Category Archives: Precious Metals Investing

precious metals investing

Questions and Answers to Jason Hommel’s Silver Stock Report

Silver Bars and Coin

by Jason Hommel, January 10, 2008

I received a lot of questions in response to yesterday’s report on silver:

Silver Keeping Pace with Gold; Set to Outpace Gold
http://silverstockreport.com/2008/silver_pace.html

Question:
Where can I get silver, and what kind?
–asked by about 10-15 people.

Answer:
Coin Shops
A Brief Guide to Buying Silver:
What kind of silver, and where to get it.
http://find-your-local-coin-shop.com/

*Alan interpolates* – I might add that another good way to own silver is in the form of e-currencies such as Phoenix Dollar, Goldmoney (despite the name it offers silver as well), and also maybe e-gold‘s silver offer as well. Incidentally Phoenix Dollar also sells silver coins and bullion bars.

Question:
What kind of silver do you like best?

Answer:
I prefer 100 oz. bars, because they are easiest for me to count, and stack. But really, just get the most silver for the least money. About $.50 over spot is an excellent price, but in a fast rising market that is moving $.50/day, about $1 over spot may be more realistic.
Question:
Please refresh us soon on your advice for whether to hold silver wealth in the metal itself versus stocks, particularly the better prospector silver stocks.
–J.P.

Answer: I hold about 25% of my net worth in the form of physical silver. About 60% is in various mineral exploration stocks, ranging from silver, to copper, zinc, gold, and uranium. About 15% is in real estate. I’m aiming to double my physical holdings of silver before silver prices get too high.

Although I would like to sell some stocks for silver, and that is my plan, it’s not so attractive at these prices, because the stocks are so cheap.
Question:
Jason,
Just a quick little comment on your calculations for the $6120 price of au. It’s just a small correction and I’m probably wrong anyway. But, doesn’t your calculation assume that the quantity of au is the same today as it was
in 1980? The growth of M3 has to take into effect the growth in the quantity of au mined since 1980 doesn’t it?
–K.L.

Answer:
I sincerely believe that the growth in the quantity of gold does not matter. Why not? Because the rate of growth of gold is less than 2%, and the rate of population growth is also about 2%.

This same question can also be asked with regard to the “increased size” of the economy. No, you don’t need “more money” with a larger economy. A larger economy should merely drive up the value of a limited quantity of gold. Or, in other words, a larger economy is generally more efficient and productive, and the prices of items, in terms of gold, should be going down, which should be called “deflation”, which should be a good thing for savers, and was typical under the gold standard.
–Jason
Question:
Ordinarily and usually we use to agree with your writings. It can be said that many things you have said are true.
Yet in our country we can’t have it both ways. What is meant by that is you simply cannot tell people to buy silver and think they will get rich while confiscation laws have not only been written they exist in the Acts of the congress and signed by the chief executive.

Want citations and proof, read the Patriot Acts. This person has the information as the section was kindly pointed out by others and sure enough – its in black and white. We just don’t agree with your assessments. You create a target of yourself if you tell the world about how much silver you have since you pointedly do that in you writings Jason. For us – no, Silver is not going to make you rich, your friends in Washington are gonna knock on your door when the ratios you suggest come true. Silver will be deemed an important strategic metal by then – since you point out — that 2 billion ounces no longer exist. At least that is our opinion.

This link talks about the danger of confiscation:
http://news.goldseek.com/GoldSeek/1196605589.php

Answer:
The Patriot Acts, and Executive orders, are pre-written laws that say they can take anything and everything you own; whether cars, houses, clothes, and even your body to put you to a work camp like Hitler did.

There is not enough silver for them to confiscate to make a difference to the government budget deficit. Even if we assume there is 1 billion ounces of silver left in the U.S, which is doubtful there is that much, it’s not enough to make a difference to the government. But it can make a big difference in your life, if you have some of it.

Silver would have to be $1,000/oz. to help out the government. Do the math. The annual budget is in the trillions. That’s 1000 billion. Thus, there would have to actually BE 1 billion ounces, and the government would have to get all of it, to make any difference, and it would only help for 1 year.

The confiscation of gold in the 1930’s was more like a recall, as they do with defective cars. Just as you bring your car to the dealer to get it fixed, they paid you dollars to bring gold to the banks. There were no searches or prosecutions.

The amount of gold actually “confiscated” was far less than 1% of the public’s gold. The same benefit to the government could have resulted if they revalued gold to something like $35.25/oz. instead of $35/oz.
Question:
Dear Jason,
I am a long-time silver investor and have been interested in your Silver Stock Report. What are your thoughts about buying silver on the Comex and allowing them to store the physical.

