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Gold bug James Turk says $500 gold is likely this year
By Theodore Butler
Tuesday, February 15, 2005
www.InvestmentRarities.com
Because silver is such a fascinating topic, there is a strong force
that pulls us to focus on it on a daily basis. This force is normal
with any issue we find interesting. Fortunately, this scrutiny can be
profitable. I know many people who have made many thousands and even
millions of dollars on the price moves in silver over the past year
or so. By studying the COTs, they take advantage of low-risk buy
points. To be fair, these large gains have come from large positions
in all sorts of silver investments, including physicals, highly
leveraged futures, and mining stocks.
Not only is silver a fascinating topic that causes many of us to
monitor it daily, but the opportunity to profit only intensifies that
attention. Once you come to understand silver, it's hard not to
follow it closely. The problem with this daily scrutiny is that it
can cause one to lose perspective. It's hard to see the forest if
you are studying individual trees. It's hard to think years ahead
in silver when the next tick may mean serious money.
Rarely are we presented with the unique vantage point, like the view
from the top of a mountain or from the air, to see the whole forest
or the years ahead in silver. For that we need imagination. We
don't need wishful thinking that leads to fantasy. We need common
sense and bedrock verifiable facts.
I have implored people to rely on common sense and the facts to
determine whether they should invest in silver. Now more than ever
common sense and the facts are what matters. But to look into the
long term, you have to use your imagination as well. I think it is
very hard, even impossible, to achieve a long-term goal without
vision or imagination.
The imagination I am going to ask you to employ is simply a
conscientious effort, on your part, to peer deep into the future. I
am trying to get you to develop your own long-term silver vision. It
is very important that you have your own long-term vision, and not
rely on anyone else to hold your vision for you. In fact, what
I'm asking you to do, in essence, is to blot out everyone else's
opinion of the long-term future, including mine, and create your own.
Read everything you can and study the facts and arguments, but strive
to be in control of your own vision.
In addition to blotting out other opinions in the quest of developing
your own, you must also try to remove any other influence that may
distort your long-term vision. The chief influence most likely to
cloud your long-term vision in silver is the current price. The price
is the primary destroyer of long-term vision and imagination. Nothing
damages the ability to peer into the future than the current
conditions and price. You must disregard the natural human emotion of
assuming that the current price equals the true value of silver.
Price and value are two different things. Sometimes they coincide,
sometimes they don't. Sometimes the price overvalues, undervalues
or fairly values an asset. That's what investment analysis is all
about. The point is obviously to buy undervalued assets and sell or
avoid overvalued assets.
How does one do that? There is only one way, as far as I am
concerned. Always assume that the price is wrong. Then, having
disregarded the price, study the underlying facts to determine what
the real value is, in order to determine how the current price
compares. If the price is low compared to the real value, then you
have a good candidate for investment. If the price is high compared
to the real value, stay away. Look at value first; price always comes
second in legitimate analysis.
Admittedly, it's hard to do, because we see the price first, long
before we even attempt to decide value.
I'm not trying to imply that long-term vision and imagination are
a walk in the park. The vast majority of people can't even hope to
guess the future correctly. How many foresaw the 15- to 20-fold
increase in real estate over the past 30 to 40 years? How many
foresaw the 25-fold increase in crude oil over the past 30 years? How
many foresaw the 40-fold increase in silver from 1970 to 1980?
It's obvious just how rewarding such insight would be to you. The
reason I am harping on the long term is because that's the only
real chance the average investor has for meaningful gains.
OK, now you've disregarded the current silver price and the price
action for the past two decades. You've also attempted to blot
out and ignore all opinions from me and everyone else. This is about
your money and your imagination and your vision. You must now take a
critical look at the facts and let those facts dictate your vision.
It is the facts that you must let your imagination work on.
What are the facts in silver?
I'm going to give you the facts as I see them. I will warn you that I
will present them in a manner designed to influence your vision. So
be on guard. But I also promise you that I will only present what I
truly believe to be the complete and verifiable facts.
Silver is a material known, mined, used, and valued since the dawn of
civilization. It will be used and valued until civilization ends. For
the past 150 years or so tremendously varied uses were discovered for
this age-old material that contributed to the progress and
modernization of our society. This came about because silver is the
best conductor of electricity and heat, the best reflector of light,
is integral in the photographic process, and has important health
benefits. Because of all these new, growing, and unanticipated uses
of this material, demand has greatly exceeded production for more
than 60 years. This has necessitated the drawing down and consumption
of almost all the silver that was mined and accumulated for 5,000
years. Every measure of total known world inventories in the past
half-century show declines of greater than 95 percent. The facts
clearly indicate that silver has been in a structural deficit for 60
years. No commodity has a similar profile.
