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Silver As An Investment: My .0031 Ounces WorthJ. Kent Willis Although the USGS has no obvious bias or inferred hidden agenda, their assumption is entirely based upon known reserves. All "ore reserve numbers" are ESTIMATES, regardless of how carefully the numbers are massaged. I have no doubt that the USGS believes wholeheartedly in the accuracy of their guesstimates. Most worldwide geologicical/mineralogical researchers trust and use USGS data as a starting point in their study and analysis; therefore the numbers from "disparate sources" tend to reinforce themselves because of their common starting point and professional, reputational inertia. It is logical that you would see correlation in multiple sources. This is no way PROVES the accuracy of the data. It simply demonstrates CONSISTENCY. I am not saying that the data will turn out to be wrong and this is no proof that the silver reserve estimates are inaccurate; it is simply a cautionary note for consideration by a thinking investor or speculator. Other theorists believe that fundamental subterranean heat and pressure dependent epithermal processes that "created" silver are conceivably still ongoing within the top layers of the crust and new silver is being created, however very slowly. Who knows? I don't. Tough to prove either way. "Theories" are endless. Proof is an altogether different
animal. History is replete with "factual statements"
from knowledgeable experts that turn out to be so far off the
mark they were preposterous. When the initial reports that Russia
was full of diamonds began to circulate in the 1950's they were
dismissed by geologists who passionately doubted that the Siberian
permafrost even contained the necessary diamondiferous structures
(diamond "pipes" that "belched" diamonds
up to the surface after formation deep within the earth's crust)
invariably associated with mineable quantities of diamonds. They
later discovered how wrong they were; the Siberian tundra mines
have produced many, many millions of carats of very high quality
diamonds over the years and are still producing today. They may
yet rival the immense distributions of diamonds along the western
and southern coasts of Africa and the Indian subcontinent. Several years ago, as a consequence of Mikhail Gorbachev's Glasnost (openness) policy, camera crews were taken inside the massive storage vaults of what is now known as KomDragMet (Committee for Precious Stones). The host guided the incredulous crew through room after room literally filled with thousands of bags opened for inspection upon request, each containing many hundreds of thousands of carats of rough diamonds. Most of us know the De Beers cartel is the closest thing to a bare knuckle brawling, pure commodity monopoly on the face of the globe. As such it is the principal reason it can not operate empirically within the borders of the United States. For an eye-opening peek behind the scenes, see the study: "De Beers And Beyond: The History Of The International Diamond Cartel" archived at http://pages.stern.nyu.edu/~lcabral/teaching/debeers3.pdf. Human civilization managed
to survive and evolve for many thousands of years before silver
was discovered and used for something other than trade and ornamentation.
Although it is almost "indispensable" now, we could
migrate back to life in the 1800's and survive without it again.
Going "backwards" is certainly more painful than going
forward. We can still destroy bacteria without it. Sodium Hypochlorite
(bleach) is still cheap and is hard to beat. Ultraviolet light
is still king for many bactericide applications. High quality
mirrors can be made from electro-deposited aluminum coated glass.
We can take digital and print hard-copy photographs without it
as there are other (albeit more expensive) photo-sensitive chemical
compounds with behavior like silver nitrates. Copper conducts
heat and electricity extremely efficiently and is less expensive
at the present. Aluminum is also useful as an electrical conductor
with limitations. We can build many electronic devices without
it, but their performance would be inferior in some respects.
