The Silver Picture

Most of the silver in the world is smelted out of gold and copper mine production. There are some pure silver plays and mines out there, but they are rare.

The Hunt brothers (remember them?) tried to corner the whole silver market in the 1970s and almost blew the family fortune on it. Two to three years ago, Bill Gates (try to forget him… you can’t), the world’s richest man, starting strapping on a large insider position in a silver company, and it has left him looking smarter than ever.

I remember hearing at the time some whispers that Microsoft had invented some new product that required lots of silver, but this turned out to be silly and illogical. I think Mr. Gates may have come across some interesting numbers and facts that convinced him that silver was technically and fundamentally undervalued.

Here are some of them: The historic gold/silver price ratio varied from 14:1 to 16:1. That is to say, if gold were trading for $140 to $160 an ounce, silver invariably would be priced at $10 an ounce. In recent times, this ratio has changed from anywhere from 40:1 to 80:1. So, historically silver prices are out of whack. And we know how history has an uncanny way of asserting itself on the future.

Silver is also in demand for jewelry, photography, and many industrial applications (think electronic soldering). Recent demand has skewed the supply ratio to such an extent that, for the last twelve years, more silver was consumed than produced. As supply dwindles, prices inevitably move up.

The annual silver deficit is anywhere from 100 million to 200 million ounces a year. Geologists postulate that there is less silver in the world than gold. In fact, if we take all the known mined silver and combine it with existing reserves, we come up with 1.5 billion ounces. Gold? About 4 billion ounces.

One day the price will catch up with supply and demand issues. China’s industrial and jewelry demand for the metal (all metals, in fact) has placed additional pressure of late on supply and may help speed up the process.

The price is going to move up. History tells us so, and it has only just begun to increase in price.

Most large banks can sell you silver, and it comes in a variety of quantities. You can also take advantage of some of the pure plays out there in the stock market.