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silver article from butler

  1. THE ROAD TO EXTINCTION

    By Theodore Butler


    (The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)


    I have been asked to come up with some examples of other commodities that could be used to make my case on silver. As you know, my silver analysis predicts a dramatic and shocking adjustment in the price, contrary to what is being predicted by establishment analysts. An example or two where this has occurred in other commodities should help folks to more fully understand what I’m saying.


    The most important commodity of them all, crude oil, had been priced at roughly $2 a barrel for years, up until 1972. Fortune magazine predicted the price of oil would stay at $2 for as far as the eye could see. Instead, a series of events caused the price of oil to jump 15 to 20 times that level. Palladium's price jumped from $60 an ounce in 1990 to over $1100/ounce in ten years. That’s also a 15 to 20 fold increase. Silver itself may provide the best example, having exploded almost 40 times from 1970 to 1980, from a dollar and small change to $50 an ounce. What better example could there be than the price history of the exact same commodity? None of these long term price explosions were predicted by establishment analysts.


    But even these examples, while factual and valid, don't completely convey my innermost feelings about the current state of the silver market. Many years ago on a family camping trip to Everglades National Park, on a tour through the marshes and mangroves, the ranger in charge told us the story of the egret, a beautiful wading bird with distinctive white feathers. Only a hundred years or so ago, this area was home to millions of these beautiful birds. A European fashion craze used the large white feathers from this bird in women's hats. It was thought to make a striking fashion statement. It quickly followed that hunting brought its numbers to near extinction.


    Whether you want to use this example, or beaver pelts used to make men’s hats or whale oil to light lamps, there have been many examples throughout the history of commodities that were consumed to the point of extinction. These examples are of the renewable kind, where proper management and husbandry could have prevented exhaustion. In the non-renewable, or mineral realm, all supplies are finite and once they are gone, they are gone forever. In this regard, silver, like any other mineral that exists in the earth's crust is finite and non-renewable. But let me be clear. I am not suggesting we are running out of these minerals anytime soon.


    It is not silver coming out of the ground that I'm comparing to egret feathers. The world will continue to mine close to 600 million ounces each year. It is silver above ground that is rapidly becoming extinct. World silver inventories are going the way of the saber-toothed tiger - gone, never to return. The world mined and hoarded silver for 5000 years. Then, in 50 years, we consumed over 90% of what was accumulated in all of recorded history. This has never happened in any other commodity. Just imagine if it was gold, not silver, that was found necessary in thousands of vital modern industrial applications, and that most of the gold mined throughout history was consumed. Imagine that gold, instead of silver, was the best conductor of electricity and heat and reflector of light. What would the price be, $50,000 an ounce? There are such unique and unusual circumstances in silver that it is not possible for anyone to make a comparison with any other commodity.


    I use extreme and unconventional examples in describing silver because they are the only comparisons that come close to accurately reflecting the true situation. When crude oil or palladium jumped 20 fold over a decade, or even when silver jumped 40 fold over ten years, it wasn't because inventories were driven to extinction. It was simply current supply/demand and, in the case of silver, investment buying. And in each case, the sharply higher prices either balanced supply/demand shortfalls, or drew additional supplies to the market by inventory rearrangement (the great silver melt of 1980). That is precisely why these examples don't apply to the current situation in silver (even silver 1970-1980), because we don't have the sharply higher prices that characterized those examples.


    Think about it, this is the first time in history that we have documented deficits and disappearing inventories without the sharply higher prices demanded by the law of supply and demand. That's why I keep asking someone to step forward and answer the question, "how can you have decades of deficits and shrinking inventories without sharply higher prices, in a free market?" The answer, of course, is that only a monumental manipulation could explain such a circumstance. And it is precisely that manipulation that gives you this once in a lifetime opportunity.


    That’s because silver is more needed than ever before. There are less available inventories now than at any time in our life. We have the lowest adjusted prices in memory. We have the largest short position the world has ever known. And the absolute best feature of all, it is something the average person can take advantage of. Even if you knew that whales and egrets and beavers were close to extinction at some point, how would the average person capitalize on that? Even if you knew that crude oil was about to embark on a decade long, 20-fold increase, how do you deal in, and store, the real thing? With silver, that's no problem. The average person can secure silver with a phone call.


    The most remarkable thing about silver is that it can be owned by everyone. There should be no excuses. All you have to do is your homework. All you have to do is apply your God-given common sense. All you have to do is open your eyes and your mind. Silver inventories are going extinct, just as sure as snowy Egrets were going extinct. And you can be sure that no one was writing articles advising the average person to invest in feathers, barrels of whale oil or crude oil. Such opportunities are incredibly rare and fleeting. It's not everyday the existing supply of a major investment asset goes extinct.

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