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Good bids arriving for auction of 1-ounce gold bars at Gold Rush 21
By Ted Butler
Investment Rarities
Tuesday, August 2, 2005
http://www.investmentrarities.com/08-02-05.html
As recent commentaries have suggested, the favorable commitment of
traders market structure has resulted in price rallies in gold and
silver. While there has been deterioration in the market structure
since the Tuesday cutoff in the COT report, with tech fund buying
and dealer selling, it does not appear that we are in an extremely
high-risk state yet. As such, selloffs should be brief from current
levels.
Risk and volatility will increase, of course, as prices rise, and
the situation must be monitored closely. On the plus side, gold,
silver, and the dollar all appear to be configured for decent moves
(up in the metals and down in the dollar). On balance there appears
to be more room to this move, perhaps great room, as the key moving
averages have only been recently penetrated. As always, subjective
opinions about the near-term direction of the markets must be
treated as just that -- subjective.
An article I wrote a few weeks ago, "You Do The Math," generated a
large response. In that article I tried to document the fact that
there was more above-ground gold in the world than silver. I
didn't get any response that argued against the fact there was five
times more gold around than silver. The responses fell into two
categories; either disbelief or, if true, it didn't matter because
gold was special. Apparently I wasn't very convincing. It occurred
to me that what I was writing appeared to be so off-the-wall that I
should more fully explain my contentions. Make no mistake -- I
believe this will ultimately have a profound impact on the price of
precious metals.
Silver and gold have been known and prized by mankind for thousands
of years. How could it be that the material which is more rare could
come to be valued at less than 2 percent of the value of the more
plentiful material? This situation is cockeyed. But it's also fact.
For thousands of years, there was more silver around than gold. To
this day, the world extracts seven to eight times as much silver
every day from the earth as it does gold. But something has come
along to upset the apple cart and render invalid the facts people
have relied upon for thousands of years.
If there's one word I've used more than any other in the 200
articles I have written about silver, it's "deficit." In reality
I have not used this word enough. For 60 years the world has
consumed more silver than it has produced and has had to consume
above-ground inventories to balance supply and demand. This is a
circumstance never witnessed in any other commodity. I should have
been more forceful in describing it because it's the key to the
awesome opportunity I see in silver. Sixty years is a long time.
Until recently, it was a lifetime. Something that occurs every year
for 60 years has the look of permanence. It appears normal and
orderly. But 60 years is a very short time when you compare it to
5,000 years. Then 60 years seems like a flash in the pan. Everything
is relative.
The world has known silver to be more plentiful than gold for 5,000
years and has valued both materials accordingly. But the world has
not yet adjusted to the new reality that, after 60 years of using
more silver than is produced, gold is now more plentiful than
silver. Because 60 years is a flash compared to the accumulated
experience and wisdom of 5,000 years, the six billion souls who
inhabit our world haven't caught on to the new reality that silver
is rarer than gold. They will. The only question is when.
Maybe a table will help --
Above-ground Inventory (billions of ounces)
Year.....Gold.....Silver(Billions)....World
...................................Population
1940-50....2....... 8-10..............2.5
1980.... 3.5.......3.5...............4
2005.......5........1.................6
2030.......7........0-1...............8
Inventory statistics taken from World Gold Council, the Silver
Institute, and others. Population data from US Census Bureau.)
Notice that 60 years ago, there was roughly five times more silver
than gold above ground. Today, there is five times more gold than
silver. Twenty-five years from now gold's inventory will climb by
40 percent, based upon expected production rates, roughly equal to
projected world population growth. Silver, on the other hand, will
experience no growth in inventories, unless prices explode to
extraordinary levels. About the surest thing we can say about silver
inventories is that they can't fall below zero.
Please keep in mind that the gold and silver inventories I'm talking
about include bullion, coins, jewelry and artifacts that could
possibly come to market near current prices. In other words, real
inventories. Additionally, while silver is mined at a rate seven to
eight times more than gold, none of that production finds its way
into inventory (thanks to the deficit), while almost all gold
production is added to inventory.
Roughly 600 years ago people believed that the earth was flat. Who
could blame them? After all, the earth looked flat and there was no
knowledge to the contrary. Those who tried to prove that the earth
was round were ridiculed because that was contrary to what was
widely accepted. That's exactly the way it is with gold and silver.
Then, as now, people don't have all the facts.
Even people involved with precious metals don't know that silver has
become rarer than gold over the past 60 years, and is becoming rarer
every day. So how can the masses possibly have this knowledge? The
idea that silver is rarer than gold seems implausible and
outlandish. How could gold priced at $425 per ounce be more
plentiful than silver priced at $7 per ounce? It doesn't make
sense.
The real question is not how could this be but rather: When will
enough people recognize this fact? When will they begin to act on
this pricing mismatch and buy silver until the price gets corrected?
The answer to that question creates the opportunity of a lifetime.