The one problem I find with silver ownership is the physical storage issues. The Comex will store my silver for about $17. per year per contract (including insurance). Thanks Gordon.

Answer: Don’t store your silver with anyone else; and especially not with the largest banks and brokerage houses, which admit that they practice fractional reserve silver holding for clients as a standard business practice. They admitted to charging storage fees for holding non-existent silver!

And if ever they did confiscate silver, I would assume it would be the easiest for them to take it from the public stockpiles, such as at COMEX, or the ETF, or they would raid institutions that pledge to hold silver for clients, such as at kitco, or Brinks.

Remember that the entire purpose of owning precious metal is that it is hard to confiscate, because you can easily hide it. Precious metals prevent government confiscation through inflation, which is running at about 10-15% right now. Even in the “worst” confiscation of all, the 1930’s, they got less than 1% of the people’s gold, and never even touched the silver.

I think your silver will be plenty safe if you get a large gun safe, and bolt it to your garage floor. If you are paranoid, then build a wooden cabinet around it, and put a tiny $10 lock on the outside. People will assume you are “protecting your rakes and shovels, nuts and bolts, or tools”.

So, I’m generally against buying silver in the ETF’s.
Information seeking Question: Any idea on where to get charts of M3 in other currencies, or charts on the Euro gold price, or charts of inflation adjusted copper prices?

Answer: There are hundreds of great charts at sharelynx.com, but it’s now a pay site. But very worth it.
–Jason

Confrontational Question: A very interesting story. However, the simple fact is that gold was “fixed” by Roosevelt in the early 1930’s at $35.00 per oz when silver was at $1.29 per oz. That ratio is 27.132, say 27 to 1.

Therefore, silver should be 890 divided by 27 or $32.92. you don’t need to go into inflation calculations to figure where silver should be. So, by a long stretch silver was a bad investment for the long run if you bought it back then or when Americans were once again allowed to buy gold in the 1970’s.

What say you? Regards, E.B.

Answer:
Yes, and as we know, price fixing does not work.

That former fixed price of 27:1 is also based on two things that I did mention in my article.

1. The demonetization of silver started about 60 years before 1930, which created a glut of silver back then.

2. That was also long before silver was used up in electronics, which created the current scarcity of silver.

But I’m not advocating taking the action of going back in time to buy silver back then.

I’m saying to buy silver today, when the ratio is even better now for silver buyers at 56:1.

I started saying this in 2000, when the ratio was between about 70-80:1. Look at my archive:
http://silverstockreport.com/ssrarchive.htm

I think I was about right on the mark, timing both the ratio correctly, and the gold bull market right at the beginning.

What say you?
–Jason

Question: How will you know when it’s time to sell silver, and what do you buy?

Answer: I will sell silver when there is another asset that is cheaper and poised to go up farther, faster. For example, let’s say that I think silver will go to $10,000. By the time silver is $3,333/oz., then I might only expect silver to increase another 200%, and we might be in the “middle” of the silver bull market. But if I encountered another investment, with all the properties of silver today, that it is a neglected investment, a hated investment, a misunderstood investment, something you can buy for at or close to the cost of production, something scarce, with potentially high demand, and something that I could confidently predict would go up by about 2000%, then I’d sell out the silver early, and buy that other thing. That could be real estate in about 10-15 years.

As you know, governments must surviving by taxing people. After the people lose faith in paper money, and they can’t print money to survive, they will levy taxes in terms of gold and silver. And what will they tax? Probably property. Imagine they levy a property tax in terms of silver. Some holders of real estate, paid in full, with no debt, could lose their homes if they don’t have enough silver or gold to pay that kind of tax. Under those circumstances, the government could be confiscating and selling a lot of real estate that people cannot afford to hold onto. Real Estate could be the next “hated” investment class by then.
Challenge: Wrong!

Silver is languishing because the world was flooded with silver
by sovereign liquidations since the 1990s
Demand vs supply
Too much silver physical out there to make a big move.
–A.McD.

Answer: Wrong! Silver sold by nations was tiny, like 10% of annual silver mine supply. Silver is low because of lack of demand, because people have forgotten that silver is money, and they do not know how rare silver is, such as that most of it has been consumed by industry, and there is still no monetary exchange use, and thus, not much monetary demand.
Question: Should I buy rare coins?

