-- Posted Wednesday, 3 December 2003 | Digg This Article
Investment Rarities:
Q Silver seems to be tracking gold. Where’s the price explosion you forecasted?
A I thought I was clear in my portrayal of silver as a manipulated market. As such, expect the price to remain flat and depressed, until it explodes. Certainly I see no free market explanation to explain silver's price behavior. And I don't see silver as tracking gold. It just appears that way on a daily basis.
Q What do you mean?
A When you step back from the daily price action, you see that gold has climbed almost 60% from its lows of a few years ago, while silver is still stuck in its 15 year manipulated price range. And the meaning behind those very different price movements is profound.
Q In what way?
A Well, at close to $400, the vast majority of gold producers should be in hog heaven. $400 is a price only dreamt about a few years ago. At the same time, I know of no primary silver producer making money at $5, except by accounting gimmickry. Also, the price rise in gold has been sufficient to cause some traditional demand (India) to fall off. There has been no reduced demand in silver at these prices.
Q Are you saying gold is overpriced and may not go up further?
A No. I'm saying silver hasn't tracked gold's price. It's not a question of gold being overpriced, it's the fact that silver is grossly underpriced.
Q I read a long dissertation on silver the other day that said, because there was still a lot of silver in the world, the price would only rise a dollar or two. Do you disagree?
A I couldn't disagree more. First of all, what's a lot? I don't know which article you're referring to, but I'd bet there was no specific or documented amount given. Just, "a lot". And, from such an ambiguous and undocumented amount, a very precise price rise of one or two dollars is concluded. It's hard to keep a straight face and not be insulting in response to such "analysis."
Q The same article made no mention of leasing and short sales of silver. How important are these factors in the eventual price?
A Any discussion of silver that doesn't revolve around leasing and short selling is meaningless and a waste of time.
Q Several writers have scoffed lately at the idea that silver would go up ten times, or more, as you predict. What do you have to say to them?
A I simply say, look at the underlying circumstances. We have a structural deficit, devastated world inventories and the largest short position in the history of the world. In addition, we have the regulator of last resort, the CFTC, unable to address basic questions and issues and, maybe, on the verge of panic. That is not a recipe for a two dollar increase.
Q In terms of potential gains, most hard money writers recommend gold. They refer to silver as less important and expect gold to outperform silver. What do you say about this idea that silver has less merit?
A While it's true that most writers and investors center their attention on gold, that's because gold is a bigger money game. It's only logical. The gold market and gold business is much larger than silver. There are more employees, more producers, more retailers and more money involved. Annual gold production is over $30 billion a year, silver maybe $3 billion. World gold inventories are worth some $1.5 trillion. Silver’s inventories are maybe $5 billion, so gold inventories are worth 300 times what silver inventories are worth. Even in terms of ounces, we know there is 3 to 5 times as much gold in the world than silver. But to say that means silver has less investment merit is absurd. Besides, some really smart advisors actually think silver could outdo gold.
Q Like who?
A Like Richard Russell, one of the sharpest newsletter writers around. He loves gold, no doubt, and recommends it to his subscribers. He calls gold the cheapest investment asset around, except for silver, because silver is very cheap compared to gold. That makes silver a better bargain than gold, according to a dean of the investment world. If I'm putting words in his mouth, I will apologize, but that’s what I read.
Q You’re saying silver has better profit potential?
A I’m saying that it has shocking profit potential compared to gold.
Q Another argument against silver is that digital cameras will abolish film and greatly diminish silver demand. What’s your view?
A As I have written in the past, digital photography is a wonderful technology that is here to stay. But so is conventional silver-halide photography. Or, stated differently, it will be around longer than anyone alive today. There is no question that digital photography is growing fast, and conventional photography is currently not growing at all. But you have to put these things into perspective. Even in the very visible amateur photography category, more than 90% of all the pictures taken worldwide are done on conventional silver-halide cameras. The lack of fast growth in silver-halide photography, which is an extremely large and mature industry, is a problem for Eastman Kodak. But that shouldn't lead one to assume silver photography is dead. In fact, there has been a remarkable development in the digital-analog debate.
Q What's that?
A The emergence of silver film photography as the low-cost alternative. When digital photography was introduced, some 20 years ago, one of the chief advantages was the cost savings associated with not having to buy film and avoiding film development costs. But, have you noticed the price of film lately? Due to competition and production advances, it's really come down in price. They sell it in 4-packs, and you pay $1.50 a roll, compared to $3 to $4 a few years ago. I just bought a top of the line Kodak Max 27-exposure, disposable camera, with flash for $6, at the local supermarket. While the price of digital cameras has come down, the add-ons (software, computer power, printers and photo paper) have made digital photography a very expensive luxury. It’s something that will be out of the reach of developing nation populations for decades to come. And even if cost is left out, it is still very difficult for a large percentage of the population (including me) to mechanically handle all the digital functions. Even when my wife gets digital photos from family and friends, she has it put on a CD and takes it to the photo store for prints (on silver photo paper). Silver-halide photography, in addition to being a heck of a lot cheaper, is a lot simpler than digital. That's not going to change.
Q You’ve been highly critical of the COMEX and the CFTC, who regulates commodity trading. Can you explain why in a nutshell?