Understanding that silver is more rare than gold, before it becomes
common knowledge, seems like the very definition of an easy route to
great rewards. If I am correct, it's not a question of silver being
rarer than gold, it's a question of how quickly that fact is learned.
First, although disclaimers are always given, these are my thoughts,
not necessarily those of Investment Rarities. I am an independent
analyst and I write what I feel should be written. I do thank
Investment Rarities for publishing my analyses and not interfering
with my thoughts.
I am not saying that gold can't go higher in price. Nor am I saying
that those who own gold should sell it because it will be a poor
investment. As the above table indicates, gold's inventories
should keep pace with world population growth, the growth in the
world economy and money and credit supply. I don't expect gold to
suddenly fall out of favor after 5,000 years. And I'm certainly not
saying that anyone should play the gold/silver ratio on a leveraged
or speculative basis, either long-term or short term. Too many
things could go wrong.
What I am saying is that silver, as a long-term investment, should
beat the stuffing out of gold. It shouldn't even be close.
How could it be? As time goes on, we will have more people, more
wealth, more gold and less silver. Oh, and add in the fact that the
world is about to learn there's less silver around than gold, and
that we're going to run out of silver unless the price explodes
to the heavens. This is why you should buy silver in the first place.
If you own gold and no silver, you should sell gold and buy silver.
Some would debate how much gold you should sell in order to buy
silver. However, it's not a difficult question for me. My answer
is to sell it all and buy silver, until silver is too high in price
to continue to do so. The thought that gold could run away on the
upside, and not silver, is incomprehensible to me. The thought that
silver could run away compared to gold seems unavoidable.
Of course, there is little chance that a lot of people will actually
take my advice to sell gold and buy silver. For one thing, there is
not enough silver to be bought by those who sell gold. As I have
written previously, if just one-tenth of one percent of the dollar
value of gold in the world (0.1 percent X $2 trillion = $2 billion)
tried to buy silver, that would equal almost 300 million ounces of
silver at current prices. There is not 300 million ounces of
available silver at any price shy of $100 an ounce.
Since large numbers of gold investors hold their investment in the
form of mining company common shares, they would be mistaken, in my
opinion, not to sell enough shares to establish a healthy real
silver position. It's likely that silver will soar in comparison
to gold. Once again, there is no way many people can take this
advice, as the market capitalization of gold equities runs into so
many billions of dollars, there is not remotely enough silver in the
world available for even a fraction of this money. However, gold
stock investors should also ask themselves if they understand that
silver is rarer than gold and what that could mean.
The question of selling silver mining equities to buy real silver is
a little trickier, because you would think that those shares should
do well in a silver price explosion. But I have to tell you,
management of too many companies (not all) is so poor, and
properties are in so many undesirable countries, that any silver
equity investor who doesn't also own real silver is taking
unnecessary and foolish risks.
The world's most successful investor, Warren Buffett, purchased
silver. Mr. Buffett makes investments in things he believes are
undervalued. I don't speak for Mr. Buffett, but I do have to
laugh at how many times I have read speculation by others that he
may be buying gold, even though he has stated gold doesn't interest
him because it is non-utilitarian. The Buffett gold buying
speculation reached a peak in the recent past when he announced his
large currency purchases against the dollar, because dollar weakness
is always given as a reason to buy gold. Not only has Buffett still
not purchased gold, the only metal he has purchased is silver --
precisely because it was undervalued and inventories were running
out. If there is less silver in the world than gold, as I contend,
and this is generally unknown, is it more or less likely that the
world's most successful value investor would notice and act on this
before most others?
The key here is not just that silver inventories are racing toward
zero at giveaway prices but that this is unknown to the investment
world. We have already reached the state where we have less silver
than gold. The real question is: How long can this highly profitable
information be kept secret?
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RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
Free sites:
http://www.cbs.marketwatch.com
http://www.usagold.com/amk/usagoldmarketupdate.html
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
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)
http://www.resourceinvestor.com
http://www.goldpennystocks.com/
Subscription sites:
http://www.lemetropolecafe.com/
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/
----------------------------------------------------
COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Blanchard & Co. Inc.
909 Poydras St., Suite 1900
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Centennial Precious Metals
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1-800-869-5115
http://www.USAGOLD.com
Michael Kosares, Proprietor
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Gold@gwe.net
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178 West Service Road
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Toll Free:1-877-775-4826
Fax: 518-298-3457
and
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Lone Star Silver Exchange
1702 S. Highway 121
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fax: 952-925-0143
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Contacts: David Schectman,
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http://www.mocoin.com
Resource Consultants Inc.
6139 South Rural Road
Suite 103
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Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877
Metalguys@aol.com
http://www.buysilvernow.com
Swiss America Trading Corp.
15018 North Tatum Blvd.
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http://www.swissamerica.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com
The Moneychanger
Box 178
Westpoint, Tennessee 38486
http://www.the-moneychanger.com
Franklin Sanders
1-888-218-9226, 931-766-6066
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