver "owners"! The CRA report anticipated 54 Moz (0.05 Boz) of silverware/art to come to market at $5 ($20 in 2008 dollars), but that still leaves 0.8 Boz of 1000oz bars allegedly stolen from paper silver "owners" (apparently most of them are duped by legalese).

So thus there is roughly 19 Boz - 0.85 Boz = 18 Boz of above ground silver in any form, which implies that silver above ground is 0.25 as rare as the 5 Boz of above ground supply of gold. But most of this silver can not come to market, at any "foreseeable realistic" price. First, realize that only 1.75 Boz - 0.8 Boz = 0.95 Boz of investment silver remains (which agrees with Ted Butler's 1 Boz calculation), but 1.5 Boz of that would never have to come to market at any "foreseeable realistic" price (much higher than $80 in 2008 dollars) if the paper silver "owners" had been aware they've allegedly been robbed. So the only way additional investment silver can come to market is by continued alleged theft from the paper silver "owners". That explains the current silver shortage, except for 1000oz bars.

As for the remaining 17 Boz of silverware/art, since it is held by the owners, then it is not subject to hidden theft by the bankers, and thus only 1.15 Boz of it is expected to come to market at $80 (in 2008 dollars, to be adjusted upward with $trillions in bailout inflation underway). Thus silver above ground is 5 times more rare than the 5 Boz of above ground supply of gold.

The remaining 16 Boz of silverware/art will not come to market at any "foreseeable realistic" price. For example, billions of people around the world own sterling (92.5%) silver jewelry, with the typical item being say 0.4oz in affluent and 0.2oz in developing countries. Most people can not justify the time and expense to locate and transport to where to sell such an item, for less than $200 in affluent countries and say $20 in developing countries, which would be $500 and $100 per oz silver respectively? And by the time silver reaches those prices, people won't want to sell their jewelry, they will want to buy more. One of the peculiar properties of monetary metals (gold & silver), is that people hoard them as they move up in price, and vice versa. If you do similar calculation for 14k gold jewelry, 0.4oz is already worth $233 at $1000 gold, that is why 95% of all gold ever mined can more readily come to market at sufficently higher prices (although some would argue that people of India might not sell at any price).

Also much of that silverware/art is sentimental heirlooms and even silver plated items, which will never come to market at any price. And due to the low "spot" silver price over the past two decades, there are insufficient, especially specialized for plated items, refineries to process all that silverware/art into investment silver any way. Ramping up such refineries, ditto the mines, will take several years AFTER the moonshot rise in the silver price.

That 17 Boz of tightly held silverware/art makes it impossible for the government to issue a mass confiscation of silver, as they did with gold in 1933. The government didn't dare attempt it for silver, because people have received silver heirlooms for their weddings and keepsakes from dying parents and grandparents. And this is why the bankers hate silver, because they can not own it all and control it all, as they increasingly do with gold. That is why the bankers have manipulated the "spot" price down by short selling orders-of-magnitude more paper silver (on futures markets and at the bullion banks like Perth Mint), than exists physical silver. The bankers understand that when the price of monetary metals increase faster than all other possible investments in the economy, then the masses will leap from dollars, in which case the bankers would lose all their wealth and power. This is because the fractional reserve system is a fraud that grows the wealth of bankers at the expense of everyone else.

One possible reason that I arrived at 18 Boz of total above ground silver in any form, and David Zurbuchen arrived at 20 Boz, is because David was apparently assuming all old silver scrap recycling as coming 90% from industrial sources (80% photography). However, the use of silver in photography declined by -43% from 1998 - 2007, and most of that was after 2000 (due to rise of digital cameras & printers). And the loss in photography demand was offset by an increase in electronics demand:

http://www.gfms.co.uk/Market%20Comme...esentation.pdf (page 12)

If you read the report David referenced, you see that recovery of scrap from electronics is too costly and thus miniscule, as compared the level of recycling from the lost photography usage of silver.

Some have claimed that gold & silver have peaked in price, because they erroneously claim we are in a deflationary period. For example, doomsday proponent Gary North (a history major apparently with no formal education in economics nor math), who is has been published over 650 times by LewRockwell.com, bases his thesis on his erroneous assertion that M3 is not a reliable indicator of price inflation. See page 10 where North discusses the M3 chart. Note North says M3 increased from roughly 2,400 in 1984 to 11,300 in 2007. He claims that CPI only rose 2x during that period. But we all know that CPI is a lie, we see the actual non-liar price inflation in that period was about 5x, which is roughly the same as the M3 increase in the same period. This visual chart from this NowAndFutures M3 page illustrates this. And North's favored M1, didn't even come close to the real price inflation. Gary North has especially wailed against silver:


But does North understand the reality of the silver shortage which is taking place right now, and the supply and demand behind it which is explained on this page? Apparently not, since North was already proven wrong by the market. With the $trillions in bailouts coming worldwide, M3 will continue to rocket out-of-control, prices will continue to skyrocket, and as the dollar dies as a result, then silver is going to the moon and far beyond. And this coupled with the severe silver shortage occuring now, means that day is not years from now.

Jeff Christian of CPM Group, the source of much of the official data on silver above, says in this video, that as of 2006 investors were buying more silver than they were selling (positive "Net Investment"), which has only happened twice before in history of our fiat dollar: in 1960s when investors drove the USA off the silver coin standard, and in 1979 driving the price up from $5 to $50.

Ted Butler points out that silver in bullion form is about 1 Boz, versus 2 Boz for gold, but much of that gold is held by central banks who will likely continue to sell in order to keep their fiat power alive. And that if industrial demand dips (while input cost inflation accelerates) then most of the silver is produced as a by-product of base metal mines, so the mine production of silver would drop more than the industrial demand for silver would drop. Also the industrial uses for silver are always increasing (faster than any macro-economic dip), because silver is most reflective, conductive, and a natural anti-bacterial. And silver is used in minute quantities relative to the cost of the end-user products, so increases in silver price has nearly no effect on industrial demand, but do cause massive sea changes in net investment demand as Jeff Christian pointed out in previous paragraph.

Monex is the low-cost gold and Silver retailer. Paul Bea @ monex 800-949-4653 x2172
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1 comment:

Bron said...

"at the bullion banks like Perth Mint" - FYI, Perth Mint is not a bullion bank, indeed it is not a bank at all. It is just a state government (not Federal) owned Mint. The state government continues to own it in these days of privatisation because by value adding to Western Australia's gold production via coins and bars it supports local mining actitivity.