Answer: I don’t think so. Rare coins, like diamonds, lack the fungibility to be money. Rare coins also have a high spread, a high dealer markup, and so you get much less when you sell them back. Rare coins are much worse than penny mining stocks, in that regard.
Question: What about leveraged silver, I can own about 2.5 times as much silver for the same price, and I’m guaranteed to make more money? –About 3-4 people asked.

Answer: If you are going to buy leveraged silver, then buy a futures contract, or option on a futures contract through a reputable broker, and get 5-10 times the leverage. Those “bucket shops” that give you less leverage are scammers, in my opinion. One outfit is even using my name and likeness to promote silver. I don’t mind, just don’t buy their leveraged product! I hear horror stories of of those “leveraged” guys all the time.

I strongly recommend that you avoid leveraged silver in any form, even on the COMEX exchange. Why?

Silver can never go to zero value. But a contract can, and even cost you more money than you invest!
Silver can never expire, we still have coins from the Roman era 2000 years ago! But silver futures expire, and options expire and become worthless 90% of the time.

Buying options is a very bad bet. It’s a good bet that you will lose money in options and futures, even as the silver price moves up, because the silver move up is very volatile, moving up and down with frightening speed.

Or, if you time it right, and buy futures now at $16, and silver moves to $30 in short order, futures contacts can default, and you could get a delayed cash settlement.

Futures contracts used to be guaranteed by the other party, and then the broker, and finally, by the exchange. However, now that COMEX has gone public, and since the public shareholders have “limited liability”, I think that just removed the final source of protection. But the corporate officers, and perhaps the public regulatory agencies might still be held liable, but you can’t squeeze blood from stones, nor conjure silver from the pockets of crooks. They might end up in jail, but that wouldn’t help you get silver that you were promised, that does not exist.
–Jason
Question: What about the silver to oil ratio?

Answer: It was about 2:1 at the low of $10 oil and $5/oz. in the late 1990’s. It was about 1:1 at the high of $40 oil and $50/oz. in 1980. Silver’s much better than oil right now, in my opinion.

6 Questions from one man:
A couple of points that may counter the silver move:

1. Film
2. Mining
3. New Funds
4. Jewelry
5. Unbalance
6. Drivers

Question 1: Film

Film was a massive consumer of silver. This has largely disappeared and will continue to do so as other industries convert from film to digital [not just personal camera’s]. Yes silver fibre is gaining momentum and its use in nanotech as well – but this is minor. And as silver does increase in price, these uses will decrease as will other industrial uses.

Answer: Film is already a small part of the market. But most film silver is recycled anyway. So, if less is consumed, less also comes back as recycled. Film thus does not “consume” much silver.

Question 2: Mining

Although this is not a product of supply and demand and may be argued, I believe it is still a factor, albeit minor. The cost to extract silver and the silver price can not become too excessive. I.e., the margins cannot get too large.
Sure it can. History has shown that silver mining can be among the most profitable investment on earth. This was widely recognized in the 1800’s, of course. The family fortune of the Hearst Family, of Hearst Castle, and Hearst newspapers fame, which was parodied in the film, “Citizen Kane” by Orson Wells, was built on silver mining.

Economics will balance this to a more reasonable margin.

Answer: I assume you are saying that if silver mining gets to be very profitable, then more people will mine silver, and more silver will be produced, and then ultimately lower the price. I agree. This cycle can take up to 100 years or more to play out. After all, the world has used up nearly 6000 years of silver in about the last 60 years.

Question 3: New Funds

This is an interesting one. When a meta l starts to rocket, then we see new issues/funds arising. We have this with uranium [several including participation fund by Denison], Molybdenum [sprott], new gold funds appearing [just got into CMP myself]. I haven’t seen many silver funds jumping out of the gate. This argument, though, may be a lagging indicator [possibly, funds will pop up after silver breaches 50$]

Answer: Well, there is the silver ETF. There are several silver stock funds, but they have less than $5 million invested. But this just goes to show that silver is still cheap. Several times in the past, the gold/dow ratio returned to 1:1. We have a long way to go to hit either $3000 dow/gold, or maybe it will be $15,000 for each.

Question 4: Jewelry

Silver in jewelry will not become popular until gold is out of reach. I.e., silver will lag gold. People will not buy silver jewelry until gold gets out of reach. Therefore jewelry demand will not increase significantly until gold/PGM’s get out of reach for most people. I expect this to occur when gold hits 2000$.

