Uncle
04-24-2003, 05:59 AM
SILVER VOLCANO
OR CONTROLLED RELEASE?
By Theodore Butler
When you choose to write about one topic, you develop certain patterns. For example, I report on known facts and widely accepted statistics and reach what many regard as extreme conclusions on the future price course for silver. I also attempt to convince readers that my extreme conclusions will be proven correct. As most readers know, I expect silver to move higher in a violent manner. For me it’s a black or white issue. Silver, when it begins its real move, will not move in a normal or orderly manner. I'll explain why I think it must explode to a true free market price. Let me add, however, that the timing of exactly when the real move will commence is unknowable, at least by me.
Silver, alone among all commodities, has been in a long-term structural deficit. Current consumption exceeds current production, necessitating the physical depletion of existing inventories. Whether this structural deficit began over a decade ago, or over a half-century ago (as I believe), it is a phenomenon that has never occurred before. The documented disappearance of visible and known inventories of many billions of ounces of silver inventory (some six billion alone from the former largest holder of silver, the U.S. Government) confirms the existence of a deficit exceeding, on average, 100 million ounces annually for 60 years.
We also know that silver is generally an indispensable, but very low cost, component in thousands of vital modern industrial applications. Silver is the best known conductor of electricity and heat, the best reflector of light, in addition to its photographic attributes. The small amount of silver, per item, in these applications renders the price of silver inelastic, i.e., even large increases in the price of silver will have a small impact on the final total cost per item. There will be no falloff in demand at anything less than shocking silver price increases. Even where silver is used in an almost pure state, like jewelry and silverware, the fabrication component of final total cost per item is larger than most people realize. For instance, there may be no more (and maybe a lot less) than 50 cents worth of silver (at current prices) in a $10 pair of earrings. If silver rose to $20 an ounce, the cost of the silver in the earrings rises to $2. That would raise the price of the earrings $1.50, hardly a disaster to jewelry manufacturers or consumers.
On the production side, we know the vast majority of newly mined silver (75%) comes as a byproduct of other minerals. Higher prices for silver will not cause copper or lead miners to increase their production. Thus, silver is price inelastic, meaning that price changes won’t much change either consumption or production. It is very, very rare to find a commodity that is price inelastic in both supply and demand. I know of no other commodity that has this insensitivity to higher prices. When we get higher prices in silver, those higher prices won't cause production to rise and consumption to fall as much as some people think. Make no mistake, this is another powerfully bullish aspect unique to silver.
Continued....go to this link & click on Weekly Commentary at top left of page
http://www.investmentrarities.com/
OR CONTROLLED RELEASE?
By Theodore Butler
When you choose to write about one topic, you develop certain patterns. For example, I report on known facts and widely accepted statistics and reach what many regard as extreme conclusions on the future price course for silver. I also attempt to convince readers that my extreme conclusions will be proven correct. As most readers know, I expect silver to move higher in a violent manner. For me it’s a black or white issue. Silver, when it begins its real move, will not move in a normal or orderly manner. I'll explain why I think it must explode to a true free market price. Let me add, however, that the timing of exactly when the real move will commence is unknowable, at least by me.
Silver, alone among all commodities, has been in a long-term structural deficit. Current consumption exceeds current production, necessitating the physical depletion of existing inventories. Whether this structural deficit began over a decade ago, or over a half-century ago (as I believe), it is a phenomenon that has never occurred before. The documented disappearance of visible and known inventories of many billions of ounces of silver inventory (some six billion alone from the former largest holder of silver, the U.S. Government) confirms the existence of a deficit exceeding, on average, 100 million ounces annually for 60 years.
We also know that silver is generally an indispensable, but very low cost, component in thousands of vital modern industrial applications. Silver is the best known conductor of electricity and heat, the best reflector of light, in addition to its photographic attributes. The small amount of silver, per item, in these applications renders the price of silver inelastic, i.e., even large increases in the price of silver will have a small impact on the final total cost per item. There will be no falloff in demand at anything less than shocking silver price increases. Even where silver is used in an almost pure state, like jewelry and silverware, the fabrication component of final total cost per item is larger than most people realize. For instance, there may be no more (and maybe a lot less) than 50 cents worth of silver (at current prices) in a $10 pair of earrings. If silver rose to $20 an ounce, the cost of the silver in the earrings rises to $2. That would raise the price of the earrings $1.50, hardly a disaster to jewelry manufacturers or consumers.
On the production side, we know the vast majority of newly mined silver (75%) comes as a byproduct of other minerals. Higher prices for silver will not cause copper or lead miners to increase their production. Thus, silver is price inelastic, meaning that price changes won’t much change either consumption or production. It is very, very rare to find a commodity that is price inelastic in both supply and demand. I know of no other commodity that has this insensitivity to higher prices. When we get higher prices in silver, those higher prices won't cause production to rise and consumption to fall as much as some people think. Make no mistake, this is another powerfully bullish aspect unique to silver.
Continued....go to this link & click on Weekly Commentary at top left of page
http://www.investmentrarities.com/