How to value silver these days?

[pianodoctor]

Just a general question to iTulip members at large:

I was hearing Jim Rogers recently comment that at the present moment he considers silver to be a better buy than gold because silver is 70% off it's all-time highs.

Fair enough. But I think the all-time highs were also in an era where there was a strong industrial demand for silver in the photographic business arena- a demand which must have declined enormously in the digital photography era.

I believe there was also a little something about a couple guys cornering the market for silver at some point.....

Then there is also the mining issue, which I know nothing about, but figure silver is either cheaper to get out of the ground now, or more expensive- and should that be taken into consideration too?

Silver value must reflect some mix of industrial/monetary hedge/jewelry demand, but given the decline of film photography do we still expect demand to raise silver prices to heights we have seen before? Or is silver really different these days than in the last big runup?

[grapejelly]

Re: How to value silver these days?

silver behaves at times like this more and more as a monetary metal. There are normally big runups in silver prices towards the *end* of each gold upleg in a secular gold bull market. You can watch the one we're in now...we are in a big gold upleg that will reach into next year, IMHO. And silver will shoot up in price as that upleg matures...I would expect to see $25 or $30 silver next year possibly.

As for industrial consumption, silver is more and more used in nano form as a anti-microbial and the potential for this is vast.

[Kadriana]

Re: How to value silver these days?

It's used for some medical purposes and in a lot of batteries too. A lot of times once it's used, it's gone for good. Isn't there only suppose to be a 30 year supply left? About 1/3 of my PM's is in silver and the rest is in gold.

[BEC]

Re: How to value silver these days?

Hi. Good question about silver valuation. To some extent the valuation of silver is arbitrary, just as gold is, because it has the intrinsic value of being a traditional/reliable form of money, if nothing else, and that is worth plenty when fiat currencies become mistrusted. Regardless of that, however, silver also has some very unique characteristics which makes it very under-valued in my opinion. Consider this: silver has literally hundreds of industrial uses and is considered the best material for things like heat conduction, electrical conductivity, light reflection, etc. so if/when the economy revives it will be in more demand than ever for all kinds of technical industries.
The second thing to consider is that, unlike gold, silver is actually consumed. At the present price level it is not economical to recycle most silver from the myriad products and devices that it is in. Silver is also a necessary reagent for the manufacture of plastics. This consumption rate exceeds the production rate so there is actually less above-ground silver today than there was even 10 years ago - a lot less (like less than half - I think). There is also unprecedented investor demand for it that is reducing physical stock available for industry. And lastly, there is actually much less silver than gold. On that bases alone silver may become more valuable than gold.
The third thing to consider is that, unlike any other commodity, there are more short positions on the price of silver than there exists physically at the COMEX. I know that doesn't seem possible but according to Ted Butler, et al it is true. The CFTC is in a quandry about how to reduce those short positions to match the physical supply but doing so would create enormous price instability and a permanent price hike. The CFTC has avoided this issue for quite a few years now for various reasons but its resolution may soon be forced. This is because a literal physical shortage of silver is looming, created largely by investors, which will necessarily increase the cost of covering short positions thus forcing its price up. This issue of excessive silver shorting is the most bullish fact of all, according to many educated investors.
So, my friend, ultimately your guess is as good as mine about its "true" value, but it is the single best investment that I know of at this time and set of circumstances.

[Spartacus]

Re: How to value silver these days?

It's used for some medical purposes and in a lot of batteries too. A lot of times once it's used, it's gone for good. Isn't there only suppose to be a 30 year supply left? About 1/3 of my PM's is in silver and the rest is in gold.

The 2 biggest publicly known, immediately available sources in the world are

the SLV ETF, 150 million ounces

the COMEX, around 100 million ounces, of which 60% is not owned by any of the COMEX clearing members


The biggest unknown deposit is all the Silver in India (would need to be purchased and melted and purified to be useable industrially) which might go up to 2 billion ounces

Since something like 550 million ounces are consumed annually, that 30 year figure sounds "iffy"

What I'm saying is, if you're an industrial user in immediate need of Silver the most that you could possibly get quickly is the COMEX's 40 million ounces, and if you believe reports, COMEX will refuse to deliver any more than 5 contracts in any single month. So who's telling you there's e0 years' worth available?


do you have a link for that 30 year number?

[Kadriana]

Re: How to value silver these days?

