UNDERSTANDING SILVER AVAILABILITY
By Theodore Butler
Early October 2009

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

One of the key forces destined to greatly impact the long-term price of silver is future availability. It is also one of the least understood factors in the study of silver. Let me first define what I mean by availability. It is the amount of silver that could be bought freely and openly at or near the current price. By my definition, the available supply is not total above ground inventories, or total production, or total resources in the ground. While these are very important factors in the silver (or any other commodity) market, they have nothing to do with availability. As an analyst who studies these factors closely, I wish to establish that there is a very big difference between total supply and available supply. Great rewards will flow to those who understand and act on that difference.

The amount of available silver is only the amount that can be bought today. While this is true for all commodities, including gold, the difference between available supply and total supply is critically important and unique to silver. There are a number of special things that make the availability of silver more critical than in any other commodity. These special factors are easy to understand and verify.

First, as a consumed commodity, like copper, corn or crude oil, the current production of silver is largely used up. The production is spoken for already, by known demand. That is the purpose of the production of all commodities in the first place. We produce all of them so that they can be utilized and consumed. Therefore, the amount of consumption or utilization automatically reduces the availability of any commodity’s total production. In the case of silver, all of the current annual mine production (680 million ounces) is consumed by fabrication utilization. In fact, we must recycle scrap silver to the tune of 200+ million ounces in order to satisfy total fabrication demand. The world has been consuming silver in this manner for 100 years. So, we can make the statement that the entire world mine production of silver is unavailable after normal fabrication demand.

In this circumstance, silver is the same as any consumed commodity. The world consumes the entire 30 billion barrels of oil it produces each year, as well as the 15 million tons of copper it produces, and the 25 billion bushels of corn it grows. Sometimes, we produce a bit more than we consume, and we call this condition a surplus and we witness an increase in world inventories. Sometimes, we consume a bit more than we produce. We call this a deficit condition, and world inventories shrink by the amount we over-consume. But, by and large, the world consistently consumes what we produce when it comes to commodities. It can be said there is not much available supply after we subtract normal consumption.

The same is true with existing above ground inventories. Yes, there are, obviously, above ground stocks of silver and all commodities. For instance, my estimate for above-ground world inventories of silver bullion has long been one billion ounces. But there is a big difference in what exists as inventories and what percentage of those existing inventories are actually available for sale at current prices. The percentage that may be for sale is incredibly small. I think I may be overstating the amount if I were to say 5% or 10 % of existing silver inventories may be available over the course of an entire year. On a much shorter time frame, say weeks or months, very little silver inventory is available. That’s why there was shorting in the SLV, in my opinion, to the tune of 30 million ounces in the past few weeks. That quantity of silver is just not available in the short term.

So, what makes the question of available supply so special in silver, more so than in any commodity? It’s silver’s dual role as not only an industrial commodity, but also as a recognizable investment asset. That is the wild card; the special characteristic unique to silver among all commodities. If the amount of production and consumption of copper, or corn, or crude oil is balanced in a given year, the price would most likely remain largely unchanged. That’s because these commodities are not considered primary investments. Investors don’t regularly buy physical amounts of these commodities in their customary wholesale unit of trade. It’s not practical to physically buy 25,000 lbs. of copper, or 5000 bushels of corn, or 1000 barrels of oil in physical form.

The situation is much different in silver. Total mine and scrap production can be in perfect balance in a given year, yet the price can change radically, depending on what happens to physical investment demand. Investors buy physical silver in many forms, including the standard industrial unit of 1000 oz bars. In fact, thanks to the introduction of the various forms of silver exchange traded funds (ETFs) over the past few years, investment in 1000 oz. silver bars is a prevalent form of direct investment demand in silver. Over 400 million ounces of silver are now held in the publicly owned ETFs and similar vehicles. The vast majority of this silver appears to be held by investors for the long term. This silver is not for sale at current prices. Thus, this silver is not available to the market.

Make no mistake - the new silver purchased by investors in the future is in direct competition with the silver needed by industrial consumers. No other industrial commodity (save perhaps platinum or palladium) has this unique profile. It is what sets silver apart. This certain current and future buying competition is the long-term turbo-charger to price for years to come. 

Let me introduce an idea and an example that might drive this point home. Available supply is very limited and can only grow slowly in an orderly price environment. Mines and refiners can only supply a very small amount of silver on a daily basis, no more than 2.5 million ounces a day. All that silver is spoken for in ongoing fabrication demand. Those that own inventories don’t sell even that amount of real silver on daily basis. Yet, literally overnight, investors can, and do, demand from time to time, tens of millions of ounces.  It’s rare to have a surge in supply from selling but there can easily be a surge in buying. Therefore, it is only a matter of time before a collision occurs between almost unlimited investment demand crashing into very limited available supply. The only thing that has prevented that collision from occurring to date is the paper selling tricks of the manipulative shorts.