Answer: No, silver in jewelry is already popular, which is a “consuming force” in the silver market, as I described, because a silver ring is purchased at a cost of $125/oz. of silver. Thus, that silver does not come back to market in any “economic” way if the silver price rises a bit. Silver and gold generally do not move up due to jewelry demand, they move up due to monetary demand. IE, when the owners of silver hit such hard times, that they have to melt their rings for money, that’s when silver will be much higher. Not when people are turning in silver coins to make silver rings. You’ve got this force backwards.

Question 5: Unbalance

Why compare silver with gold at its peak valuation? I’d prefer comparing silver to a basket of natural resources including oil at various times in history when we were not on the gold standard and world economic outlook was similar to today.

Answer: Why compare at the prior peak? Because we just passed the prior peak in the gold price, and because that’s what people were asking about.

I’ve compared silver to oil in the past. It shows that silver, now, is much, much, much better than oil.

In 1980, silver was $50, oil was $40. 5:4 ratio, silver over gold.

In late 1990’s, silver was $5, and oil was $10. 1:2 ratio, but close to oil.

Today, with silver at $15, and oil at $100, silver is very, very cheap relative to oil.

If a mere 1% of oil profits were sold for silver, the silver price would surely more than double. That’s kind of what drove silver prices last time, as the Hunts and Arabs were oil money.

Question 6: Drivers

What is driving gold is the currency crisis. This is also driving other nat. resources. Silver is in the awkward position as being too expensive for industrial use [very useful industrial metal no question] and too imperfect or revered enough for jewelry [who wants a tarnished necklace??].

Answer: I agree that currency is driving gold, but it’s also jewelry demand from China, India, and Asia. But for silver, you are misinformed. For most industrial uses, silver is not replaceable. Silver is used in switches, rather than copper, because silver dissipates heat better, and is a better conductor of electricity. More silver is used in jewelry than gold. 7 times as much silver is produced as gold each year. Jewelry demand is about 250 million ounces of silver. Only 80 million ounces of gold is produced each year.

Question 6B: Summary

I do not disagree with you, I believe silver has a way to go but trading at 15X less gold is ambitious.
I fail to see why the historic ratio is “ambitious”. Especially in light of the new change that silver has been consumed, and there is much less silver around now than ever before, and thus, the ratio should easily exceed historic norms, and you have not refuted this.

A valuation of 30x may be more reasonable.

Answer (counter question): Why would that be “reasonable”?

Question 6C: I am not a gold bug, and cannot conceive that the gold standard will return, but do believe in most of the gold story [which, to some extent includes silver]. John Exter’s inverted pyramid theory makes sense to me.
The silver story is significantly different than the gold story.

I like your emails, and do appreciate them, and hope you read this. If you can easily refute my arguments above with hard numbers or historical events, then what an awesome investment opportunity. I am always doubting the gold story and desperately look for arguments against. This is the best way to gain confidence in the metal I like most.

Answer: I hope I’ve succeeded in refuting your arguments. Yes, silver is an awesome opportunity. I think it’s the kind of opportunity that has never existed before in all of human history, except maybe for the grain boom in Egypt when it was ruled by Joseph, in Genesis.

New Question: What about the silver “surplus” I’ve read about?
http://www.ft.com/cms/s/0/fdf808f4-bf1e-11dc-8c61-0000779fd2ac.html

Answer: That is a disingenuous report, and deceptive. What is meant by “surplus”? In silver accounting terms, a surplus refers to silver ounces that are purchased for investment demand, to be held long term by the public, not to be consumed by any of either industry, jewelry or photography. The word “Deficit” is a term that could indicate that mine supply is not keeping up with total consumption and investment (surplus) demand. Since mine supply is about 650 million oz./year, and since total consumption is about 900 million oz./year, the real deficit is about 250 million ounces. This deficit is made up by scrap recycling and national selling, such as from the government of India. If investors are selling more than buying, that, ironically, is called a deficit, because investor selling is filling the gap between mine supply and total demand. But if investors are buying, they call that a surplus, because there must be “surplus” silver for investors to be able to get any.

If you think about it, it makes sense. You cannot buy silver, unless you have surplus money. Even your silver bars at home represent “surplus” wealth. The world “surplus” does NOT indicate that silver is unwanted, or that there is any “excessive” silver. For example, if industry consumes 10 million fewer ounces next year that they could not find or afford because it is purchased by long term investors, then those who report on silver will say that the “silver surplus” increased 10 million ounces.

Thus, the term “surplus” is a necessity in the silver market if investors star buying. Note, the surplus is very small at about 50 million ounces. That’s not much silver to go around, and that’s a tight market.

