Wednesday, June 22, 2011

Silver Is And Remains The Best Investment Opportunity Of Our Lifetime

How many times did Bumbling Ben Bernanke say "uh" or "um" while answering questions at his press conference today?  Watch it.  I swear that "uh" and "um" were every other word out of his mouth.  The guy is freaking clueless!  Princeton professor?  Is it topo late for his students to get a refund? 

I fell asleep listening to him...[no, really, I did].  The economy is going to get better because Ben Bernanke says it is going too?  Unemployment is going to improve because he says it is going too?  What fool believes this jibber-jabber?  Ben Bernanke has been 100% wrong about everything he has "predicted".  E-V-E-R-Y-T-H-I-N-G!!! 

Bernanke must go
The problem with rewarding incompetence and failure in high places is that even a well-regulated financial system — which we are still very far from achieving — cannot serve the public interest if the chief regulators don’t do their jobs. Secrecy, lack of accountability, and incompetence — these are weapons of mass destruction for America’s economy.

Enough of Bumbling Ben's blah-blah...if you are reading this blog, you are already well aware of this mans incompetence...

Of course Gold and Silver were pressured after the "genius" gave his pep talk to prove that he is "on the job"... and the poor results of all his efforts are "temporary"...

Let's take a look at Silver today.  What are the prospects for Silver moving forward from here?  The following is an assortment of stories and essays I have been collecting since late May:

Silver Should Be $150 Today
By Eric King,
King World News interviewed one of the top ranked money managers in the country, Dr. Stephen Leeb, Founder of Leeb Capital Management.

Stephen Leeb:
...Another critical metal, silver, which the Chinese have been accumulating is vital. Vital for building out anything resembling solar energy. You really cannot produce solar without silver really becomes a critical metal. What are we doing with silver? We raise margin requirements on the commodity exchanges and we think we’ve solved the silver requirement.

...We are stuck in a world of resource scarcity and unless we figure out a way around this we won’t even be able to build out renewable resources...and if we are not careful, sooner or later the Chinese will control most of the silver.”

When asked about the seriousness of the silver situation Leeb stated, “I think it’s desperate, literally. I’m using that word in a well-measured way. I think when you look at Japan right now in the wake of that horrible nuclear accident, Japan is on record as saying that they are going two ways with their energy situation. They are going to try to conserve, and that leaves renewables. Well we know they are very limited in terms of wind, why? Because of the rare earth situation, they can’t get those high temperature rare earths from China.

That leaves solar and in order to really build out solar in any meaningful way you need silver, and silver becomes a very, very critical metal. Yes it is, silver is an extremely special metal as you said Eric...You need it across the board in military applications, in electronic applications and especially in my view of the world, building out renewable energy.”

When asked where silver is headed in terms of price Leeb responded, “I could just look at it from a monetary point of view, forget about all of the industrial applications. The ratio of silver to gold in the world is about ten to one, maybe seven and a half to one, above and below ground if you look at reserves. So as a monetary metal you could make a case that silver should already be no more than a ten to one ratio with gold.”

When asked with the ten one ratio putting silver $150, is that an outrageous price for silver today Leeb responded, “No it isn’t, it’s not at all outrageous. Silver at $150 is in no way outrageous. I’m not counting the critical applications in the industrial and renewable areas.”

Hi-Lo Silver

By: Neeraj Chaudary, Investment Consultant and Hemant Kathuria, Managing Director
In nominal dollars, silver peaked at roughly $50/oz in 1980. But in inflation-adjusted terms, silver would have to reach $131/oz just to get back to its 1980 high. And that only counts inflation to the present day. With The Fed seemingly determined to debase the US dollar for the foreseeable future, the ultimate destination for a new inflation adjusted high becomes hard to estimate.

Of course, no market moves in a straight line. Recent gyrations should remind us that silver can be a wild ride, with movements often exacerbated by possible market manipulation. But in our view, the moves in the silver market over the last two months do not invalidate our long-term outlook. For those who can stomach the thrills, silver remains a means to simultaneously gain protection from dollar devaluation while harnessing the benefits of global economic growth. The big boys may push and pull the market to their own temporary advantage, but they can't alter its fundamental direction.

Silver to move towards $50, reach nominal all time highs
Commodity Online
Because silver has been so undervalued for so long with a gold/silver ratio averaging north of 50 for the past century, most silver produced in recent decades has been consumed by industrial purposes and there are actually much larger inventories of gold available above ground today. Most likely we will probably see the gold/silver ratio overcorrect to the downside, possibly down to 10 or lower. Only 10 times more silver has been produced in world history than gold so a gold/silver ratio of 10 is actually a very realistic possibility. This means those who own silver will likely more than quadruple their purchasing power from current levels this decade, while Americans with savings in U.S. dollars lose all of their purchasing power.

COMEX registered physical silver inventories have declined 30% over the past six weeks down to 28.8 million ounces or just $1 billion worth of silver. A major shortage of physical silver is developing. A COMEX default is likely coming in the near-future as those holding futures contracts demand physical delivery and COMEX can't deliver. This could cause an explosion in silver prices, possibly to $100 per ounce overnight.

Silver Shift Shows Defensive Bent
By Alix Steel
NEW YORK (TheStreet) -- A significant decline in levels of registered silver suggests major investors are taking a defensive stance when it comes to the metal.

There are two kind of inventories on the Comex -- registered and eligible. Registered is available silver not yet spoken for. Eligible is silver that investors have purchased, but is stored by the CME for them, otherwise known as taking phsyical delivery.