Added to this elimination of almost all above-ground inventories, we
are given credible evidence that we may be exhausting underground
inventories as well. This in a time period that's a tiny fraction
of silver's known years of production history. What is a couple of
decades compared to 5,000 years? If you are letting your imagination
work freely, you should be starting to ask yourself: What kind of
price should be assigned to a vital commodity that faces both above-
and below-ground depletion?
If looking ahead 20 to 30 years seems difficult, then try looking
back that amount of time. Twenty-five year ago silver hit a price
over $50, up from a buck and small change 10 years earlier. I know it
was manipulated up by speculators, but there are not many things that
have increased 40-fold in less than a decade. It doesn't mean it
will happen again, but it also doesn't mean it can't happen again.
Let us look at the known facts since then.
In the past 25 years we have used up 2.5 billion ounces in world
silver inventories. Stated differently, there are 2.5 billion ounces
less in the world today than there were in 1980, when silver hit $50.
I think there are fewer than a billion ounces remaining, and no one
can show more than 150 million ounces in verified bullion form.
In that same time, the world has removed 12 billion ounces (using an
average world production of 480 million ounces a year). At the
current world-mining rate (600 million ounces), we will extract
another 15 billion ounces over the next 25 years. The U.S. Geological
Survey, chief geological statistician for the U.S. government,
projects the that earth may contain only 8.5-18 billion ounces.
Current world silver demand runs 900 million ounces a year. Assuming
no growth in demand (in other words, forget that China and India
exist), in 25 years that comes to 22.5 billion ounces. Even allowing
for a scrap recovery component of 5 billion ounces over the next 25
years, here is what we face: the exhaustion of silver. What is your
imagination telling at you about the future price?
Although you should not need additional facts to stoke your
imagination, I must present one more. Silver has the largest short
position ever seen in any item. From COMEX, to leasing, to banks and
brokers selling unbacked silver certificates, there are billions of
ounces sold on paper that don't even exist. Billions of these
ounces must be bought back by the sellers lest they get consumed in a
significant price rally. The fact is this giant combined silver short
position exists and that it dwarfs the verifiable silver currently
above ground. Someday there will be a scramble for silver that will
be talked about for centuries.
To these silver facts into perspective, it would be useful to compare
them to other commodities. The material most comparable to silver is
gold. Not only do they share a 5,000-year history and association,
they are joined in the minds of most, much as "love and marriage"
or "horse and carriage." I don't know of a better match to
compare silver's facts than gold.
(Let me interject here that I am not putting a knock on gold. As my
recent articles have conveyed, I think gold has formed an important
bottom and could easily rise $50 or more in the next COT-driven
rally, with a much greater equivalent rally in silver. But this
article is not about my personal price expectations but about using
real facts to determine your own vision.)
Gold is also a material mined, used, and valued since the dawn of
civilization. It too will be with us forever. While it has many
potential varied uses, because of its high price it is principally
used (as it has been through the centuries) as an investment and
jewelry item. Because so little gold is lost in modern industrial
applications, most of the gold ever mined still exists.
Since 1980 world gold production has added 1.5 billion ounces to
above-ground gold "inventories" for a total of 3 to 4 billion ounces.
Looking out over the next 25 years, current annual production will
add another 2 billion gold ounces, bringing above-ground stocks to 5
to 6 billion ounces. The U.S. Geological Service also predicts a
severe depletion in below ground gold reserves.
The important point here is that at the end of the next 25 years
there will be a significant increase in gold in existence, while
silver above ground will certainly have been exhausted long before
that. One is priced above $400, the other is priced below $7.
What price do you put on an item marked for extinction? Maybe the
best calculation is not even to pick a price. Maybe it's best to
let your vision focus on time, and not price. Maybe you should let
your imagination set a long enough timeline and ignore the daily,
weekly, monthly, and yearly price changes. That certainly would have
been the right approach in real estate and oil. If the silver price
rise becomes too compelling, then take some money off the table. Just
be sure to remain true to your own vision.
I've tried to present the facts clearly and objectively but also
provocatively. I want you to use your own imagination and form your
own vision, in the hopes that you can cope with the long-term in
silver the best way possible. As for me, I have my own vision on
which I will rely. I have my own price and timeline, and you should
have yours. I will tell you that even after 20 years of analyzing
silver, not only do I find my premise about silver consistently
reconfirmed, the more I think about it and let my imagination run
freely, I still tremble with excitement about the certain I see
ahead. The more I study silver, the more an extreme situation and
future price resolution comes into focus.
There is one more thing I ask you to consider. If you decide to buy
and hold silver, make sure it's in the right form. I have been
hearing disturbing new stories that people are still buying unbacked
bank silver certificates and unallocated pool accounts. If
there's one thing I can see destroying a legitimate silver vision,
it's buying the wrong type of silver.
Here's a simple rule: If youre not holding it in your own possession
or don't have the serial numbers, weights, and specific descriptions
of all stored silver, you don't have silver.
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Free sites:
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http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
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http://www.resourceinvestor.com
Subscription sites:
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http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
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