Why Hold Silver?

October 19, 2011 at 14:21


Let the numbers do the talking…

1 Year Gold

10 Year Gold

Because over the years, silver price has gone up for the same reasons as gold but also because:

Mining Output
GSR ~ 1:10

Current Price
(April 2011)
GSR ~ 33:1

Historical Price
GSR ~ 16:1

Gold Reserves held by governments
~1 Billion oz

Silver Reserves held by governments
~ zero oz

Over an above all these, silver is being consumed as an indispensable industrial metal with rapidly increasing demand while almost every ounce of gold ever mined in history is still in a vault somewhere.

The numbers just do not add up. Left to supply and demand forces in a free market, silver should be many multiples over its current price, and possible worth even more than gold.

Reason for this heavily suppressed price is because silver has been, and still is a monetary metal, and hence the Political Metal concept comes into play – just like gold, only more extreme. If the price of silver were “allowed” to rise according to market forces, it will pull up the price of gold because they’re both monetary metals. Silver has the largest concentrated short position all “commodities” traded on the Comex.

Shortly after the March 2010 CFTC public hearing on silver position limits and a slew of high profile class action suits filed against JPMorgan and HSBC for their alleged silver price suppression schemes, silver investors have been getting out of paper silver and going physical.  This is accelerating the silver shortage in the physical market and the bankers have been fighting a loosing battle, resulting in a steep price increase from July 2010 as reflected in the charts above.

We’re waiting for them to lose the war, which many expect it to be soon. In the meantime, expect extreme volatility in the silver market. You have to understand the dynamics of the volatility and learn tomanage them.

Eric Sprott, Chairman of Sprott Asset Management, and James Turk, Director of the GoldMoney Foundation, talk about how there isn’t enough silver in the silver market to back existing “paper silver” commitments.