Ironically, the article does conclude that if investors stop buying, the silver price could fall. But in this inflationary environment, where silver investors are both protecting their wealth, and making good wealth, why would they stop buying?

Very ironically, the article’s bearish tone is from Barclays, who runs the Silver ETF. This is just one of the many reasons why I do not trust the silver ETF. It’s run by the big bankers who do not want the precious metals to perform well.

New Question: Why is the market treating the silver stocks so badly? One just came out with an excellent drill report, and yet the market treated it like a day old peanut butter sandwich on dried out Merita bread.

Answer: I don’t know what Merita bread is, but I think that goes to show we are at another market bottom for silver and the stocks, and on the verge of a big move up.

Tip: China just opened a futures market in gold, and prices in China are way up, to almost $1000/oz. for gold!

http://www.gata.org/node/5916

Answer: Very interesting. This should be watched closely in the next week and months.

Silver Keeping Pace with Gold; Set to Outpace Gold

Silver Stock Report

by Jason Hommel, January 9, 2008

Some of my readers are wondering where I’ve been. I’m ok, I just bought a house and moved. It’s a little disruptive to writing. I was renting, to avoid wasting my money in real estate. But my wife is pregnant now, by 3 months, and so we bought a house, to avoid having to move again. And we did get a “dream home” of 4200 sq. feet on 7 acres in the most beautiful spot in the world, in Grass Valley, CA in the foothills of the Sierra Mountains. I only “wasted” about 9% of my net worth on this home, and I can afford the loss as real estate continues to decline. Also, I have about 3 times as much wealth in the form of physical silver, which is my largest single investment, by far.

For a few months now, people have been wondering why the silver price seems to be lagging behind the gold price. After all, in 1980, gold hit $850/oz., and silver peaked out at $50/oz. But today, gold is making new all-time highs at $890 today, while silver languishes at a mere $15.83 as I begin this article this evening. My wife thought it was no coincidence that Ron Paul was on Jay Leno last night on Jan 7th, talking about the need for “Constituational” gold and silver money after having been excluded from the Fox News Republican debate. Jay Leno was shocked at the snub, as Ron Paul has raised more money than any of the other candidates!

So, silver rose from $15.22 earlier today to $15.88 now! That’s up 4% in one day!

In recent years, from about 2001, the ratio of the price of silver to gold has risen from about 70 to 80 ounces of silver, for 1 ounce of gold, to about 56, where it stands today. In fact, in the past 6 months, the ratio has remained rather steady at about 55 to 1.

In 1980, the ratio had returned to the historic 15 to 1 ratio.

So, only when compared to 1980, can silver still be described as “languishing”. Yes, it might be said that we are still at the bottom of a 27 year bear market for silver. (But now, we have “price action” and a price “breakout!”)

But if you consider the time frame of the past 6 years, silver is outperforming gold, as the number of ounces of silver needed to buy gold has narrowed from 80 to 55.

So then, why is silver not at $50/oz. yet?

The reason, I think, is that gold is not at $850 (circa 1980). The reason is that the measuring stick of the dollar is completely broken.

We must adjust for inflation since 1980. Today’s gold market will be like the gold market of 1980 only after you adjust for inflation. We are not there yet.
But a key difficulty is: “How should we adjust for inflation?”

We can adjust via the CPI, the government produced inflation statistics, but these, most agree, understate inflation.

An online inflation calculator quickly shows that $850 in 1980 is really $2275 in 2006.

http://www.westegg.com/inflation/

However, my research shows that M3 in 1980 was $1.8 trillion. Today, M3 is just over $13 trillion, as pointed out by http://www.nowandfutures.com/key_stats.html#m3b

So, 13 divided by 1.8 is 7.2, which is what we need to multiply the 1980’s gold price by, to get a more accurate “money creation inflation” adjusted price for today’s dollars.

$850 x 7.2 = $6120

Gold, today is not at $6120/oz., and therefore, there is not the same kind of excitement about gold today like there was in 1980. By the time gold hits $6120, or a somewhat higher price by the time we reach it, because it will take time to get there, and during that time there will be even more dollar price inflation by which to adjust, I would only then expect a similar excitement about gold that existed in 1980.

I believe it is that kind of excitement that will drive the ratio price of silver to gold back to the historic norm of 15:1, and most likely exceed it.

So, by the time gold hits $6120/oz., or higher, silver will hit $408/oz. or higher. (Because $6120 divided by 15 equals $408.)

