It's been awhile since we wrote about the silver market. There are some good reasons for it and then there are ones that can and should be dealt with. That is what this article about.

We'll start with the bad news. The bad news is that there are very few people who know much about the silver market on both sides of the argument: bulls and bears. That is our unequivocal conclusion. It's also meant to be a warning. There are some very influential people with good track records and credentials in various aspects of investing and analysis who have spoken out on silver in the last year or two. Some of them were bullish, which of course, we tend to like. Then there were a few bearish ones. Mind you, all these articles and speeches came from people known as experts in investment business. And here we have to reiterate the above statement: very few people know much of anything about silver. Trying hard not to name names and point fingers, but trust me when I tell you, some of these folks have quite a following among both, retail and institutional investors. So, reader, beware. Most freshly minted views on silver are... shall we say, unsubstantiated.

Now the "why's". In our opinion, most silver bulls out there fall into "believers" category. Believers usually believe that silver is a good investment because of all the stories they heard about the old days when silver commanded much more respect than it does today. If you ask them "why?" they eventually give up that if all else fails, silver is still money. Not bad, right? We think so. This by the way applies to both, readers AND writers.

When it comes to silver bears among the "gurus", of which at any given time there is a handful, main reasons cited amount to "it's not money, it's an industrial metal" coupled with an impending recession/depression/economic slowdown, worldwide or otherwise. Less frequently mentioned are: the declining gold/silver ratio ("it's been dropping, therefore it should reverse"), amount of silver hoarded in India and, those geologically inclined, venture that there is plenty of silver in the ground and there will be enough for generations to come. I say that's not too shabby either. Kind of makes sense, doesn't it? Kind of.

Unfortunately, many of these people couldn't name a dozen fundamental facts about silver. We haven't held formal polls but that is our impression from reading/hearing their views.

Nobody seems to know or remember that presently worldwide consumption of silver is 1,000,000,000 ounces per year. True, the 'official' numbers from GFMS and CPM Group are in the 800 million oz area (and growing at 3% annually), but we maintain that there is no way every silver item can be accounted for, especially in areas where folks haven't heard of accounting. So, in a rather cavalier fashion we like to round it up to a cool BILLION. A year. Besides, that is an impressive number, easy to remember for those who don't live and breathe silver.

It also makes the math easier, now that, thanks to Jeff Foxworthy, we all know that we're no smarter than a 5th grader. Here's the math. There are 6.5 Billion of us on this planet, growing at 1.14% per annum. That comes out to about 75 Million more people added in 2006 alone. It's easy to resolve that for every 6.5 humanoids we consume 1 ounce of silver per year or, if you prefer, 2 ounces for every 13 wetbacks.

Here's the rub. In round numbers we need to add 11 million ounces of new production every year just to keep up with population growth at current rates. It may not sound like much, but do you know how many companies in the world produce that much silver per year? Of primary silver producers only two: Pan American Silver (NASDAQ: PAAS) and Coeur d'Alene Mines (NYSE: CDE). The renowned Silver Valley of North Idaho, USA doesn't cough up that much these days.

And the highflying Mexican junior silver producers combined hardly measure up to 11 M ounces a year. That's a fact. So next time you hear some decorated advisor talk about silver, ask him to name a dozen silver producers first. And if you really want to have fun, make that a dozen silver mines. See, we have this strong suspicion that, just because they know how to calculate bond prices based on interest rates or other such gibberish, doesn't make them silver experts, but don't tell anyone.

We wish we could show you the chart of per capita silver consumption growth, but I can't. Yet, we maintain that today we consume more silver per capita than folks did a hundred years ago, despite the fact that silver was used as money back then.

Then there is the recycling factor - also largely lost on would be silver commentator. Common sense suggests that the bulk of silver used a hundred years ago is still available in some shape or form, be it a coin, chandelier or your grandmother's dowry. Same uncommon common sense (see CPM Group's 2006 Silver Book, p. 45) tells us the story has changed since then. Today, roughly half of all silver used is consumed and, for all practical purposes, permanently lost. In that regard we've long compared it to oil: once it's consumed, it's gone.

To make the long story short (we shared our views on the silver market many times on these pages and elsewhere in the media), if you're interested at all in silver, you may want to do some homework, read up on it. That should help you strip opinions from facts next time you read or hear someone's take on silver. There is plenty of credible (not perfect but credible) information on silver, including books, research reports and on the internet.

Now the good news. The good news is that not much has changed in the case for silver in the last year-two. That is not because we haven't kept up with the market, we have. Yes, silver has gone up. Yes, it has much higher to go and likely at an accelerated pace. Yes, we still believe that there will be a 50% correction somewhere ahead in this commodities bull market. But these are general comments for which most readers have no immediate practical use. Lets get to that.

