The Most Compelling Argument for Owning Silver I've Ever HeardCommodities / Gold and Silver 2011 Feb 26, 2011 - 04:09 PM GMT
Sean Goldsmith writes: The talk of the investment industry is a video making its way around the internet right now…
Eric Sprott is one of the world's best investors… probably the best investor you've never heard of. He specializes in natural resources, and he's a big precious metals bull. He holds 70%-80% of his fund in gold and silver (he says silver is his largest holding). In the video, Sprott makes the most compelling argument to buy silver I've ever heard…
In short, the world is out of silver. Sprott says aggregate investment demand for silver between 2000 and 2009 was 293.8 million ounces (according to the GFMS, the world's foremost precious metals consultancy).
Using his own numbers, Sprott compiled the silver holdings for seven large investors, including himself, iShares Silver Trust, ZKB, GoldMoney, and so on. Just those seven entities own 519.6 million ounces of silver… That's 225.8 million missing ounces. And again… that's only seven investors. It doesn't include central banks, individuals, hedge funds, etc.
It's obvious, as Sprott notes, silver data has been "very, very misstated." Sprott ends his speech saying, "There's $22 billion of silver available in the world, of which the ETFs already own half... and between you guys and us, we probably own the other half... which means there's nothing left."
Sprott's comments remind me of a conversation I had with a friend this week… My friend is one of the largest gold and silver coin dealers in the country. He said he hopes silver retreats, because the coins are going crazy. "People have no idea how small the market is," he said. "I've seen prices jump 10% in the last week."
Sprott's argument only takes the investment demand for silver into account. And while investors do hoard silver, more than 95% of today's demand for silver comes from industry. And when that silver is consumed, it's gone forever. Silver's current production is just enough to meet the industrial demand. In other words, there is virtually zero new silver available for investment purposes.
The U.S. Congress established its monetary system in 1792 and agreed to mint coins using both gold and silver. At the time, you needed 15 ounces of silver to buy one ounce of gold. (In other words, what we call the "silver-to-gold ratio" was 15:1.) But in the early 20th century, world governments stopped backing their currencies with gold. The ratio went haywire, cracking 71:1 during the Great Depression. Today, the silver-to-gold ratio is 43:1.
But for the first time in decades, people are viewing silver as a monetary asset again. And when silver's viewed as money, the ratio contracts. Will we return to the 18th century ratio of 15:1? Probably not. Even if silver doubled while gold went nowhere, the ratio would still only be 22:1.
We've been asking readers to buy gold and silver for a decade. And if you haven't already bought, it's not too late. Yes, precious metals are more popular than they were a few years ago, but we're far from a top. If you bring up your bullion holdings in conversation with a table of friends, you probably won't get the weird looks you would have years ago… But you'll still be alone in your ownership.
Don't speculate on gold and silver prices. Gold is money. Silver is money. Buy them as a form of savings, setting aside a chunk of cash each month just for bullion. Store your bullion somewhere safe (like self storage). And leave it.
Before you realize it, you'll have considerable wealth in precious metals. And as Eric Sprott has outlined, you'll likely see a huge increase in value when the world wakes up and realizes we're out of silver.
P.S. What's the best way to buy silver? You can buy bullion or collectible coins. But this option is expensive for a lot of people (especially with silver prices near 30-year highs). You can also buy silver stocks or an ETF (like iShares Silver).
But considering Eric Sprott's research, I wouldn't trust a silver ETF to deliver the silver it supposedly owns. Retirement Millionaire editor Dr. David Eifrig discovered a different – and much cheaper – way for our readers to purchase physical silver. If you're not yet a subscriber, and want to learn more about this little-known strategy for investing in silver, click here.
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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