And by then, silver will have merely “kept pace” with gold, having returned to the historic ratio. And that’s what we could expect if the investment outlook for both metals was about the same.

However, for a whole host of reasons which I will now list, I expect the silver price to do significantly better than that.

Primarily, the silver to gold ratio held for hundreds of years at about 10-15 to 1, during which time silver and gold were money around the world. But in the late 1800’s, Germany stopped using silver as money, and silver began to be “demonetized” as nations went to the “gold standard”.

The Democrats in America, back in the late 1800’s supported silver as money, while the Republicans supported only gold as money, but not silver. The Democrats were seen as inflationists, on the side of debtors and the masses of people, while the Republicans supported creditors, such as banks and businesses.

The original story of the Wizard of Oz was like a parable of the battle between silver and gold. The original “ruby shoes” that Dorothy wore in the movie were really originally “silver shoes” that would set everything all right again, and end the nightmarish fantasy of the “yellow brick road” which was a symbol of the gold standard, and backed up by nothing more than a funny man in an Emerald City (green paper money) who made loud scary noises behind a curtain.

Today’s Democrats have morphed into a party that still supports inflation, but via higher government domestic spending programs. And most of today’s Republicans have morphed into a party that tries to defend the value of the dollar by waging war on nations that think of selling oil for Euros instead of dollars.

I explain all of that, because I find it fascinating, but also because it goes to show the reduced monetary demand for silver was a trend that started over 100 years ago. This very long trend of a reduced monetary demand for silver continued all the way until 1964, when it really accelerated and was completed, which was the last year that silver was coined as money in the U.S. But the demonetization trend continued as old people of the last of the “silver money era” die off as they are doing today, and as ignorant 60 year old baby boomers inherit that silver, and typically sell the silver to invest in the real estate bubble.

I believe that trend of “silver demonetization” of over 100 years is now over, and ended for good. Why? Because people are going to make tons and tons of money as silver rises from $15/oz. to over $408/oz., and people are now seeing the potential of that, and are investing money into silver, and using silver as a store of value again, which, in other terms, means a return to “monetary demand”.

Money, after all, serves several purposes, as a unit of account, a means of exchange, and a store of value. As investors buy silver to make money, they are using silver as money (as a store of value), and this is the return of monetary demand for silver, which is the reversal of the trend of over 100 years.

But a funny thing happened to silver just over 60 years ago. The age of electronics began. At the end of World War II, there was a boom in the use of electric devices that needed silver for the electrical contact switches. Per capital silver demand skyrocketed in about two years, up tenfold, from about less than a tenth of an ounce of silver used per year, to nearly 7 tenths of an ounce of silver consumed per year per person in the U.S. And that rate of silver consumption has stayed about the same ever since.

During that time frame, I estimate that about 8 billion ounces of silver were consumed in the U.S. alone, most irretrievably lost forever to be re-deposited back into landfills, and never recycled, nor recyclable. That’s about 1/5 of all the silver ever mined by all of humanity. The rest of the world probably consumed the other 3/5ths of the silver, leaving less than 1/5 remaining.

Most of the rest of the silver sits in forms that are uneconomic to recycle. For example, you may have purchased a silver ring recently for $25, and it may contain about 1/5th of an ounce of silver. Well, you just bought silver at $125/oz. or so if you have purchased any silver jewelry. Silver is even more expensive if it is in the form of tableware or cups.

So, although monetary demand for silver is slowly beginning to return, it still has not started yet in any significant and meaningful way.

Silver investment demand may only be about 50 million ounces per year, while silver recycling probably stands at about 200 million ounces.

So, with so little silver available for investment, silver is easily set to outpace gold, and exceed the historic 15 to 1 ration by the time there is any public excitement about the precious metals.

By the time even 1% of the nation’s $13 trillion in liquid wealth tries to buy gold and silver within a year, the price of gold will probably exceed $3000/oz., and the price of silver would probably exceed $150/oz.

Let me show again how small the silver market really is. The annual production is about 650 million ounces, with recycling about 200 million, and other silver sold about 50 million ounces. That’s a total of about 900 million physical ounces of “fresh” silver entering the market, in a year. That is balanced by about 900 million ounces of consumption, which is balanced by about 45% demand in electronics, about 30% demand in jewelry, and about 20% demand in photography. About 5% is investment demand.

Oh, I suppose more silver than that actually trades each year, as some investors sell silver to other investors, but that’s the total net flows.