The 2 biggest publicly known, immediately available sources in the world are

the SLV ETF, 150 million ounces

the COMEX, around 100 million ounces, of which 60% is not owned by any of the COMEX clearing members


The biggest unknown deposit is all the Silver in India (would need to be purchased and melted and purified to be useable industrially) which might go up to 2 billion ounces

Since something like 550 million ounces are consumed annually, that 30 year figure sounds "iffy"

What I'm saying is, if you're an industrial user in immediate need of Silver the most that you could possibly get quickly is the COMEX's 40 million ounces, and if you believe reports, COMEX will refuse to deliver any more than 5 contracts in any single month. So who's telling you there's e0 years' worth available?


do you have a link for that 30 year number?

Well, when I was saying 30 years, I was going on the long side of a graph that was posted here. Technically it says 29. I don't remember who posted it originally. It stuck in my head though.

http://www.newscientist.com/data/ima...5/26051202.jpg

ETA: It looks like the graph is a couple years old. I know it wasn't posted on here that long ago. Notice the 30 years was a question.

[Spartacus]

Re: How to value silver these days?

OK, thanks for the clarification. When you wrote this
" Isn't there only suppose to be a 30 year supply left? "

I assumed you meant above-ground, ready to use Silver. That's why I listed the available stockpiles.

That chart is minerals that supposedly have been found in the ground, but have not yet been mined.

Well, when I was saying 30 years, I was going on the long side of a graph that was posted here. Technically it says 29. I don't remember who posted it originally. It stuck in my head though.

http://www.newscientist.com/data/ima...5/26051202.jpg

ETA: It looks like the graph is a couple years old. I know it wasn't posted on here that long ago. Notice the 30 years was a question.

[BEC]

Re: How to value silver these days?

Here are some more facts about silver, most of which come from articles I've read by Ted Butler:

Over the last 60 years above-ground silver has decreased from 10 Billion ounces to about 1 Billion.

Current annual world mine production of silver is about 660 Million ounces.

Prior to 2006, industry consumed virtually all of the silver produced each year.

Since 2006 silver has also been "consumed" by investors.

Collective investment holdings by the four largest ETFs have grown to 435 Million ounces. About 28 Million ounces were taken in within the last 30 days, which was more than half of what was produced. In fact, the SLV alone is currently owed an additional 40 Million ounces that is yet to be delivered.

During the same period individual investors have also taken possession of silver bullion, but I don't recall the amount.

A short-term (and perhaps longer) physical shortage of silver is looming that will inevitably trigger a price spike because of accelerating investor demand and the large number of short contracts outstanding.

Total possible world supply from India or anywhere else has nothing to do with this immediate situation. It will take years to ramp up additional supply even at higher price levels. Furthermore, about half the silver produced comes from the mining and processing of other industrial metals, and demand for those metals are depressed right now.

[Nivelles]

Re: How to value silver these days?

This may be what BEC meant, in the earlier post, by short positions in silver on the COMEX.

http://news.silverseek.com/SilverSeek/1260816780.php

According to that, JPMorgan is hugely into silver shorting.

[phirang]

Re: How to value silver these days?

I know in the asinine fantasy world of PM permabulls there's always a conspiracy to blame, but that's why they're poor/writing newsletters and not flying their own G5.

Imagine you have $1B in cash one day, and a mining co asks you for a $400m loan with a 10 year term. YOu look at the project: it has a 18% IRR at $900 gold. Hmm... what if gold goes to $700 for a few years... does the miner default?

You know what the miner does, then? He, at the behest of his creditor, HEDGES his production! Why do you think silver wheaton exists? Instead of hedging, you forward-sell, and silver wheaton takes the market and production risk of the silver in exchange for cash. The cost of capital is often very high in mining, and hedging is just a part of risk management.

Record number of gold hedges have been TAKEN OFF, and considering how piss-poor most mining co's are at timing the market(BARRICK cough GAG cough), it's hardly bullish in my mind, but let's see what this week brings to the FX world, eh?

[jtabeb]

Re: How to value silver these days?

Record number of gold hedges have been TAKEN OFF, and considering how piss-poor most mining co's are at timing the market(BARRICK cough GAG cough), it's hardly bullish in my mind,

The "you know, that I know, that you know, that I know.." Argument is kinda weak, don't you think?


Did the thought ever cross your mind that Barrick was hedging for non-economic purposes perhaps?

[doom&gloom]

Re: How to value silver these days?

I always feel like, when Jim says something, I am listening to a very wise and ruch old curmudgeony uncle. If you donīt pay close attention, you are gonna pay somehow else...