The example I would use to highlight my point is that recently, Barrick Gold announced the imminent construction of a big gold/silver mine that, when completed in four years, should produce more than 30 million ounces of silver annually. That’s a lot of silver for a mine (Pascua-Lama) to produce in a year and that mine will be among the world’s largest. But let’s put that amount of silver into perspective. Over a two-week period recently, over 30 million ounces of silver was purchased by investors in the big silver ETF, SLV. Not 30 million ounces for a year, four years from now, but 30 million ounces right now. The only reason the price did not explode is because SLV investors were cheated by big short sellers in SLV shares who, because they couldn’t supply the real silver as required by the prospectus, sold shares short instead. You may ask if they can do this indefinitely? I assure you that they can’t. That crooked game is coming to an end. Count on it.

Comparing Gold

What about gold? Certainly, gold is a prime direct investment asset. More investment money flows into gold than any other commodity. But there is a big difference between gold and any other commodity, including silver. Gold is primarily used for jewelry and as an investment asset, with a very small portion of annual mine and scrap production used industrially. As such, much of the current gold production is available for direct investment. Remember, none of current silver mine production is available for investment, with little total production (mine plus scrap) available for investment. This is not intended as a knock on gold, just as a statement of fact. Most of the total gold production is available for investment purposes, little of the total silver production is available for investment. It should go without saying that in these circumstances, any investment buying in silver should have a disproportionate impact on price.

As time has past, great amounts of gold have been accumulated in the world. The opposite situation has evolved in silver, whereas 60 years of deficit consumption has reduced world bullion inventories by 95%. Many are still hesitant to accept the fact that because of this pattern, there is actually more gold bullion in the world than there is silver bullion. Given gold’s high price relative to silver and the resultant market capitalization of each, much more gold is available for sale at current and higher prices than silver.

There is a tremendous amount of investment money in the world, ready to pounce on the next promising opportunity. The tightness in the availability of silver means it won’t be able to accommodate increased investment demand. There is no way that hot, big investment money can suddenly plow into silver without a shock to the price. It is nothing short of a miracle that someone big hasn’t stumbled onto silver recently. It is only a matter of time before someone big does. You must be positioned before that occurs.

There is an incredibly small amount of real silver available to the world’s investors. I would guess no more than 100 million ounces in a given year. Over the past few years, more than that amount has been purchased in all forms. This silver bought in the past came from other investors, including Berkshire Hathaway’s Warren Buffett. This transfer of investor silver is now largely behind us. Now the real competition between investors and users is about to begin. It promises to be a fierce competition destined to result in sharply higher prices.

Up until now, the price of silver has been largely contained (even though it has kept pace or exceeded the returns for any other asset over the past 5 to 10 years). The reason for the price containment lies principally in the silver manipulation, where paper short sales have succeeded in depressing the price. But the introduction of the investment vehicles that deal in physical silver and the potential pressure by regulators on the manipulators, as well as the growing awareness by investors of the merits of silver, will make the manipulation a thing of the past. Paper short sales will be overwhelmed by physical buying at some point. That point appears close at hand. When you put the end of the manipulation together with the shockingly small amount of real silver actually available for purchase, you have the necessary preconditions for an historic price explosion. As the world comes to learn how little silver is available for investment, a rush to buy must commence. Do your buying before it commences.          

DANGER AHEAD

By Aubie Baltin

Newsletter editor Aubie Baltin is a disciple of the Austrian School of economics and a former economics professor.  His gloomy forecast is worth reading.  We synopsized his recent letter.

The coming Commercial Real Estate failures, bankruptcies and foreclosures will DWARF the sub prime debacle. The economy is NOT going to TURN AROUND because of the TARP money-which is just basically a financial "papering over" of $13 trillion dollars bail out of whom? Certainly not the people. The FDIC is bankrupt, Freddie and Fannie are bankrupt and the Federal Government is bankrupt. That is why they (the banks) are not lending even though their balance sheets look like they are strengthening. They all know that there are a lot more write-offs yet to come.

A while back, I mentioned that most of the homebuilders would go bankrupt. It has not happened yet; I refer you to the Deutche Bank projection that by 2011, fully 1/2 of all the homes in the U.S. will be worth less than their mortgages. By then, the homebuilders will be having their burials.  Soon, 26 million households will be getting their increases in their Alt A mortgages.
 The more the U.S. government talks about stimulus, the cheaper the dollar is going to get and the higher Gold is going to go. I may be repeating myself for emphasis, but JOBS are not going to be coming back. Many jobs will be permanently gone, never to return and this is going to make this the greatest recession/depression of all.

There has been a great BANK ROBBERY, but the banks have done the robbing.

The Bernanke pronouncement made big headlines; that this recession is almost over. Mr. Bernanke has NEVER been right in any of his pronouncements. That is quite a record.

