Why You Should Acquire Silver
Silver can be difficult for storage and delivery, but it is more
affordable and arguably has more upside potential. In recent
years it has become apparent that the world’s silver inventory has been
steadily shrinking. In fact, it has been estimated that 90% of
all the silver ever mined in the past 5,000 years has been used up by
heavy industrial demand – everything from automobiles and satellites to
telecommunications and high-tech weaponry. In 1942, the U.S.
government had almost 6 billion ounces of silver in reserve. By
1980, the world’s stockpile fell to 2.5 billion ounces.
In late
2000, the U.S. Defense National Stockpile Center committed its
remaining 10 million ounces to the U.S. Mint for its Silver Eagle
coinage program. Each year we consume 800 million ounces of
silver, but silver mines only produce 600 million ounces. How is
this shortfall met? Some silver is recycled, but more importantly
warehouse inventories are being drawn down - and this is bullish for
silver. It is now estimated that COMEX, the world’s largest
commodity exchange in New York, has less than 90 million ounces on
hand (compared to 120 million ounces in 1995), and there is actually less than 500 million ounces available
worldwide.
Add
to these statistics, is the fact that the silver market has been
manipulated in a similar manner as the gold market. Central banks
have leased their silver stocks through bullion banks to mining
companies and hedge funds to help raise funds for mining operations and
speculation. These lease arrangements help put downward pressure
on silver prices and create a huge short position among the miners,
which must cover these loans with physical silver. It is now
estimated that two full years of mining production would be required to
pay back these loans! In his book Silver Profits in the New Century, Theodore Butler states the obvious:
Frankly, I can’t
see anything that can prevent a price explosion….We have a verified
long-term physical deficit. We have the largest short position
ever seen in history. We have supply, at the margin, coming from
an unsustainable source – silver leasing. And we have the lowest
prices in history….Silver can’t be held down much longer, and when the
true market exerts itself it will snap back like a coiled spring.
Historically, the ratio between gold and silver has been around 15 to
1, which indicates how many ounces of silver it would take to buy an
ounce of gold. The current gold/silver ratio has been
around 60 to 1, and this suggests that silver is extremely
undervalued. In the 1970s, silver went from $1.50 an ounce to
over $50 an ounce in 1980 – a 3,300% increase! When investors
start rushing into precious metals the silver market will outperform
the gold market because there is less available at the margin.
“If gold could be compared to a Boeing 747, then silver is an F-16,”
writes James Turk in his book The Coming Collapse of the Dollar.
“An F-16 takes off on a dime and is pointing toward the stratosphere in
moments, while a 747 takes (relatively speaking) ages to gain
altitude.” It is for this reason that we suggest more
silver than gold in a portfolio, and there a few different ways you can
invest in physical silver.
In 1965, the U.S. Treasury withdrew 90% pure silver dimes, quarters,
and half dollars from circulation. You can purchase these coins
in certified “junk bags” having a $1,000 face value and containing
approximately 720 ounces. So-called junk silver represents the
least expensive way to buy silver, it is highly liquid, and a
convenient barter type coin. One-ounce silver bullion coins are
also a popular way to acquire physical silver. They usually come
in rolls of 20 and you can choose from American Silver Eagles, Silver
Maple Leafs, or generic silver rounds. The American Silver Eagles
are packaged in a plastic U.S. Mint box and contain 500 ounces of pure
(.999) silver, or 25 rolls. IDP Consulting Group can also arrange
for shipment of less expensive pure silver rounds in U.S. Mint
Boxes as seen below.
For sophisticated investors seeking a “pure silver play” with low
premiums, silver bars are recommended. These are available in 100
and 1,000-ounce bars with approved and recognized hallmarks, and can be
stored in a segregated account with a fully bonded depository for a
nominal annual fee. The account holder has complete control of
their holdings without the inconvenience of shipping and storage of
large quantities of silver. Silver bars are also approved for
Individual Retirement Accounts (IRAs), and provide an excellent way to
convert qualified plans and pension funds into a safe haven and
tax-deferred gains. Traditional pension funds and qualified plans
invested in stocks and bonds have considerable exposure to a declining
U.S. dollar and currency devaluation. Most employer pension and
profit sharing plans, 401(k), 403(b), 457(b), SEP 408(k), SIMPLE IRA 408(p), Keogh, Roth, and
regular IRAs can be converted to a Precious Metals IRA.
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