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Beginner's Guide To Silver Investing
Beginner's Guide To Silver Investing
So, why invest in silver and not gold? Good Question. Nothing is really wrong with gold or other precious metals at all.
 
Because it is more expensive, gold is a very compact "store" of wealth. I mean, you could have the entire value of your house, simply stored at the bottom of your sock drawer, or better yet, a small floor safe.
Silver retains its value as a store of wealth too, and is still pretty compact, so you don't have to have a warehouse to store it in.
 
Silver has been called the "poor man's gold" for centuries. This was primarily because it was easier to purchase in smaller quantities, yet still provided a solid, stable currency base. The common phrase "to make change" probably originates from the fact that silver was used to "make change" for gold - in other words, you changed one metal for the same value of another metal.
 
Silver, in fact, was the standard used for most currencies up until about 150-200 years ago…That's a really long time when you consider that goes back all the way to Ancient Greece! Silver has been the "store of wealth" for massive empires and was the money of choice for merchants around the world.
 
Getting Started As A Silver Investor
 
Generally, silver is easier to get started with as an investment. This stems from the lower cost of entry (you can get started with literally just a few dollars).
 
Moreover, silver has been somewhat overlooked as a modern investment and store of wealth for quite a long time. People tend to focus on gold or other precious metals. Meanwhile, silver stays steady and true. Sure, the price of silver moves with the markets, along with gold and other precious metals, but because it is less expensive, the smaller movements can amount to strong percentage gains.
 
Many people don't know how well silver has done as an investment over the past few years. Since 2001, silver has seen an increase in value of around 400%! Of course, gold has increased as well, but not as much as silver has. Because of this historical trend, many people feel that silver is the best possible precious metal to invest in.
 
Because silver is less expensive, you as an investor can see faster and more dramatic increases. If heavy investment hitters like Warren Buffet buy silver to hedge against inflation, then why wouldn't you follow suit. You don't have to invest millions and you can get the same benefits from buying smaller quantities of silver bullion or silver coins.
 
It takes more money up front to get started with gold. And for you to make some impressive gains on your investment, gold would have to go up to a few thousand dollars an ounce. While this makes gold nice to get later, it makes it unattractive for a starter investment.
 
So for beginners, it's best to set gold on the back burner for a while. Instead focus on silver bullion to store your wealth and protect your assets against the rising tide of inflation.
Ten Reasons To Buy Silver Now ~ Ted Butler
Ten Reasons To Buy Silver Now
Theodore Butler
April 20, 2009
 
Amid all the recent attention I've placed on the continued manipulation in silver, some may mistakenly assume that diminishes the case for silver. Nothing could be further from the truth. I'm convinced that silver is a better buy than ever before. Here are detailed reasons why I believe that is the case.
 
One, the near-term emotional temperature of the market is low. There is no bullish "fever" where uninformed investors are driven to buy silver because of a sharply rising price. That will happen, but it's not true now. While silver is still above the price lows of last fall and higher than year-end prices, the recent price action is nothing to write home about. The price has been below most of the important moving averages, causing silver to be "oversold." This is a much better time to buy than when prices have already climbed and many are buying just because prices are rising. At those times the risk of a sharp sell-off is high. Now the risk of a prolonged price decline is much lower. Now is the time to buy low.
 
Two, leveraged speculators who normally buy COMEX futures contracts and Over The Counter (OTC) derivatives do not hold a historically significant number of long contracts. The big dealers have been so successful at forcing long speculators out of the market, that the speculative long position is at important low levels. This means that long speculators have already been forced to sell and no big selling from them appears probable. On any rise in price, they are likely to buy, adding a force to rising prices. Buy before they turn into buyers.
 
Three, available wholesale silver inventories appear to be tight. These physical silver inventories are falling into stronger hands. For decades the world's largest stockpiles of silver were the COMEX warehouse inventories. These COMEX inventories were considered mostly commercial in nature with some portion being held for investment purposes. The COMEX inventories peaked at around 280 million ounces in the early 1990's, and accounted for 90% of all visible silver inventories. After the introduction of silver Exchange Traded Funds (ETFs), there was a profound shift in the location and structure of world visible silver inventories.
 
Now, the combined inventories in the ETFs and other investment vehicles tower over the holdings in the COMEX by almost 4 to 1. (Over 400 million ounces in the ETFs compared to 120 million oz in COMEX inventories). Given the long-term nature of ETF investment holdings, this massive and historic shift in inventory composition means much less silver is now available to the market. This will exert a strong upward influence on price.
 