A Yeah, they're not doing their job. Commodity law is clear - prices must be determined by real supply and demand, not speculative trading. I submit that speculative trading on the COMEX is the sole determinant of the silver price, supply and demand doesn't even factor into it. Look, I know I repeat myself, but how can you have flat and low prices in a deficit? Let's see the CFTC and COMEX answer that. They just turn a blind eye to the shenanigans.
Q What kind of shenanigans?
A Start with the fact that more silver is shorted on the COMEX than exists or is produced in a year. No other commodity has that situation.
G One thing I noticed is that despite all the flack you’ve thrown their way, they have rarely responded. The CFTC sent out a letter a year or two ago. Do you find this frustrating?
A I used to find it frustrating, but not any longer. I realize I'm asking questions and offering solutions that they can't answer or object to. It's kind of a badge of honor. It used to be I'd ask a simple question and they'd take months and send a five page letter, when three sentences would have sufficed. Now, of course, they can't answer at all.
Q Maybe their attitude is that you are an extremist and it’s beneath them to respond?
A Let them tell the almost, seventeen hundred people who signed the internet petition that it's beneath them to respond. Let them tell that to Eliot Spitzer, who got the signed petition containing plenty of comments saying something was rotten in Denmark.
Q One thing for sure, nobody has come along and satisfactorily overturned any of your major arguments. I’m sure you’d enjoy the opportunity to debate, wouldn’t you?
A I have dreams about having a legitimate debate on the arguments. I can't find anyone who will seriously take the other side.
Q One problem may be that you talk about the COMEX and CFTC so disparagingly that they are angry and intend to ignore you. Is that possible?
A Yeah, you're right. I plead guilty to showing gross disrespect toward them. Perhaps I shouldn't. But, you must remember I have been after them for many, many years. I did show great respect in the beginning years. After being given the run-around and fed foolish responses on hundreds of occasions, my days of respect to them are done. Look, I'm not running for office, and I'm not looking for anyone's vote. There's a manipulation taking place and that's against the law. They're supposed to enforce the law and they're not doing their job. I don't care if they like me.
Q A lot of what goes on in the silver market is secretive and hard to find out about. Do you think there’s a need for more transparency?
A Sure, the more transparency the better, but we do know enough to know something smells.
Q Do you see any progress?
A Absolutely. The progress may not be emanating from the CFTC and the COMEX, as it should be, but there is great progress being made nevertheless. It's coming from the public. Thanks to the Internet and the mailings you send out, there has been a dramatic education of the investment community which will eventually force the authorities to do the right thing. The regulators may not want to do the right thing, because it will be a terrible reflection on their long term mishandling of the manipulation, but it will be forced on them by the public.
Q Do you see any new market developments that might signal that something is up ahead?
A I see more signs than you could shake a stick at. The biggest options expiration in the history of the COMEX, clearing the deck of over 200 million ounces of potential short covering. The recent movement in, and subsequent first day delivery of, almost 20 million ounces of silver, confirming strong demand for physical silver. There was a total of 30 million ounces delivered on the first delivery day, which indicates to me that, had they not brought in the 20 million new ounces, there could have been a serious problem. Obviously, the silver sitting at the COMEX is in strong hands and generally unavailable at current prices, and that's why new stuff had to be brought in.
Q Do you see any clues that the small, rich group of dealers are going to change their modus operandi?
A Once again, absolutely. Time is running out for them. More correctly, silver is running out for them. We're in a deficit. That means there is less above ground silver in the world each and every day. This group needs to keep coming up with more silver to depress the market every single day. They may not want to change their operation and give up control and dominance of the silver market, but soon it will not matter what they want, as they will not have silver to dump. Additionally, the climate has turned very harsh for financial scams.
Q How much more patience will we need?
A Look, silver isn't hurting you or anyone else currently. It's low price prevents high risk. That's the most important thing. It shouldn't be difficult holding something that is undervalued - it's part of the investment process. It's a sure thing. You're asking me when it will explode. In due course. It reminds me of my kids asking me when Santa Claus is going to come, or when will we get there on a car trip. Don't worry, soon enough. What bothers me is that folks may be focusing on the wrong thing. Save your patience for after we explode. I'm very concerned that people will sell too soon and leave tremendous amounts on the table. That's when patience will be needed.
Q Explain to us one more time the reasons that you think silver has to go up?
A It is the cheapest item in the investment universe, with no exception. It is in a pronounced and obvious deficit. Inventories have been decimated. Soon no government, not even that of Red China, will be able to stop its rise. It has the largest naked short position in history. It is a world item that knows no boundaries. It is overlooked, but more people recognize its value daily. It has been manipulated in price and, with more people becoming aware of the manipulation, termination of the manipulation is assured. It is the ultimate logical investment. I don't care who you are, from Warren Buffett to a high school kid, once you know the real story of silver, you're going to buy it because you think it's a sure thing. It's not probable that someone with investable funds who has an open mind, and investigates the story, will not consider buying silver in some shape or form. Believe me, there are a lot more people like that in the world than there is silver.
-- Posted Wednesday, 3 December 2003 | Digg This Article
