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PHYSICAL
vs. PAPER SILVER If something can't continue forever it probably won't. -- Herb Stein, Nixon's chief economist
Why can't paper short sellers continue to dictate prices? The reason could not be more clear: they can't create silver out of thin air. Although unbacked paper money can be created to infinity, no man can create the real metal itself. Only a finite amount of silver and gold exists. That alone proves that eventually the short sellers will lose control. Don't ever forget that delivering physical metal is not the same as "claiming" to back financial instruments by metal, gold or silver. That's why I continue to urge people to buy the physical metal. This and only this will hasten the day of reckoning. Industry helps the demand side, but investment demand is far too small presently. "Paper" instruments that derive their "value" from the metals have reached a point where a crisis is almost guaranteed. One foundational premise guides me: the silver price will not rise significantly until the physical supply shrinks so much that it increases the spread (price difference) between physical silver and paper silver (spot month) so absurdly wide that the silver shortage can no longer be hidden from the market. Putting my neck on the line, I have predicted that this will begin in Summer, 2003. Obviously, no one truly knows the exact time. My work going back over twelve years predicted that the physical supply will be very close to zero by mid-2003. In their Silver Survey 2002, CPM Group estimated above ground silver at about 403.7 million ounces. Consuming an average 10 million ounces per month, this would last about 40 more months -- just over three years. But if we look at the COMEX as the stocks of last resort and recall the existing rule that allows only 7.5 million ounces per month to be withdrawn from those stocks, we have to discount that 108 million ounces. Most of that silver will still be sitting on the COMEX when the silver crisis hits. Also, Berkshire Hathaway's 130 million ounces may be partially leased out, but leased or not, claims exist on that much physical silver. So, between what sits on the COMEX and what Buffett holds, two years' worth (238M oz.) of silver locked up! Remember, too, that 403.7 million ounces is the amount estimated at the end of 2001. In that very same report 2002 usage was projected at 120 million ounces. Where does that leave stocks at the end of 2002? Well, 403.7 less 120 million ounces used in 2002 would leave only 283.7 million ounces to begin 2003. Against that estimated above ground supply of 283.7 million ounces visible claims equal 238 million, leaving a mere 45 million ounces free. This should put enough pressure on the silver market to get prices moving upward in a significant way! My forecast remains, summer 2003 should begin the move in silver and gold prices! Still, it is important to recognize that everything is already in place for this move to begin even earlier. For that reason it is important to keep your core position in the metals at all times going forward. September
11, 2002
For new subscribers Mr. Morgan will include his new special report, "Warren Buffett and Silver." This report examines Buffett's first cornering of the silver market and what happened. It also looks at his present silver position to determine whether he has leased any of that silver. Be sure to mention "Offer 321WB" to receive the Special Report. Toll Free number 877-610-9962 or email silverguru22@hotmail.com. Make checks payable to: Stone Investment Group, 21307 Buckeye Lake Lane, Colbert, WA 99005. Mr. Morgan has been a private economist for over two decades, his background is in engineering , with an advanced degree in Economics/Finance. He has been interviewed on Don McAlvany's radio talk show, Financial Sense Newshour, Hard Money Watch, and appeared on television. 321gold Inc
Miami USA |
August has been painful for the precious
metals market. Silver was hit harder than gold and has recovered
more slowly. Can a silver bull explain this? Sure - the silver
market is smaller, less liquid, and presently enjoys very low
investment demand. Herb Stein's wisdom above reminds us that
the pain will not continue forever. More importantly, the futures
market will not continue to dictate silver and gold prices forever,
either.