Four, all signs indicate that physical investment demand for silver on both a retail and wholesale basis is strong and could surge further. Until a few years ago, there was no net silver investment buying for decades. That pattern has changed with a vengeance. Clearly, the introduction of the ETFs have played a major role in this investment transformation.
 
The strong buying that we have seen does not appear to be "hot" money, but sober and determined accumulation. It wasn't surging prices prompting buyers over the last six months. It's due to a growing awareness and conviction about silver's real supply and demand fundamentals. Importantly, there has been practically no buying of silver on a leveraged or margin basis. It's mostly been cash on the barrel. These strong silver buyers will wait for significantly higher prices before selling. With higher prices inevitable at some point, the hot-money crowd should come in and blow the doors off the price.
 
Five, silver production is tightening, given the byproduct-nature of silver mining. As I have written recently, base metals production like copper, lead and zinc appears to have fallen significantly, also reducing the production of silver as a byproduct.
 
Six, world economic and financial conditions appear lined up to favor higher silver prices, no matter what occurs. If financial conditions remain unsettled, flight to quality buying in silver appears likely. If the world does return to better economic growth patterns, silver will benefit as a result of increased industrial consumption. Heads silver benefits, tails it also benefits.
 
Seven, more investors than ever have come to realize that the silver market has been manipulated and the government regulators and exchange officials are unable to persuasively address the growing evidence of a silver manipulation. The manipulation debate has become widespread in metal circles. It isn't going away. The best the regulators have been able to do is to stall and pretend to be investigating. Fewer people are being fooled by such actions. A scam like the silver manipulation can't continue when so many know about it. This scam will end suddenly and sharply in a price jump to the upside.
 
Eight, industrial demand for silver will continue to grow in the years ahead. New uses for silver appear regularly. A robust worldwide economy will initiate a new phase of silver demand. Higher prices will not diminish this demand because small amounts of silver are used in each industrial application.
Reasons nine and ten, silver prices are cheap on several important objective measurements. Silver is cheap compared to its own recent price. It is down more than 40% from its highs of one year ago, in spite of the strongest physical demand in history. More investment silver has been purchased over the past year than at any other period in history. At precisely the same time that prices have declined so sharply, more ETF-type buying has occurred than ever before and more Silver Eagles have been sold by the US Mint than ever before. We have witnessed the highest premiums on all retail forms of silver in history. This isn't just me saying silver is cheap, this is the investment world voting with its collective wallet. Clearly, there is something wrong with this picture that can only be explained by manipulation on the COMEX and the OTC market by a few giant financial institutions, led by JPMorgan.
 
Silver is cheap on a cost of production basis. Never have the net operating results of so many different silver miners been so poor. The common denominator is too low a price for their main product. Silver is up three-fold from the lows of a few years ago, yet the silver mining industry still suffers. That's because the cost of production has risen faster than the price of silver. That must be rectified.
 
Silver is dirt cheap relative to gold. While there is less above ground silver than gold, silver's price has rarely been this low compared to gold.
 
The manipulation that explains why silver is so cheap cannot exist in a bona fide physical shortage. If the price stays low, growing numbers of investors buy real silver. That makes it harder for the manipulators to keep the price contained with paper derivatives. Some fret the scam can be continued indefinitely. If it were just a question of printing more money or more paper derivatives, perhaps that might be true. But it's not about an unlimited supply of paper silver, it's about a limited supply that guarantees the manipulation will end soon. The termination of controls on the price of silver will be something we look back upon and marvel over how long it existed. Just make sure you are looking back while holding as much real silver as you can.
Gold Prices Must Go Up! A lot! Why? ~ Jason Hommel
Gold Prices Must Go Up! A lot! Why?
By Jason Hommel http://www.silverstockreport.com
 
Paper money is fraud, and paper money growth has been tremendous. In the Spring of 2006, the Fed stopped publishing numbers for M3 (M3 is the best measure of money in the banks) when M3 was about $10.3 trillion.
 
The dollar, which is said to be a "unit of account", no longer has any accounting!
 
But a private company is keeping track of M3, and M3 is soaring past $14 trillion, over a 20% increase per year.
 
True inflation, which is the rate of money creation, is over 25% per year!
 