But if new investors enter the market, they will have to displace that 900 million ounce annual flow (which can only be done at higher prices), and there is little silver left for any new significant monetary demand, that will surely be coming in the near future now that inflation is picking up.

Another way of looking at the 900 million ounces of silver per year, is that it’s about 2.5 million ounces per day. That’s not much in the way of finance. And since only 5% of that is purchased, net, by investors right now, which is only 125,000 ounces of silver per day, in the entire nation, purchased by investors.

That’s a tight market. Set to explode in price.

All of this is literally guaranteed to make a few certain wise people, such as you, very rich.

As silver moves from $16/oz. to $408/oz., which is literally guaranteed by historical ratios and historical inflation measures, and insured by the silver scarcity, many people will make well over 2500% (as denominated in dollars) on their silver investment.

Over what time frame? Who can say? I expect annual returns to average about 50% until that final goal is reached.

As always, don’t keep your silver with anyone who says they want to hold it for you. Get the scarce physical stuff. All the major brokerage houses and big banks practice “fractional reserve silver holding” for all their clients, and you are not guaranteed anything in the event that they go bankrupt.

Sincerely,

Jason Hommel

*Jason give everyone permission to redistribute the content of his Silver Stock Reports so if you foudn this useful feel free to pass it on to friends*

BullionVault – The best method of gold ownership

You may have seen my numerous post about gold, and gold ownership in general. Call me a “goldbug” if you will but I am one who believes that everyone should own some gold. I’ve researched various method of investing in gold and I’m sure you won’t be surprised when you hear me say that so far in my book BullionVault provides the best service for investing in gold. Before finding out about BullionVault I seriously thought about just buying gold bullion and storing it in a safe somewhere in my house. No doubt having some gold in your pockets for those “hard times” is still a good idea, but if you intend to be a serious investor in precious metals you’ll soon realize that doing it this way is not so wise. Then I thought about just buying gold backed e-currencies and just “hoarding them”, but e-currencies have a series of disadvantages when it comes to purely investing in precious metals. Sure, they’re great if you intend to use the gold & silver as money, but there are serious cost overheads to consider especially since you’ll have to pay hefty “in/out exchange” fees. I then thought about using GoldMoney but their above spot rates are a bit too high for me. BullionVault allows me to buy directly from other members of the gold market and therefore get the best price.

OK, let me cut to the chase and tell you why BullionVault is peerless:

*An inaccessible market becomes accessible*

Gold's spot market is reserved for professionals.

Settlement requires the seller to make delivery in

400 oz bars ($250,000 each) which have never left a

recognised bullion vault. It is hard to find any

professional dealer who will deal under $1,000,000 a

time. Also you must have access to a vault, and

generally they do not open bullion storage facilities

for private individuals.

This is why the private individual has to buy coins

and small bars for private custody. Here the costs

are approximately 6%, insurance is difficult and

expensive, finding buyers who trust you is always

difficult, and shipping overseas in time of crisis

is impossible. These are reasons why the retail

gold market has stayed small.

BullionVault acts as a bridge into the professional

marketplace - allowing private buyers to benefit from

spot market pricing, professional domestic and offshore

storage, and dealing in their own currency. Typical

overall dealing costs are down from 6% to about 0.9%

(a little more for sub $30,000 and a lot less for

more than $30,000).


*Safety*

A string of innovations has made BullionVault

exceptionally secure. Not only is the gold's purity

guaranteed, but it is stored in some of the world's

most secure vaults - with insurance included - as

your direct personal property. There are burglar

alarms on user's accounts, a published Daily Audit,

and a guarantee that your money can only be returned

to you.

*Accessibility*
You can buy and sell 24 hours a day.

You have immediate access to your money which can be

wired back to the original funding bank account on

the day you choose to sell. There is a normal banking

fee for a same day or international wire (usually about

$20) or you can choose a three day transfer which is

free.

*Choice of Vaults*
Very many users say how much they appreciate a

geographical choice of vaults, and the ability to

switch storage location quickly – by selling in one

location and buying immediately in another. This sort

of ability to quickly move physical wealth across

borders by instantly settled trading, rather than by

shipping, is very highly valued.

*Trust Deeds and Law*
Most gold ownership mechanisms are based on trust

deeds, which vest ownership of the gold in the trust,

and make the investor a beneficiary under the trust.

Trust deeds tend to be long and complicated documents

and they are prone to legal challenge.

BullionVault does not use a trust deed. The client

enjoys direct personal ownership of gold, which is

an exceptionally reliable ownership right.

