A partial analysis of silver over $7.60, will we see $10?

GOLDSAINT

As per our discussion in December on the prices of silver and gold by year-end 2004, so far the Bulls are ahead. Here are a couple of interesting facts about this market that might affect the year-end price outcome. Regardless of all the nonsense that comes from the mouths of the Washington beltway boys, there has been serious inflation in most sectors of our economy over the last several decades. As a commodity game it seems reasonable to me that some of the big world players, as well as certain countries might cause very big moves upward in Gold, but in particular in Silver, during the next few years.
Most of us are familiar with the play the Hunts and the Arabs made to corner and push the price of silver to very high levels in the 70’s. What would be different if that were attempted today? Look at what has changed in the world of paper assets over the last 25 years. With the exception of the last couple of years the worlds investors have gone over the deep end buying up paper assets of all types, and the value of that paper has had so much demand pressure that the prices have gone to the moon. The total net worth of the Hunt’s and there Arab partners in 1980 was estimated to be around 5 Billion dollars, and the prices of Gold and Silver were much higher than today’s levels. Today the rumors of the big buyers, both factual and perhaps false, are Buffet, Soros, Gates, the Arabs, and the Chinese. Forget the Arabs and the Chinese and look at the net worth’s of just Buffet, Soros, and Gates, some where north of 30 billion dollars. Their huge fortunes of paper exceed those of the Hunts and their partners by 6 times, with the prices of Gold and Silver at much lower levels. What about the minor financiers that follow the trends of the BIG boys? How many Billionaires were there on Forbes list in 1980 compared to today?
If our economy stabilizes in its current situation, with a stock market moving back and forth in a trading range from 10,000 to 11,000, if interest rates continue at these historic low levels, if world commodity prices continue to increase in value as China, and others grow to become world economic players, where will the multi billionaires of today go to play their Games of more, more, more?

Stuart

The following is a thought provoking article expressing his opinion that we are currently in the early sytages a "Super Bull Market" in precious metals.

Super Bull by Jim Puplava

I present this for your reading pleasure with the discslosure that Jim is an investment advisor, and he writes with an interesting perspective.

Having presented other such articles in theis forum, I understand that precious metals investestment is a very controversial and polarizing subject that many seem to take personally, kind of like religion & politics -- although to me it's just an interesting topic of discussion and an honest exchange of differing opinions...

I look forward to your comments and a stimulating discussion of this article.

Stuart

Subscribed to this thread... No Text..

cladking

It is remarkable how few real gold bulls there are especially among the experts. This
market may well have legs, but caution is still advisable. One of the strongest bullish
arguments for gold is simply how much out of favor it has fallen as insurance. Twenty
five years ago it was often recommended to keep five or ten percent of ones' assets in
gold. Today this advice is rarely seen and few people seem to practice it.

Barry

Isn't great to have a job where it doesn't matter if you're right or wrong:
1. Investment advisors/economists
2. Meteorologists

others?

ddink

I agree that it is interesting that Bill Gates, for example, has so much more buying power than the Hunt brothers. However, a few things have changed. From what I understand, you can no longer buy silver futures and options and use other silver futures and options as the margin. By doing this, the Hunt brothers had many times more silver than they could afford. I also think most savvy businessmen today realize that the Hunt brothers lost everything on the silver play, and aren't willing to step out and do the same thing again. Also, there is NO WAY to sell 100,000,000 ounce of silver, even if the price has risen, without the price collapsing again. The Hunt brothers were worth 3.5 billion (on paper) at the height of the silver market, but selling more than a million ounces would have caused the price to collapse and there was really no way they could ever divest themselves of all their silver at a decent market price.

Finally, if you invest 5% of your wealth in silver, it's no big deal to you and no big deal to the world. If Bill Gates invests 5% of his wealth in silver, once again, it's no big deal to him but suddenly it's a huge deal to the world. Before saying Warren Buffett or Bill Gates are bullish on silver, look at the tiny percentage of their total net worth that is in silver. They are most likely using it as a hedge, just as everyone else does.

CoinHusker

Correct me if I'm wrong, but i heard somewhere, (don't remember where), that Warren Buffet sold his silver a year or so ago. I know he made a large investment a while ago but then dumped it. Anyone else heard that?

GOLDSAINT

Thanks for all you posts, all of these have good food for thought. I am personally every bullish on all commodities at this point, and see great potentials in all these commodity markets. ddlink had a very good point, how do you get OUT. I suppose you don’t, at least not quickly, but these type investors seem to be long-term players. I suppose the same is true for large pension funds buying hundreds of millions of dollars worth of certain companies shares. As far as the general public is concerned as buyers in these markets, they are as usual always the last to know. One other of the possibilities that may occur to absorb large amounts of silver is that we might see some countries go to a semi-silver standard with their coinage. The Arabs are already moving in that direction with the Gold Denar. They are desperately trying to stop basing their currencies on the U.S. dollar. If a country like China moved to silver coinage to be used in circulation, for example for a $20 one-ounce silver piece this would indeed be an interesting development. How long can the Chinese continue to let their currency float equally against a declining dollar, and a declining U.S. economy?