The Federal Reserve is accountable to you, but only if you do something about it, such as buy silver and gold!
 
Central banks are running short on gold, and are starting to buy gold again. Currently, the U.S. "officially" has 261 million ounces of gold. (If they have the gold!)
 
If U.S. money - $14 trillion in M3 - were backed by "U.S. gold", there would be over $53,639 dollars for every one ounce of gold!
 
The total value of all the paper money and bonds in the world is about $100 trillion, and all the gold ever mined in all of human history is just under about 5 billion ounces. So, world money, divided by world gold, gives a figure of $20,000 per ounce!
 
World central banks are running out of gold, and some are starting to buy gold, such as Russia, China, South Africa, South Korea, and more! The central banks claim to have about 30,000 tonnes of gold, but they may have less than half of that, as most has been lent or leased into the market over the past ten years.
In sum, at $1000/oz., there is about $5 trillion dollars worth of gold in the world, but there is: $500 trillion in derivatives, $100 trillion worth of bonds and $40 trillion worth of paper money! Therefore, bonds and paper money must go down, and gold must go up!

Why does gold matter? Especially if we are no longer on a gold standard?
 
Even though the U.S. dollar is no longer backed by gold, any holder of dollars could wise up at any time and start buying silver or gold. China, for example, could spend their $1.9 trillion U.S. dollars in bonds and buy gold anywhere in the world, such as Switzerland, Dubai, Tokyo. They could even send agents to buy gold at any of the 4,000 or more coin shops in the U.S. The dollar could drop 50% or more overnight, and there's not a single thing the U.S. government, you or I could do about it.
 
Annual gold supply from mining is about 2500 tonnes, or 80 million ounces. With 32,151 troy ounces per metric tonne, that's 80,377,500 ounces of gold. I estimate that if China bought that much gold, the price of gold would jump up to about $2,000/oz. At $2000/oz., that would cost about $160 billion, which is just under 10% of China's U.S. dollar bond holdings. A prudent diversification into Gold on China's part could cause the dollar to lose 50% of its value overnight.
 
When France redeemed U.S. dollars for gold in 1971, it ended the gold standard. This was not the fault of France, it was the fault of the U.S. for printing too much paper money, and the U.S. general public and politicians have not yet learned our lesson.

Gold is money, because of its fundamental nature
 
Gold is the perfect commodity for exchange for the following reasons:
 
Gold is liquid and easily traded, with a narrow spread between the prices to buy and sell (about 3-5%).

Gold is easily transportable, because it has a high value for its weight.

Gold is money because it is divisible, you can divide it into coins, or re-melt it into bars, without destroying it.
Also, gold is interchangeable. It can be substituted for another piece of gold with no hassle.

Gold is also nearly impossible to counterfeit, as genuine gold is easily recognizable.

When measured by weight, gold is easily countable, and verifiable.

Gold is money because it is a great store of value. It is not subject to decay, rot, or rust.

Gold has an intrinsic value, because it is rare, highly desired by the world over, and is a luxury item.
 
There is not a single other commodity with those attributes, except, perhaps, for silver. Since gold is too valuable to be used for small transactions, there is potentially more monetary demand for silver. When gold becomes money again, silver will be desperately needed to make change.
 
About 10 years ago, M3 was about $4 trillion, and silver was at $5/oz. By the spring of 2009, M3 is exceeding $14 trillion, and silver is at $13/oz. Relative to the recent increase in money supply, silver is cheaper now than it was at $5/oz.!
 
Here's why silver is a better investment than gold:
 
Silver has all the same monetary properties of gold, and more!

The historic price ratio of silver to gold shows that about 10 ounces of silver would buy one ounce of gold, a 10:1 ratio. Recently, the ratio is about a 70:1 ratio (with silver at $13/oz., and gold at $1000/oz.) As the silver to gold ratio returns to historic values, from 70:1 to 10:1, you may make over 7 times more money investing in silver, than gold!
 
Silver prices may rise to exceed the 10:1 ratio, for the following reasons:
 
More than all of the silver produced by the mines each year is consumed by industry, which leaves little to no room for substantial investment demand. Investment demand for silver is a tiny $1 billion per year. A small increase in investment demand will drive prices sky high.
 
Most silver is produced as a by-product of mining gold, copper, zinc, or lead. Higher silver prices might not substantially increase the amount of silver mined each year. Consider, in 1980, when silver prices went up to $50/oz., less silver was mined than in 1979!
 
