BEST OF JIM COOK

October 18, 2005

BETTER THAN OIL

Sometimes a financial writer makes a great case for silver when writing about other assets. Richard Russell wrote this recently. "We see gold moving up past all paper currencies. We see commodities (without agriculturals) surging higher. Oil has now joined the parade of rising tangibles. Diamond prices are through the roof, as are many collectibles (a Picasso just sold for over $100 million). The Sotheby’s and Christy’s auction catalogues are stuffed with collectibles at high prices. Real estate is going wild, particularly on the two coasts. Condo-mania rules, and one sector after another shows itself as the bull market in tangibles heats up.

"You can live without a Picasso or a second home or a high-priced condo – but oil, that’s another matter. The Chinese and Indians may not be wild about Matisse paintings or million-dollar condos in Las Vegas, but they are most definitely interested in gasoline with which to run their fast-expanding population of cars. So today’s oil story is very different from previous oil ‘crises.’ This time one third of the population of the world has entered the battle for oil. Therefore, today’s rise in the price of oil is not just another speculative spike, it’s the next higher zone or level for oil, just as 450 and above represents the next higher level for gold.

"So say ‘Bye’ to the age of paper money, and say ‘hello’ to the new age of the real, the tangible, the solid. The Fed can create $30 billion of M-3 liquidity in a week, but they still can’t make a quarter-carat diamond or an ounce of gold or a lousy pint of oil. So if oil or gold correct here or if oil or energy ETF’s sink a bit, don’t complain. Treat such action as an opportunity."

Excuse us for saying it, but silver makes a better story than either gold or oil. Silver is far more indispensable than gold and among minerals second only to oil for widespread usage. However, oil is fully priced and the law of supply and demand has always determined its price. Not so with silver, where a diminishing supply has had no similar impact on price. So, from the standpoint of relative value, we see silver as vastly superior. Furthermore, you can physically own silver and not oil. Silver is more convenient to hold, reasonably portable and has a history of monetary use.