97% Will LOSE Money on Silver if They DON’T Realise This
It goes all the way back to 1957. I was 10 years old when I first became interested in silver. It started with coin collecting.
But it wasn’t until 1965 that I became a true silver bug. The federal government took silver coins out of circulation and reduced the silver content of a silver dollar from 90% to 40%. I immediately began collecting bags of coins from my local bank and scratching through them looking for real silver coins.
Little did I know that I was simply behaving according to Gresham’s Law, which states that good money goes into hiding when bad money enters the system.
Today, I still have the silver coins I socked away as a kid.
While it’s true that I could’ve profited more by putting my money into investments other than coins, my love of silver caused me to watch and understand the silver market. After five decades of doing so, I’m quite certain that silver will soon emerge as not just a good investment, but a spectacular one — maybe even a once-in-a-lifetime investment.
Of course, I’ve been saying that for 50 years now, so take my advice with a shot of tequila.
But once you understand silver as an investment, you’ll see why you should have it in your portfolio of assets…
Understand the Investment
One of the keywords Warren Buffett often uses is the word understand. He says, “Investment must be rational. If you can’t understand it, don’t do it.”
Currently, I’ve been recommending that people look at gold, silver, and Bitcoin. I’m excited about silver because as I write, it’s relatively inexpensive — around $26 an ounce.
I’m also excited about silver because unlike real estate, which can require a lot of money, some finance skills, lots of due diligence, and property management skills, silver is affordable to the masses, and management skills are minimal. Just buy some silver, put it in a safety deposit box at a bank, and your management nightmares are over.
Today, for less than $30, anyone can get into the silver speculation game. On top of that, silver is easy to buy and somewhat liquid. All you have to do is find your neighborhood coin dealer and start trading…
My question is: Do you understand silver? Do you know why silver is a good investment? Do you also know why it’s a bad investment? If you don’t know the answers to these questions, I would recommend that you stick with what you understand.
Why I’m Bullish on Silver
Although I’m not a silver expert, I’ll share with you the reasons why I’m bullish on the asset:
#1 Silver is a consumable precious metal. Unlike gold, which is hoarded, silver is used industrially. For years, before digital photography, it was used in film for cameras and movies.
Today, silver is used extensively in electronics. The reason this is a good fundamental reason to get into the metal today is that silver stockpiles are dwindling, so its price is driven by supply and demand.
#2 It’s a precious metal. Silver has been used as real money for centuries. We humans have an ancient fascination with this metal, as we do with gold.
For years, I have visited gold and silver mining sites all over the world. That’s something that has always amazed me, regardless of whether I was in China, South America, Mexico, Africa, or Canada. I still remember standing on a mountaintop in Peru, doing my due diligence on a gold mine and looking at tiny caves dug into the side of a mountain. The caves were the mines of ancient Incas who were seeking gold, long before the Spaniards came and stole their wealth and country from them. Standing on a 14,000-foot mountain, where I could hardly breathe, I wondered what motivated those ancients to live in such an arid and hostile environment and delve for gold.
Then I realized I was there for the same reason, only centuries later.
#3 The primary reason I’m in real estate, oil, gold, and silver is that the U.S. dollar has become the peso of the world. It’s becoming more and more worthless as the U.S. is the world’s biggest debtor nation.
I’m not confident that our political leaders have the guts to do what’s required to put the U.S. back on a sound economic footing. This is not to blame either Republicans or Democrats. I blame Americans for wanting their Social Security cake and Medicare ice cream, too.
It’s the entitlement mentality that grips the U.S., from the President on down, that needs to be changed. Too many Americans have come to expect the government to solve our problems.
So if you think America’s politicians and citizens are willing to make the changes necessary to strengthen the U.S. dollar, then don’t buy silver. But if you’re like me and don’t expect us, as a nation, to take our medicine, then short the dollar — and the way you short the currency is by going long on gold and silver.
#4 Stocks and commodities are counter-cyclical. On average, equity prices go up for 20-year periods, and commodities go down. Then they reverse directions. Looking back in time, equities (stocks) began their run-up in 1980 and imploded in 2000. In 2000, commodities began their run-up, and equities headed down.
#5 Silver is scarcer than gold. Gold is hoarded. It’s estimated that 95% of all gold ever mined is still around. The exact opposite is true of silver: An estimated 95% of all silver ever mined has been consumed. 45% of all silver mined is burned up for industrial uses. Jewelry accounts for 28%, and 20% has been consumed in photography. Only 5% is in coins.
#6 Silver supplies are down. In 1900, it was estimated that the world had 12 billion ounces of silver. By 1990 it had dropped to 2.2 billion ounces. By 2007, the supply was down to 300 million ounces. Some of the more pessimistic forecasts estimate that the world will be out of silver in about 10 years. This could be catastrophic to the world economy. In 10 years, silver might have as much of an impact on the world economy as $200-a-barrel oil.
I’m not buying silver because the price is going up, I’m buying it because I believe I understand why its price is rising.
Is There Really a Shortage?
The silver market is a complex one — and a manipulated one. The biggest silver investors are commercial investors like JP Morgan and HSBC, and Exchange-Traded Funds (ETFs).
Yet, there is a big difference between the big investment firms and the ETFs. The big commercial investment firms take short positions on silver that require no actual transfer of physical silver and the ETFs buy physical silver to hoard and sell as shares (though there is debate as to whether they have enough to cover the shares they sell).
Short selling, or shorting, simply means you sell something you don’t own. The big investment firms sell borrowed silver from COMEX and pocket the money. And they take massive short positions, which keeps the price of silver low and the “supply” high.
Here’s the problem. On April 29, 2021, the Numismatic News reported, “The COMEX registered silver inventories cover less than 14% of outstanding contracts. Even including 100% of the eligible inventories, that covers less than 42% of open positions.”
So, where is all the physical silver going? It’s being either scooped up by the ETFs, which have no intention of trading. They make their money by selling shares on the open market and collecting fees. Or it’s being used up in industrial processes and is gone forever.
The Rules Are Changing
For years this hasn’t been a problem. The COMEX and the big silver investors were happy working together to manipulate the price of silver and keep it low. All this is changing now, however, because there is a change in the rules of how investors can initiate short positions.
The Commodities Futures Trading Commission (CFTC), which is to COMEX what the SEC is to the New York Stock Exchange, has passed a new law that will make the big traders and the COMEX play fair on the global silver market.
Basically, the CTFC has reduced the size of the short positions big investors can take. That means big investors will have to shore up their positions on their existing contracts, what’s called a margin call, which means they’ll have to buy physical silver to send back to the COMEX.
The problem of course is that there’s a shortage of physical silver.
So, when the big investors go into the market to purchase the physical silver to shore up their massive short positions, they’ll pay a premium — and silver prices will rise.
In the end, this is the type of news you won’t get from the established media. While it’s true that silver is rising due to increased investor demand despite an oversupply, as some say. It’s not the whole truth. The “oversupply” is a result of silver contracts, not physical silver available on the market. Once people want to take possession of their physical silver, the price of silver will rise as investors scramble to cover their short positions.
I’m convinced more than ever that silver is the safest and best investment today, but not for long — if you can get your hands on it. The price will rise and it will rise quickly. Continue to expand your financial education, and keep a close watch on the silver market.
Play it smart,
Editor, Rich Dad Poor Dad Daily