*Storage Charges*
Subject to the minimum of $4 per month BullionVault

storage charges are 0.12% per annum, which is almost

the wholesale rate [0.1%]. This compares with costs

of 1.5% for gold stored in the Allocated Accounts

of bullion banks.

*Audit Trail*
BullionVault believes that there are huge cost

advantages to retail customers in using a collective

mechanism for owning gold. But collective ownership

creates the risk of an undetected record keeping

failure. BullionVault's web publication of its DAILY

AUDIT gives transparency to the records of the

system while still retaining anonymity and allowing

customers reliably to prove their individual

ownership of gold in the pool.

Every business day the sum of the vault and bank

balances is proved to equate exactly to the

thousands of users - not one of which is overdrawn.

Then the proof is openly published on the site.

The DAILY AUDIT sets a new standard in record-keeping

accuracy, and BullionVault both invented the technique

and is the only gold storage business in the world

to use it.

*Right of sale on main markets*
Under BullionVault Terms and Conditions users have

a right of sale on the local bullion market.

You can only do this on deliverable quantities

(usually large bars), which may be above your planned

personal investment. However the effect is that even

if it is too large for you it makes your gold attractive

to other users who have sufficient gold. Should any

price differential arise other users can be expected

to bid for your smaller amount very nearly to the main

market sale price. The result is an almost direct

link from your smaller holding to the main bullion

market - and the link is maintained by natural market

forces.

You have a right of withdrawal too (albeit admittedly

expensive on small withdrawals because coin supply is

not our primary business).

*Security*
BullionVault has assumed that against the odds

your internet access WILL be compromised, and we

have implemented substantial further safeguards to

guard against such an eventuality so as to still

keep your gold and your money safe…

We only allow money which might be raised on your

BullionVault account (i.e. by selling your gold at

the market price) to be returned to the bank which

originally funded your BullionVault account - i.e.

yours.

It would be inconvenient for you, but not catastrophic

- and because the criminal would not profit there is

little incentive to go to the effort and risk the

consequences of detection.

All mechanisms for authorizing a transfer of money

depend on the presentation by the payee, and to the

paying agent, of some data which is supposed to be

difficult to duplicate [signature, PIN, password,

digital key]. Yet nowadays that data is routinely

entered into computers, which are re-programmable

machines designed to save, process and distribute

accurate copies of data! That's why BullionVault

has been designed with this failsafe mechanism to

ensure it returns your money to you.

*BullionVault's failsafe access provides you with

considerably greater security than is possible from

your bank. Your bank probably has to effect payment

on your behalf to hundreds of different places in

the banking system. It cannot switch them off and

still be useful to you. We on the other hand can

switch them all off, and we are much more secure

for you because of it.*

*Unallocated accounts*
BullionVault is sometimes compared to unallocated

accounts. Unlike BullionVault unallocated gold

accounts are not based on gold ownership but on

gold credit. They provide the investor with no

meaningful protection from default. This critical

fact is too frequently hidden from investors when

they buy gold.

*Summary*
Here is a summary the key advantages of buying

gold through BullionVault.
1. Deal costs are down from 6% for small bar gold

to about 0.9%. On bigger volumes as low as 0.1%.

2. Warranted large bars are high integrity gold.

There is less doubt about the quality of the gold

you own.

3. You can deal in any size you want.

4. Insurance and storage is 0.12% per annum - less

than a tenth of typical Allocated bullion storage

at a bank.

5. You get a choice of international storage

locations, and can switch between them.

6. You can deal directly in Euros and Sterling

- as well as US Dollars

7. Dealing is available all day and every day.

8. Your money can be returned to you in 24 hours.

9. There is no nonsense - you own your gold outright.

It is your legal property.

10. We also greatly reduced the time and complexity

of dealing. With reasonable efficiency at their

banks most of our users are able to buy gold on the

day they first make contact with BullionVault.

*BullionVault has made a big impact on the way

people are buying gold. There are already 25,000

users, $100 million in client holdings, and 1,297kg

of gold added already in 2007. It is now easily the

biggest provider of privately owned bullion in the UK,

and one of the biggest in the world.

*You can learn how to use BullionVault by opening

an account. And because we give you a FREE gram of

gold bullion, you can practice trading on the system.

You can open your account and get your gram of gold here:

http://www.bullionvault.com

If you haven’t got the slightest clue as to why you’d want to invest in gold in the first place then you need to read this report (thanks goes out to David MacGregor for compiling it):
Free Gold Report – In Gold We Trust