Higher silver prices may not cause much reduced demand. Why? Because most silver consumed by industry is used in tiny quantities in each application, such as in film or electrical contacts, therefore, rising silver prices will not easily slow down growing industrial demand.
 
Additionally, as paper money continues to falter, people will buy silver and gold without regard to price, or they will buy simply because prices are going up! Because many investors today are momentum investors, and won't be able to ignore the gains!
 
Each year, silver mines produce about 650 million ounces of silver. 200 million ounces come from recycling and about 100 million ounces come from investor or government sales. That's a total of about 1000 million ounces. Of that total:
 
about 42% is consumed by industrial use

about 28% consumed by jewelry

about 20% consumed by photography

about 5% consumed in coins and medallions

That's 95% of total available silver each year! This implies either a "surplus", or "investment demand", of about 5% total. At $20/oz., that's only $1 billion per year of net investment demand.
 
Since the 1950's, silver use and consumption, has made silver more rare than gold, in above ground, refined and deliverable forms. Estimates suggest there are 200-300 million ounces of refined, above ground silver available to the market at the present time. There are about 125 million ounces of silver at the NYMEX, the big commodity exchange in New York. The ETF SLV has about 180 million ounces.
 
Each silver contract at the NYMEX is a promise. There are too many contracts, too many promises to deliver silver that may not exist. Each contract is for 5000 ounces. There are often over 200,000 contracts for 5000 ounces, that's a total of 1000 million ounces of silver promised to be delivered. With recent market trends of defaults and bankruptcies, these contracts are at risk of default. Yet the exchange has only about a third of that in real silver. How can they promise to deliver more silver than exists? If they fail to deliver silver, then confidence in the world's entire financial system may collapse. Industrial users of silver may have to shut down their factories. To prevent this, users will bid silver prices much higher.
 
Due to the risk of default in silver futures contracts, I suggest that you avoid buying futures contracts, avoid options, and avoid storing your silver with anyone else! Take delivery of your silver, and put your silver in your own safe!
 
Despite silver's intrinsic properties as money, silver began to lose its status as money starting in the late 1800's, as nations stopped using silver, and started using only gold as money. Over 100 years of this "demonetization" has caused a serious drop in silver's value, and this trend is about to be reversed as investors re-learn that silver is a great store of value because of its intrinsic properties.
 
As paper money continues to waver, the neglect of silver's use as money will end. Once again, silver will be valued based on other measures of value, such as a day's wage, or a ratio to gold. If silver exceeds its historic value - as I expect it will - due to the scarcity - from its importance in electronics and photography - then perhaps a silver dime, a silver quarter, or a silver dollar will be worth far more than a day's wage, as it once was.
 
How high will silver prices go? You do the math on what a day's wage should be, and you tell me!
Will you be hurt if silver and gold prices rise? Not if you own some! Remember, honest weights and measures in commerce produce prosperity.
 
But you must act to benefit from this information.
 
Don't wait for silver to rise before buying it. Silver prices could rise by over $20/day to exceed $100/ounce at any time if large funds or billionaires buy with desperation.
Nervous or Knowing? Paper Gold Changed to Real Deal ~ Patrick A Heller, Market Update
 
Nervous or Knowing? Paper Gold Changed to Real Deal
By Patrick A. Heller, Market Update
July 21, 2009

Other News & Articles:
 
On July 14, Greenlight Capital, the hedge fund that had been the largest shareholder in GLD (the largest gold exchange traded fund), revealed that it had disposed of its entire holding of 4.2 million shares of GLD (effectively about 420,000 ounces of gold worth almost $400 million) and replaced it all with physical gold.
 
This is an extraordinary move for any financial company. You can be sure that other hedge funds are studying this move to understand the profit motive behind such a strategy. They are probably poring over all the loopholes in the prospectuses of the various gold exchange traded funds looking for what they may have missed or not given serious consideration. If, and it is only if right now, any other hedge funds take a similar step, we could well see the floodgates open for the demand for physical gold.
 