For example, most of you know what an electrical relay is. They
are everywhere in your home and automobile. Many older designs
with moving metal parts have been replaced by solid state switching
devices that can economically handle large currents. Common metal
to metal contact relays are typically used to permit a low voltage
or current signal to control (switch on or off) a much greater
voltage or current, or simply route electrical signals, acting
as a gate which is open or closed permitting or prohibiting electrical
energy flow. From another perspective, we all know that the silver supply is, ahem, managed for the benefit of the Silver Managers and ultimately the Silver Users Association. So, like gold, it is "managed" against free market investors and speculators. The silver managers are clearly still in control of the physical market price through the ball and chain of unlimited paper (short) options and futures. For now. It appears that China is no longer dumping vast quantities of it, either because she is running out of it or that she understands her true value and is unwilling to participate in the capping of her price in the future. Anecdotal evidence indicates it is a mix of both. It makes little difference in the short term, but the distinction matters greatly in the long term. Playing devil's advocate, if we were truly going to run out of it in less than 30 years, and it was truly indispensable, you can imagine the outcry from the silver users and price managers about the rising price. They exist to guarantee a steady, cheap supply for the military-industry complex that produces finished products sold at high, whatever-the-market-will-bear prices. Can you imagine the behind the scenes arm-twisting and public propaganda spewed forth that "evil hoarders" are responsible for the shortage and they don't want to surrender what little is left for the "good" of the larger population? Silver hoarders are a vanishingly small minority; as such, it is easy to vilify them in the eyes of the masses and blame them, however unfairly, for any even tangentially associated economic problems. This is the oldest trick in the book used by governments to effectively confiscate private property when it suits their objectives. They won't blowtorch Grandma's forks and spoons, but those nice little rounds and bars with no "sentimental" or "artistic" value will be the first into the crucible. Silver is still listed as a strategic material in every US Government database. It is therefore critical, by simple extension, to national security. This was an inevitable conclusion long before Patriot Act I or II was even conceived. This is likely the trump card if (when) price capping through unlimited short selling proves ineffective. Since silver is so very useful in security, aerospace, defense and industrial applications to the United States, it is therefore, by the same analysis, strategically important to any nation whose interests are inimical to those of the United States. With such a premise firmly established, the US government can effectively argue, at the urging of the silver managers, that it is important to prevent our enemies from acquiring it in order to limit its use in enemy or "terrorist" applications. The US can't control the world "free market" in silver outside her territories, but she can surely at least attempt to control the purchase, sale, distribution, trading and "hoarding" of it by very, very few of her voting citizens. As they might say for all things that threaten the power or privilege of governments: "outlaw silver, and only outlaws will have silver". Of course many of the same arguments can be made for gold confiscation, but the national security issue in a paper based fiat economy is more dubious. Not impossible, just a more ridiculous stretch of logic. Everyone knows that most of the gold ever discovered is still above ground, looking as fresh as the day it was refined, while silver is largely "consumed" through use. However, the main reason that silver speculators trumpet her virtues as a superior investment is a double-edged sword; her absolute criticality and impending "disappearance" almost guarantee adverse government action. Personally, I tend to view silver and gold bullion both as insurance and not an investment. They may turn out to be superior vehicles for growing wealth. If they hold their value in a world awash in worthless fiat paper, that is enough for me. If I die, having never needed to convert precious metal back into fiat paper, I can pass it on to my children for the same "just in case" purpose. They will have it if they need it. Any net capital appreciation that multiplies effective purchasing power when the item is sold and "converted" back into the currency of the realm to purchase either necessities or luxuries of this world is icing on the cake. It is without debate that silver can go from $7 dollars an ounce more easily or quickly than gold can catapult from $450 to $900 dollars per ounce, hence the reason for the investor leverage in terms of percentage price rise. This necessarily implies much greater volatility in silver which will make it more difficult to trade. I consider silver much more risky and therefore more speculative than gold. I do like it. I have traded it also since the late 70's. It scares me much more than gold. My approach is to take profit more regularly with price advances and sell on strength. I don't care if the price rise is fundamental or speculative frenzy driven; an exit point is an exit point, even if the cycle for capital deployment is repeated again and again. I do very much like the prospects for silver because of all the uncertainty about continued cartel success at price suppression, coupled with her unknown but likely rapidly dwindling reserves. All of these things together guarantee a more volatile ride with silver and it will NOT be easy to play with it. So, like gold, just purchase coins or bullion and hold on for the ride. Get out from time to time and take money off the table. Keep the demons of greed fully leashed and heeled. Silver and gold have disappointed investors seeking quick home runs for millennia. They crucified legions in 1979-1981. However, over those same millennia, those seeking insurance and capital preservation have never been disappointed. Regardless of myriad adverse government actions over the course of history, the fact that precious metals are superior to every other item known to man as a store of value is mute testimony to their supremacy. Government action against them is PROOF of their superiority. Governments never try to stamp out or confiscate that which is worthless. Gold was, is, and shall be "King". Silver will be esteemed when all is said and done as "Queen" or "Prince". With all of the manipulation past and present, silver even seems sometimes like "Court Jester". Good heavens, where in the world does that put paper currency? Trust God For Everything. Trust Governments For Nothing. Trust Gold Somewhere In Between. J. Kent Willis |