First, the overall precious metals space and silver sector in particular are getting crowded. We know of several silver hedge funds operating today, up from one a year ago. There are numerous other funds that include silver in their asset mix. The Toronto PDAC conference set yet another record by blowing all prior records out of the water. 18,000 people came to discover that next 10-bagger junior that will pay for their retirement. This type of attendance should perhaps rival the unveiling of iPhone by Apple. (May also explain the momentarily lackluster action in the spot price.) CPM Group's annual silver bash at Royal York Hotel was also immensely popular. Merrill Lynch hosted its 2nd Annual Silver Conference on Bay Street. Traffic was relatively light, but after 3 days of PDAC we wouldn't read much into it. But don't let it fly over your head. "Second Annual" - you dig that? Not that it has anything to do with us, but their Retailing Leaders Conference is in its 30th year, if you catch our drift…

That settles it: we're officially in the second institutional phase of this resource bull market. Also known as the "wall of worry" stage. It's when they dig up and throw a zillion reasons why silver price won't go up, so don't worry, buy bullion.

Another way this market is crowded is the number of companies. The number of silver (centric) companies on our list increased by about 50% in the last year.

Let me explain. The early birds, such as Silver Standard and few others took a chance by betting on silver. They had to compete for their survival with gold companies and sell the silver story before they could make a decent pitch. Not anymore. Today, silver companies are no longer an investment nuisance. They are embraced as legitimate investment choices in their own right. This is especially evident from the stock chart of Silver Standard (NASDAQ: SSRI, TSX: SSO). In June, 2006 its shares traded for US$16.00. As of close of business on April 5, 2007 they sell for US$37.35, a stunning 133% gain in 9 months, all the while with silver price doing absolutely nothing. It's not a penny stock and no news released by the company warranted such performance. This is a qualitative change in investor sentiment. It stems from institutional investors finally (five years into this bull market) figuring out that: SILVER IS A GOOD INVESTMENT. Wait to see what happens when Joe-sixpack deduces same, likely a few years away.

Getting back to the crowdedness of the sector, silver companies are springing up like mushrooms after rain. Abundance of investment capital attracts more people and lowers entry requirements into the sector.

That leads us into the next topic: consolidation. What a dreaded word for investors. To them it means a correction and tedious sideways market action wearing their patience thin. To industry professionals it means entirely something else: Mergers and Acquisitions (M & A). We have been anticipating for the last year or so that the time may have come for silver companies. Now we are certain it won't be long. It is already taking place in the uranium, gold and base metal sectors. Silver is next. In our opinion the sector is overdue for consolidation. Pan American is planning to double production in the next few years, while Silver Standard is aiming to become a producer yet the main interest for us is in juniors. Mind you, some of these juniors are maturing rapidly. But few will emerge as consolidators and grow into mid-tier players. Examples of such companies in the gold sector - Yamana, in uranium - Energy Metals. You may agree that it's important to spot companies with such potential when you learn that some of the "consolidators" that survived the last cycle are Newmont and Coeur d'Alene Mines. They will likely make the finish line, whatever that may be, and thus offer substantial upside even from current levels.

Going out on a limb (won't be the first time) we'll venture to extrapolate same onto the silver space. In our unsophisticated opinion, for now the front runner is First Majestic (TSX.V: FR) with Endeavour Silver (AMEX: EXK, TSX: EDR) being the close second. It is a pure speculation on our part, but we don't see anyone else at this point who might have the ambition, resources and wherewithal to take on the consolidator role. Time shall tell.

There are a number of other stories that we would have liked to get into in, but they will have to wait till next time. For now, check out:

- Sterling Mining (OTCBB: SRLM) scheduled to go into production by year end
- Minefinders (AMEX: MFN, TSX: MFL) also to be in production this year
- Excellon (TSX.V: EXN) should soon be done with its silver debenture and truly shine
- Garibaldi Resources (TSX.V: GGI) with some of the best silver (and gold) assets in Mexico, not counting Peter Megaw
- Aura Silver (TSX.V: AUU), bet on the management that brought you Ur-Energy
- Revett Minerals (TSX: RVM), very undervalued Montana story (more on Montana in the future).

If you decide to follow up on these companies, do your own due diligence, we own shares in most of them.

We would also like to pat ourselves on the back as we're among the first to bring you companies like Mag Silver, Esperanza Silver, Minera Andes, Genco Resources, Sabina Silver - all huge winners - and congratulate those who followed us into them.

In case you're wondering, we're still very bullish on silver. The best is yet to come.