Why Invest in Silver?

I am a poker player and in poker there is a term- “pot odds”. The term is somewhat intuitive and basically means that the amount you will win if you make your hand gives you odds to call (sometimes raise) the current bet. There is also the term “implied pot odds” which refers to the total amount that you assume the pot will be by the end of the hand. While I think silver presents great pot odds, I also think it has tremendous implied pot odds. In other words I think silver is currently a good investment, but if silver does what it could and should, it will be a tremendous investment. Is there a guarantee on either scenario? No, but I cannot think of another investment that has the pot odds of silver.

The big question is when? If it is going to be another 10 years before silver lives up to its potential then obviously nobody would get too excited. But I believe the key to silver taking off in price is simply awareness of the Silver Story.   But, how people become aware of the silver’s status is much more complicated. I have frequently emailed most every politician and media outlet that I can think of stating the following; silver is being manipulated, it is a crime in progress, the government’s own COT report confirms the manipulation and recommend reading Ted Butler. An average investigative reporter (or ambitious intern) could glean enough information in a couple of hours to convince themselves that they could write a very interesting and important article about the silver market.

Currently the silver market setup is extremely bullish. I have explained this in the post Go Long! and other places on this site. The main point is that silver is a small market, both in supply and dollars. Butler does not usually speculate and is usually very conservative and cautious with his commentary.   Any investment is a gamble and all we can do is our best to compare risk to reward. I believe that public awareness of this manipulation is growing and the silver manipulation (to the downside) must come to an end sooner rather than later. This makes silver a great investment. Given the current state of silver I feel there is nothing wrong with trying to logically speculate on the outcome.  Following is what I think is most likely to occur with the silver market.

There are many triggers that could set silver off and up.   Typically, precious metals prices go up with uncertainty as investors look to use gold and silver as a “store of wealth”.   It seems to me that uncertainty is about as high as it has ever been in my lifetime- maybe with the exception of the Cuban missile crises. In my opinion we might not even need a trigger with the MMTs short silver by 369 Mozs. There are plenty of other triggers that could start the silver price on an upward trajectory. I think any of the following events are more possible than “normal” and could be triggers.

  • Widespread public awareness of the silver market manipulation.
  • A major military conflict.
  • A major or series of natural disaster(s).
  • Inflation rates increase significantly
  • Gold to silver (investment) conversion
  • A physical silver shortage
  • A stock market crash
  • An investor or group of investors (the public) buying silver

I’m sure there are many other potential triggers. Let me know what you think might be coming that could be a trigger. Anyway, whatever the trigger(s) is that starts the silver price upward movement I predict that it will happen as follows. The price will rise up toward the top of the range that it has been in for the last couple of years- $18 – $20/oz.   At this point will be the test as to whether the commercials sell into the market and try to continue the manipulation. If they don’t who are going to be the sellers? If the commercials do try to sell into the market, they need to be overrun before the manipulation ends. Once the manipulation ends does that mean that the commercials (or others) won’t try to re-establish it? No, but I think once the dam is broke it is going to be very difficult to re-establish at least until the physical supply gets back in balance. So, once the price goes to $20 or more there is going to be increasing public awareness of silver. Silver has been called the “poor man’s” gold because it is more accessible (pricewise) than gold. Many more people can go to their local coin shop and buy a Silver Eagle than can buy a Gold Eagle. Available physical silver is the key to ending the manipulation. There is only about 10 Mozs.of silver available per month for investment demand compared to the annual supply, after taking out what is used for industry and fabrication. See the Silver Institute annual survey under the Links tab.

The next leg up will be to $30+ as the public gets more excited about silver and buys more physical and EFT silver. As the price goes up and potential supply bottlenecks, the industrial users will become concerned about making sure they have silver so they can make their products. Some of these users may start looking for alternatives to silver, but that won’t happen overnight. Silver producers (miners) will look to mine more silver, but that won’t happen overnight either. Recycling/Scrap will increase but that will also take some time to get into the “pipeline”.   If industrial users try to increase their inventory this could cause a sudden demand of about 50 Mozs. See my post on Physical Supply for some more details on this scenario. The combination of investment demand and potential industrial demand will cause silver to go up to $50/oz. Silver between $30 – $50/oz. will be getting a lot of attention and the public awareness will snowball. Remember when the housing market was booming and you had everybody and their cousins flipping houses?

Once the price hits and goes over $50/oz. it will be “Katy bar the door”. I don’t know where that phrase comes from, but I think the meaning is clear. By this time MSM will be reporting on silver (and gold) and increasing numbers of people will be trying to buy into an already very tight silver market. I think it could take a year or so from the time silver breeches $20/oz. until it gets to $50/oz. It could happen slower or faster, but I think a year is a good guess. The last time silver hit a high ($48.70/oz.) it took about 7.5 months (163 trading days) to go from $20.31/oz. to the high. Once it goes over $50/oz. I think it will go up to $100/oz. fairly fast- maybe just a few weeks or months. Over $50, we are in uncharted territory. There may be investors trying to short silver to cap the price, the USG could be looking at ways to stifle demand- including confiscation, the COMEX may stop trading and/or be in disarray.   Any of those things could cause a lot of price volatility. I think anyone invested in silver will need to be on their toes. I am not forecasting what WILL happen, just what I think could happen and in some instances what is likely to happen. The main point is there could be several different routes on how we get there ($50+) and there will be many different things happening, so we will need to evaluate the situation at that time. I have seen predictions of silver at $100, $200 and even 1:1 to the price of gold. Obviously, I or no one else KNOWS what the price of silver will be and we will only know the high price once it backs off.

I do think that at some point after $50 and more likely after $100/oz. that silver will get into a “bubble” situation, so trying to hang in until the absolute top could get very tricky, but depending on how wild it gets could be very profitable. From now at $16.50 to $100 is a 600% gain. To grab a number that sounds reasonable to me I would say that silver in an un-manipulated market should be around $50/oz. (based on 2018 dollars). I think things will “get bumpy” (be volatile) once silver goes over $50, up to the top and then back down to what will become a stable price range.

The other big plus for silver is the current silver to gold (Ag:Au) ratio compared to historical averages for this ratio. Currently, it is up around 81:1 (takes 81 ozs. of silver to buy 1 oz. of gold).   Historically, that ratio has been more like an average of 55:1. Typically as silver prices rise the Ag:Au ratio goes down. At the two highs of silver on 1/18/1980 ($49.45) and 4/28/2011 ($48.70) the Ag:Au ratio was 17.2 (approx.) and 31.5 respectively. So, even though the gold price is likely to increase, the silver price is likely to increase more by 250% or more. The above ground gold market is estimated to be worth $8.1 trillion at current price of $1350/oz. So, what would happen if/when silver starts going up, 1% of gold money were to convert to silver. That would be $80 billion dollars and at $20/oz. in silver that would buy 4 billion ounces. The only trouble is there are only 1 -2 billion ounces of silver above ground, at least in 1000 oz. bars.  The graphics at Markets gives a very good visualization of the size of different markets.

So, silver is the golden child, so to speak. What could go wrong? As I have said I think the run up of the silver price could be very volatile, but I also think the pot odds are very good. See the section of Risk & Disadvantages to get an idea of some of the risks as I see them. Please comment with ideas of either the advantages or risks of silver investing.