CIT Group, which provides loans to almost a million small and medium size businesses, has to make a debt payment of $1 billion on Aug. 15. It doesn't have the resources to do so and has retained a major law firm to prepare for possible bankruptcy. Last Friday it was announced that Goldman Sachs and JPMorgan Chase had been appointed by the U.S. government to try to come up with a rescue package for CIT Group.
Why Goldman Sachs and JPMorgan Chase? Simple - the Federal Deposit Insurance Corporation may not have enough assets to bail out CIT. In fact, whether or not CIT goes under, several analysts now expect there will be enough bank failures over the next few weeks (added to the 53 bank failures in 2009 through July 10) that the FDIC will run out of assets by the end of August. Should this occur, I'm confident the federal government will find some way to shore up FDIC, since the alternative is to risk instant catastrophic bank runs in the United States.
 
Actually, before the end of September, there is a growing risk of a "bank holiday" similar to what was imposed by President Roosevelt in 1933. I cannot give a probability for this event, but it is not zero. Should there be a "bank holiday," account holders would not be able to access the funds in any of their accounts for an indefinite period. Even worse, there would be no access to safe deposit boxes. Any cash or precious metals stored in bank vaults would, therefore, also be out of reach for an indefinite period.
 
Two weeks ago, HSBC, a bank with one of the largest depositories of precious metals in the United States, notified its customers for whom it is providing gold and silver custodial services that it is getting out of that business. According to some of my company's customers, they have been told by HSBC that they must arrange to either quickly remove their holdings or to sell them. It does not make sense for a bank to abandon such a profitable activity. There are multiple reports that investors who purchased COMEX April 2009 silver contracts and asked for delivery are still waiting for delivery from HSBC. Such contracts were all to have been delivered by May 29. I don't know the whole story of what is happening at HSBC, but whatever is going on worries me.
 
On Friday, Citigroup reported a supposed second quarterly profit of $4.3 billion. Actually, the figure included a $6.7 billion after tax profit from its sale of Smith Barney and also a $1 billion paper write-up of the value of impaired assets. If you exclude these one-time events, which are not part of operating activities, the bank lost $3.4 billion for the quarter. But that is not the news people saw in the headlines.
 
Similarly, Bank of America on Friday reported second quarter profits of $2.42 billion. However, this figure included the one-time pre-tax profit of $5.3 billion from its sale of shares of China Construction Bank. Absent this event, Bank of America also would have reported a quarterly operating loss.
 
In a statement released last Friday, Bank of America CEO Ken Lewis said, "Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010." This is absolutely not a prediction of good news over the next several quarters.
 
Last Thursday, former Treasury Secretary Henry Paulson testified before the House Oversight and Government Reform Committee. He admitted that he had threatened Ken Lewis last December about Lewis's intention to back out of Bank of America's acquisition of Merrill Lynch. "I further explained to him that, under such circumstances, the Federal Reserve could exercise its authority to remove management and the board of Bank of America. By referring to the Federal Reserve's supervisory powers, I intended to deliver a strong message."
 
The Commodity Futures Trading Commission announced that it may consider limiting the size of commodity trades that are not done as legitimate hedging by, for instance, mines and agricultural producers. At first glance, this measure appears to strike against the two or three large U.S. banks that have huge COMEX short positions in gold and silver. However, other analysts have pointed out that such limits could prevent the Chinese and Japanese central banks from buying up so many COMEX gold and silver contracts that they could demand delivery and force the COMEX into failure.
 
As time goes on, it becomes more likely that we will see major drops in the values of paper assets, including those purporting to represent ownership in the value of gold and silver. I think time is running out to readily acquire physical precious metals, either by an outright purchase, or by conversion of gold or silver certificates or ETF shares or commodity contracts. In the past week, my company enjoyed a major surge in customers (especially first time buyers) purchasing physical gold and silver. We have heard similar stories from other coin and bullion dealers. Some premiums have even increased slightly. It may be prudent to take action sooner than later.
 
Additional notes:
 
The pending legislation to audit the Federal Reserve, which if enacted, would likely disclose exactly how much gold the U.S. government still actually owns versus the amount it claims to own is touching a nerve with the public. The section of my NumisMaster essay last week that discussed the "dirty trick" used to block passage of this legislation appeared in a slightly modified form as a Viewpoint in the July 20 issue of the Lansing State Journal (www.lsj.com). Within hours, reader comments were being posted online.
On July 21, look for the debut of the Liberty Gold Card. This is a major credit card (either VISA or Mastercard, I don't remember which) where charges to it are paid to the merchant from gold stored in a Swiss vault. For the merchants, the cards will work the same as any other charge card. When the charge is processed, the amount will be converted into a claim against the customer's gold holdings at the bank.