Silver to move higher in a violent manner Everyone seems to remember the story behind the silver market reaching its all time high in January of 1980 of $50.35.  That's right, the Hunt brothers cornering the silver market.  What no one seems to realize is that they actually succeeded.  Were it not for the COMEX exchange "changing the rules" i.e. ceasing to allow buy orders accepting only sell orders, the Hunt brothers would have owned all the silver in the world, both above and below ground. The high prices in 1980 brought lots of silver to market in the following years, and left a big surplus to work off. Beginning in 1990, however, the world began using more silver than mines and recycling produced. By the end of 2001, that shortfall had eaten up nearly 1.5 billion ounces. Since 1990 fabrication demand has averaged 156% of yearly mine production. For every ounce of silver the mines produced, industry consumed one and a half ounces of silver. But in spite of production shortfalls year after year, silver's price remained almost flat in the 1990s. Where did all that silver, 1.5 billion ounces, come from? Some say a conspiracy exists to suppress the silver price, and that may well be. I don't doubt the shortfall has been papered over with derivatives, leasing, and futures. All the same, eventually the price must rise as demand grows and supplies shrink. If a conspiracy has tried to suppress silver's price, so much the better. When they lose control (as they inevitably will), the price will surge even farther than natural forces alone would have sent. The documented disappearance of visible and known inventories of many billions of ounces of silver inventory (some six billion alone from the former largest holder of silver, the U.S. Government) confirms the existence of a deficit exceeding, on average, 100 million ounces annually for 60 years. Keep one thing in mind: the key to the silver price is monetary demand. Other categories of demand alter only slowly over time due to technological or economic changes. Supply-demand imbalances in commodities can persist for a surprisingly long time without moving the price sharply. In the past decade, the price of silver has been practically flat, with a few spikes, because monetary demand has been absent. Strong, sustained silver moves occur when many people decide suddenly they want silver because it is money. Today, when stocks, currencies, bonds, and other paper assets have begun to disappoint investors, investor attitudes are shifting. What begins as a trickle ends as a tidal wave when the panic peaks. When public revulsion at the US dollar begins, the tidal wave will become a tsunami. Silver, far more volatile than gold, will benefit most. RELATIVE MARKET SIZE In the 1960 - 1980 precious metals bull market, gold rose from $35 to $850, a 2,429% increase. At the same time silver rose from 90 cents to $50, a 5,556% increase. Silver rose 2.3 times as fast as gold. What is the obvious reason for silver's greater volatility? Compared to gold silver is a tiny market, so the same amount of money drives silver much higher. That's why you expect to see silver rising faster than gold in a bull market - the ratio ought to be trending down as both metals rise. Silver Is Rarer Than Gold That's right, Silver is indeed rarer than Gold.  As hard as it is to believe, there is roughly 300 million ounces of Silver available in the world, and over 4 billion ounces of Gold.  Yet, the price of Silver is about 1/80th the price of Gold, for now. What is of particular interest to investors is the simple fact of how undervalued silver really is relative to anything else. The Federal Reserve itself has indicated that the 1913-dollar is now worth 5 cents. To get a current "dollar" back to the 1913 equivalent we would have to use twenty of them. Expressed another way, (.05 x 20 = 1.00). This gave me an idea. Let us investigate how well gold and silver have kept up.  In 1913 a twenty-dollar gold piece was the coin of the realm. Taking our twenty times factor we see $20 x 20 = 400, so if we trust the FED gold would be worth $400. This is approximately true because a twenty dollar gold piece is not exactly a troy ounce, however the idea is sound.  But now let us have a look at silver at $1.29 per ounce (1913 official price) x 20 = $25.80. Interesting gold today is near $360 and silver is around $5.00. We can see from this example that gold would have to increase by 25% to reach this theoretical price, but silver would have to increase by 550%. Something to think about? Silver Fundamental to War One item of paramount importance to nearly everyone is war. According to data in the early 1980's, the U.S. military used more than 5,000 items containing silver, ranging from a naval torpedo using 4,161 ounces of silver to the smallest relays using less than 23 grams. The Defense Department has acknowledged that there are over 150 different kinds of bearings containing silver. The Defense Department also states that over 100 different kinds of batteries containing anywhere from a few grams to over 1000 ounces of silver are used in military applications. A good amount of silver is used in jets, ships, submarines, and rockets. Silver is used to provide bonding of titanium and stainless steel. In most military applications it is necessary that all equipment work accurately and reliably. Only silver enables this military hardware to meet these requirements. At one time an official government report stated: "The increase in the use of precious metals in both