291fifth

In my opinion "Investment Advisors" are on par with "Corporate Spokesmen" when it comes to credibility. Sellers of sports memorabilia and flea market dealers rate higher than either.

MoneyLA

The silver market no longer needs the Hunts or a Buffett or a Gates to have a bull run. The ract is that world wide demand for silver is up from electronics, consumer demand, investor demand, and other industrial uses. Given the long-time 17 to 1 gold to silver price ratio, silver should now be at around $24 an ounce. For the record, Ive been "bullish" on the metals going back to January 03 and started to write about it then. cheers, alan mendelson

ddink

<< <i>Given the long-time 17 to 1 gold to silver price ratio >>



MoneyLA: It's my understanding that the price of silver and gold was fixed by the government for forty years, and economic conditions in the 19th century and before are simply not analagous enough to today to make 17:1 ratio comparisons. At least that's what I have read, what do you think?

MoneyLA

governments fixed the gold price but not the price of silver, the markets pegged the price of silver. therefore the ratio of silver to gold was valid then and is still valid today. cheers, alan mendelson

GOLDSAINT

Stuart, I just had a chance to read the articule you posted. This is a great articule backed with lots of documentation thanks for the posting. Not only did I enjoy it, but It all made perfect sense to me! I am sure many on the other side of this issue will disagree, but that is why we all enjoy this forum.

Stuart

GoldSaint: I'm glad that you found Jim Puplava's article (referenced earlier in this thread) to be of interest.

GOLDSAINT

Stuart, I do not consider myself a radical Gold Bug. In fact I have a pretty good sense of balance in my investments, but over the last several years things just seem to be wrong with the way our economy works. For example I do not know why our government and our largest companies have decided that America should become a service economy, and let the rest of the world make our products. I don’t understand why there are 20,000,000 Americans that don’t pay any taxes what so ever and still receive refund checks at the end of the year. I don’t understand why anyone can get all the credit they want to buy what ever they desire. I don’t understand why all of our economists are not on T.V. day and night warning people about taking all of their home equity out to pay for their credit card habits. I don’t know why our government tells us we have no inflation when every quarter prices of nearly everything go up, and I don’t know why many people think it is O.K. for our government to be 40 trillion dollars in debt.
Here is an interesting story some of you might enjoy. On a trip last week to Florida I met a man from Michigan. We were both staying at the same condos. When I ask him how long he was there for he told me he owned one of the condos and spent 4 weeks per year there and rented it out the remainder of the time. When I ask how his investment was he said not to good he was losing $400.00 per month, and he was going to sell. He then told me that he wanted to invest in Florida, but he was now looking at mobile home park properties, and he had just missed a good one yesterday that had only been on the market 24 hours. When I ask the details he said it was a great deal, a nice little one bedroom. It was on a small lot and the mobile home was 15 years old but in pretty good condition, and best of all it was only $178,000. I just about fainted.

fishcooker

The top 25 publicly traded gold producers have a market cap of only $48 billion.


Just imagine when good growth stock mutual funds come around and decide to include just 5% of their portfolios in gold mining stocks. Anyone know off-hand how many billions of dollars represent the mutual funds? I bet it's a bit more than 48. Perhaps a 48 with a couple Zero's behind it!

Stuart

GoldSaint: I must admit that I am very skeptical about the health of our U.S. Economy measured in terms of the middle class worker.

I think that it's prudent for all individuals to make their own assessment of their economic health and to prepare their family for some tough economic times with a fully diversified portfolio of investments, which includes some mix of equities, cash and precious metals (as a hedge against inflation & other economic uncertainty).

ddink

MoneyLA: I have a hard time believing that when one commodity has its price set by the government, that its relationship to the value of another commodity can be valid for comparison. That's like saying coffee beans are worth twice as much (historically) as wheat, but the price of coffee beans is fixed by the government and cannot change, while wheat can be driven by supply and demand. Gold and silver are linked, but no so inextricably that silver MUST ALWAYS price itself at a certain level compared to gold.

The 17:1 ratio can't possibly be valid with governments controlling the price of gold, or silver, or both, for the last 2000 years, until the mid-1970s. I would argue your point in reverse: that at a 17:1 ratio, gold was *massively* undervalued compared to silver and that after it was uncapped it sought (and achieved) a desired value ratio.

GoldSaint: It all comes down to faith. We all know that a dollar is worth a dollar because people believe it is. I think that many of the unhealthy economic things (like the average person having a $20k credit card bill) are overshadowed, in the intermediate term, by the fear of what would happen if a total collapse ever did occur. I think people force themselves to accept unhealthy economic conditions as normal, for fear of the total disaster that would happen if everyone lost faith in the system. A total collapse (everyone losing faith in our economy) would make the Great Depression look like a beautiful summer day in the park, so people are willing to put on blinders and accept our economic conditions "as-is."

Stuart: Those are some good articles that you linked. I agree that silver will probably continue to rise, with demand outstripping supply and the economic uncertainty that abounds.

GOLDSAINT

Well Silver is $8.12 today, perhaps $10.00 is not going to be past the summer?

MoneyLA

the bull run continues. Ive updated my website articles with comments on overhead resistance. cheers, alan mendelson