Since the beginning of 2011, the amount of registered silver has fallen almost 38% with a steep drop coming in mid April. Registered silver now stands at 28.7 million ounces as of June 8th while eligible silver has risen 23% to 72 million ounces.

Part of the explanation for this shift was that Scotia Mocatta, one of the banks that holds the Comex' silver, reclassified a large portion of their silver from registered to eligible, which means more silver was being taken off the shelf and being claimed by investors.

This shift occurred when the silver price was at $43.26 and continued as silver rallied to nearly $50 an ounce, which means investors might have been scared of supply crunch and grabbed the metal while they could, leaving less silver in the marketplace for everyone else.

"More and more people are taking delivery of the product," says Phil Streible, senior market strategist at Lind-Waldock. The silver futures market is also in backwardation, meaning that the most current month trades higher than future months. Backwardation often indicates that investors are worried about an immediate supply crunch.

Mark O'Byrne, executive director of Goldcore, a bullion dealer, says the small amount of registered silver is dangerous because if a "tiny fraction of those in the futures decide to take delivery, there is the potential to default." If the Comex can't make good on their commitments, O'Byrne predicts there would be a huge rush into the physical metal or allocated storage and out of paper silver. He also wonders if the steep and aggressive margin hikes silver saw in May, which led to a more than 30% correction in the silver price, were a way of the Comex shaking out investors to prevent them from taking physical delivery.

650 Years of Silver Prices
This is a 650 year graph of silver prices and silver/gold ratio.
[Silver is cheaper today than you can even imagine!]

Silver Preparing For Another Shock And Awe Move
By Eric De Groot
Money flows reflect a bullish setup despite the negative headlines and growing pessimism towards silver.

Open interest continues to decline as the weak hands are flushed. This action is consistent with paper operations in which the weak hands are flushed in an environment of headline fear.

Accumulation by strong hands has achieved statistical concentration. Statistical concentration tends to precede tradable bottoms.

The only hitch in the setup at this point is retail money. Retail money with its tendency to be concentrated on the wrong side of the trade near inflection points remains relatively neutral as of June 7th. Short side concentration by retail money would galvanize the bullish setup. Watch for it in the coming weeks.

Silver’s next move has the potential to be “shock and awe”. Smart money is buying long contracts hand over fist. This type of concentrated buying has not been seen since late 2008. The concentrated buying of 2008 foreshadowed nearly a doubling and quadrupling in price by early 2009 and 2011. In other words, the money flow setup foreshadowed a ‘shock and awe’ run that few experts saw coming.

Silver Will Trade Like an Internet Stock to the Upside
Eric King,
King World News interviewed one of the most street-smart pros in the resource sector, Rick Rule Founder of Global Resource Investor.

Rick Rule:
“The interesting thing about silver is that it doesn’t respond to fundamentals very well in the sense that most silver that’s produced, is produced as an adjunct to mining other metals. What you are seeing is a slight increase in pure silver supplies as a consequence of the high price bringing production in place at the same time that you are seeing capital constraints in the base metals industry constraining the byproduct supply of silver.

Investment demand for silver has been extraordinarily robust. Both James Turk and Sprott Money have indicated that on a dollar for dollar basis, demand for silver bullion is outpacing demand for gold bullion...It suggests that the silver demand relative to gold demand is extraordinary. And ironically as a consequence of fabrication, silver supplies are lower than gold supplies with demand much, much higher. That would seem to be supportive of a higher silver price to me.”

The Case For Silver
By Prieur du Plessis
To me the most important factor to watch in the silver market to get a lead where the silver price is heading is the open interest in derivatives in silver on Comex. The commitment of traders is given on Tuesdays. In the graph below I plotted the open interest (futures and options combined) with the closing price of silver the week prior to the announcement of the open interest. Amazing stuff! The week before the silver price plummeted in the closing week of April, the open interest fell by 24 000 contracts equal to 120 million ounces of silver! Somebody made big bucks at the expense of others.

What the relationship suggests is that when the open interest is trending upwards you should be buying silver and conversely, when it trends down you should cut your longs and if you are brave enough you can even short the market with some confidence. The current situation is a clear bottoming of the open interest and that, together with increased interest in physical silver interest is indicating to me that the current bounce in the price of silver is likely to be extended.

The 2011 Silver Quiz
by Jeff Clark, BIG GOLD
If you’re a silver investor, or are concerned about the recent selloff, you may find the following data very compelling. It provides an inside track on the market and will certainly make us all more knowledgeable investors.

4) Silver represented what percent of global financial assets at the end of 2010?


D. In spite of last year’s record-high prices, silver is, by any account, a miniscule portion of the world’s wealth.

The ratio’s high occurred in 1980, reaching 0.34% of financial assets. Silver as a percentage of global assets would have to grow over 48 times to match the record. It is true that many more paper assets exist today than 30 years ago, but the renaissance in silver will continue to increase its portion of worldwide assets.

At the close of business on the CRIMEX today:

The registered CRIMEX Silver inventory rests tonight at 27.72 million all time low.  Silver Open Interest in the front silver delivery month of July is 33,656.  These contracts, at 5000 ounces each, is the equivalent of 168.28 MILLION ounces of Silver.  First Notice Day of intent to take delivery of a July Silver contract is one week from today.  Ray Charles is phoning in the supply versus demand shortfall to the CFTC as I type this.

No matter the diarrhea that drips from the lips of our bumbling Fed Chairman, Silver is and remains the best investment opportunity of our lifetime.  Accumulate! Accumulate! Accumulate!


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