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Silver? No Thanks, We Got Lots

I think a close look at silver's short history in the free market is imperative when trying to determine whether or not it is, or has been manipulated by any party be it governmental or private. So first we should look at a long term chart to see when any significant price changes occurred. Well needless to say there were several. According to the chart, silver began trading in the 1960's and stayed in a range of around $2 for 6-7 years. Then along comes the stock market bear of the 1970's, (which in reality was reflecting a contracting economy) and with it an inflationary policy to correct the misfortune. Silver responded and quickly began trading at $5. It would be quite a task to determine whether silver began its accent as a result of the stock market bear (a flight to safety) or if it were in response to inflation. We should probably assume it was both. Nevertheless silver did find a new range that the market felt comfortable with. It traded there for 5 years before the first outright manipulation occurred. We know who pulled that one off, the Hunt Boys. From the perspective of a buyer at $40 an ounce, a horrible 10 year bear correction resulted. There were two bounces off of the $5 level in the 80's, but it matters little to me whether those bounces were in response to other manipulative forces within the market or simply "dead cat bounces" off the bottom. The fact is, silver was re-establishing a trading level that would remain in tact for 14 years. Until late 2003, there was only one significant point in which silver traded out of its range; Warren Buffet told the world he had been buying silver. What ever his motives, his stature in the investment world is what caused the temporary spike in prices. Being the "world's greatest investor", it is likely that he did the same thing I did, unloaded a lot of $5 silver while the price was rising towards $7.50.

Chart courtesy of Sharelynx

Then there is GATA, whining for years on end that someone is manipulating the POG and the POS. Their arguments are groundless and fly in the face of "indisputable evidence" (to which they themselves refer) as to the availability of silver, who has been selling it, and when. I refer you to Ted Butler 1997 and his weak and blatant attempt to distort the facts concerning an ongoing deficit in supply vs. demand, governmental sales and or leasing of silver, and the availability of the metal. His reference to the Barron's article (which contains outright lies and misrepresentations) is reprehensible and reflects on his ability or willingness to present his argument in an unbiased and factual manner.

As seen here, The Silver Institute records no deficit in supply vs. demand. Their studies conclude that over the past 10 years, (5 years prior to and including Butler's '97 claim) all demand was met by several means of supply. One of which (governmental sales) lays waste to Butler's claim that Central banks were dumping silver. Butler made his claim in 1997 at a time when Governmental sales had not once (in a 5 year period) exceeded 4% of total supply that fed overall market demand. It was not until a year later (and reported in 1999) that Governmental sales rose sharply. We'll discuss who was and continues to sell and how they impact the market a little later. Butler continued to reference the Barrons article saying there was an imminent danger of silver being completely unavailable within 3-4 years. As I said before, The Silver Institute's data shows no deficit in supply that would allow for such a scenario. Both Butler and Barrons Magazine have been proven wrong, 7 years later I can buy all the silver I want, and so can you. I'll give Butler this leeway; Central Bank leasing could have entered the supply side through Implied Disinvestment. However it cannot be proven, nor should it be implied that if any Central Bank silver did enter the market through legitimate leasing, that the Lessees were selling for any other reason than that of profit and to fill a void that would have had to been filled through an unprofitable and impractical mining operation. In other words, why dig it up at a loss, when we already have so much above ground?

It is a constant complaint of the GATA crowd that we have no silver, it's all gone and we are in deep trouble unless we let the price rise unabated. "$150.00 an ounce sounds about right!" Well one of their favorite references tells a completely different story. Again, The Silver Institute's 2003 summary tells all in 2002, 75% of all silver acquired in mining operations was a secondary recovery while the primary operation of mining copper, zinc, and lead were underway. It is astounding, while mining copper, lead, or zinc the producers dig up 439 million ounces of silver in the process. It leads one to believe that there is a lot of silver in the ground doesn't it? A report from the Nevada Mining Association discusses the closure of mines. It is the ever growing energy costs, insurance bonds, exhaustion of high grade ore, and the low price of silver that cause mines like McCoy/Cove, Bee, Ruby hill, and Denton-Rawhide to shut down prematurely. It is simply not profitable to operate silver mines once the number of ounces per ton of material gathered falls below a given level.

When we look at the Silver Institute's ten year summary, we can see that a huge seller came on line in the late 90's. That was China. In the 2003 report the Institute discusses China and their capabilities. China has been taking up the slack of Implied Disinvestment. However the Institute also makes no suggestion that China will overproduce in the 2003 report. Many GATA boys make the assertion that it is China's hunger for precious metals that will drive the price. This is not true; China sells much more of their metal than they keep. A recent update describes the potential for China to do just what the silver price fears; they are going to open a huge mining operation and might increase their sales this year. Even though the article says China might increase sales, if the market can absorb the new production without much damage to the average mean price of silver, they will sell.

Ok that's enough for now, I think it is pretty evident why the price of silver stays in a range of around $5 an ounce, it is not because Central Banks are controlling the price or because of Commercial hedging.....it is just that silver is very abundant, it is everywhere. Which leads me to wonder, what motivates Butler and others like him to continue in their attacks and claim that there is no silver to be had? Are they as smart as Mr. Buffet? I imagine to a degree they just might be. So what are you doing right now, buying at higher prices or following the golden rule of investing and selling at higher prices?

Remember, successful investing is a matter of knowledge, not luck. So rather than closing with the usual "good luck all".... I'll stick with good day....luck is for rabbits.

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