military and civilian commodities has been phenomenal. Indications are that this use will continue or increase in the coming years." At the time, President Reagan had pledged to build the MX missile, which would have required massive amounts of silver for backup battery systems. According to "Silver Profits in the Eighties" by Jerome Smith, a very interesting condition was mentioned. "In the event of a major war, no matter how much per ounce it would be willing to pay, there is no way that the U.S. military could purchase the silver it would require for such a conflict. Using the estimated silver usage during WWII, all the available silver bullion in all commodity exchanges and in private stockpiles worldwide would only satisfy the national need for two years. Silver Opportunities are Rare and Ignored Truly great profit opportunities are exceptional. Most people never see them or take advantage of them. The secret to capitalizing on these "once in a lifetime opportunities," is to buy at a relatively low price and ahead of the crowd. While most investors state that this is a primary rule of investment success, few actually practice it. As more and more people become aware of an opportunity, the price appreciates and the potential for a big percentage gain lessens. This type of action takes courage. Most people are followers, not leaders, although they like to think otherwise. Looking over a recent issue of Forbes Magazine featuring the richest 400 people, number one Bill Gates and number two Warren Buffett are both silver investors. These two gentlemen, and obvious leaders, have the courage to buy without concern of what is currently "investment fashion." Gates' worth is estimated at $43 Billion. A mere 1% of Gates' wealth, devoted to silver, would buy up nearly all that is currently on the COMEX. After hitting a multi-year low of approximately USD 4 / oz. in November 2001, the silver price moved into an up-trend, much in sympathy with the gold price. Unlike the price of gold, the price of silver fell from its up-trend last summer. It did however find support above the previous November's low of USD 4.25, confirming that the down-trend had indeed ended. The silver price has in fact established a double-bottom from which it is tending upwards, signaling that a major turn-around has been established. The silver price is usually more volatile than the gold price. Yet interestingly, while the gold price fell 14% from its February high, the silver price has fallen less than 5%, denoting relative strength. It also shows that the support above $ 4 is very strong and likely is capable of absorbing any selling. Due to the fact that silver demand has surpassed supply for many years, "Implied Net Disinvestment" has fallen over the years - a trend which, if it continues, will inevitably lead to higher silver prices. Investment demand will of course play an important role and the bull trend in gold may well spread to other precious metals. Mankind's timeless fascination with silver stretches back 6,000 years. As early as 700 B. C., the Mesopotamian merchants used silver as a form of exchange. Later, many other civilizations came to recognize the inherent value of silver as a trading metal. The ancient Greeks minted the drachma, which contained 1/8 th ounce of silver; and in Rome, the basic coin was the denarius, weighing 1/7 th ounce. And let's not forget the English shilling "sterling," originally denoting a specific weight of silver, which has come to mean excellence. Today, millions of people throughout the world recognize silver's intrinsic value and have made it popular as an affordable investment. A deficit is the most bullish condition possible for any commodity. We must get higher prices for silver when inventories (from leasing or other sources) dry up. The price of silver, once inventories dry up, must go high enough to encourage enough new production and discourage enough old demand, so that the long-term structural deficit comes into balance. Given the built-in price inelasticity on both supply and demand, the prices must go higher than they otherwise would. While we don't know the timing, we do know a deficit eventually guarantees higher prices. I am speaking in absolutes here. Fundamentally, silver must go higher. In most ways, that's really all you need to know about silver. After all, it is much more than we know about any other commodity, namely, that it must go higher. Not might go higher, must go higher. At current prices, it's going to be very hard to lose money on silver, and very easy to make a large percentage gain on silver. It is what makes silver close to the perfect investment. We don't know how high silver must go to satisfy the mandate from the law of supply and demand. Nor do we know how silver prices will behave, once the journey begins in earnest. I am a firm believer that it won't be a normal price journey. By that I mean, it won't be two steps up and one step back. It won't be typical of the majority of bull markets in history. Not only is silver going much higher, it will do so in volcanic fashion. Silver has a strong history of suddenly erupting in price and doubling or tripling in short order. Prior to 1983, silver was the most price-volatile commodity of them all. It has now been more than 15 years since silver has had a quick double or triple in price. Make sure you have your maximum silver position established now, because when we do explode, there will be no second chance to take advantage of today's current low prices and low risk.