Just to stay even with the employment issue and have jobs for the new people coming out of schools and colleges, we have to CREATE 150,000 jobs per month. Instead, we are losing on average 500,000 jobs every month for six months now. Who is kidding whom that the recession is almost over. 
                                                             
Look at the math when it comes to spending. We must borrow three billion per day from foreigners just to stay alive. The interest on our present debt is now 800 million per day. How much longer will foreigners keep financing this debt as they are all scared of the dollar?

The United States credit markets are losing their legitimate liquidity and increasingly are turning to the desperate reckless alternative, namely the dreaded monetization - the WEIMAR pathway has been taken.

Dilution of the U.S. dollar from the printing press is certain to result in a much lower U.S. dollar exchange rate. I am looking for a 30% to 50% loss in the value of the dollar. It may take six months or it may take two years. Many people talk about DEFLATION, but only because they don’t fully understand what Deflation and Inflation really are. It really looks to me like stagflation (inflation with bad unemployment) and a hyperinflation Tsunami is already in sight. All Central Bank and U.S. government responses have been and will continue to be the same, which is money printing, debt issuance, and running federal deficits.

 Without a proper warning, the U.S. public is aligned to lose their life savings. They need to heed the warnings, to depart from paper based investments. They need to shed U.S. dollar based securities and assets of all kinds and to fully embrace gold and silver. You will and are witnessing the largest transfer of wealth from paper assets to HARD precious assets. Few will do this or recognize this as they will rush to US Treasuries, the Biggest and last bubble to a coming implosion.

The prolific printing of US money puts the Dollar at grave risk on many fronts. There is going to be a fast approaching U.S. dollar crisis. Your BEST defense is mainly gold, as other currencies will be devalued also. Right now the U.S. Treasury demand is aided by HIDDEN monetization of a very large scale, both on the domestic front with primary bond dealers and the foreign front with collusion among central banks,

Your owning gold offers the individual protection at the institutional level, the corporate level, and the personal level in a unique, stable, and subtle way. It is the only real money and I sleep well at night, no matter what the world of finance does. Frankly, it is still cheap given the insane multiples in increased money supply both inside the U.S. and globally in the last 3-5 years. If one factors in the derivatives, the multiples of money growth are even higher. I thus say that the price of gold should be at least $2500 per ounce right now and even approach $3000, but it is held down with brute force in a clear criminal fashion by the GOLD BANKS, which will not be possible to continue much longer.

 You also buy silver because that is cheaper, has more leverage and at this stage is used as both an industrial and monetary metal.  I am looking for 20-23 by the end of the year, $35 by next year.  The one ounce silver eagle now has a $2 premium, but I would buy some anyway.

I really do not care what most analysts and economists are saying about an end to this recession. The numbers put forward by CNBC and other government agencies have not added up for literally years. We are now moving into the next leg down into the abyss of what will be the greatest depression in history.

The people in Congress are the parasites who feed on the private sector and will eventually kill it. The parasite will destroy its host. The G-7 countries and the United States, which have all become welfare states, are headed towards an immense collapse because the debts being accumulated are un-payable and cannot be extinguished.  In my opinion, there is no escape from the final debacle. 

CURRENT EVENTS
By Theodore Butler

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

One of the main reasons I believe we are very close to a physical shortage in silver is due to developments in the big silver ETF, SLV.   In the last few weeks some 30 million shares of  SLV have been illegally sold short and have gone unreported. This equals 30 million ounces of silver owed to the SLV. The only reason the shorting in SLV shares took place was because the short sellers did not have the silver for deposit and that they had no choice but to sell short the shares instead. This indicates the strong possibility of a physical silver shortage. If there is one thing that could overwhelm the short sellers in COMEX (or SLV) it is a physical shortage.

I am convinced that the same crooked commercial traders who short manipulatively on the COMEX also short shares of the SLV from time to time, for the same manipulative purpose.  They do this when they don’t have the actual silver to deposit in the Trust, as dictated by the prospectus. This is as illegal as a summer day is long. In simple terms, it is a default.

Another thing that could cause the silver shorts to be overrun is regulatory intervention. This intervention is long overdue. I’m optimistic about the intent of the new chairman of the CFTC, Gary Gensler, in this matter. Chairman Gensler will do the right thing and enforce legitimate position limits in all commodities, including silver.

Yesterday, the CME Group, Inc., the world’s largest derivative’s exchange and owner of the COMEX, issued a “white paper” on its observations and recommendations in the matter of proposed position limits. I don’t think I’ve ever read a more self-serving presentation. Not only was it devoid of substance, it was presented in an arrogant matter.

It was insulting to Chairman Gensler. The report, in effect, told the CFTC to get lost and
that the CME knew best about everything under the sun.  This is the wrong approach to take with your primary regulator if you are trying to win the Commission over.

For silver investors, this white paper is great news.  It makes me question if the exchange, and by extension the big silver shorts, know what the heck they are doing. That’s the real bottom line here. I know the shorts are corrupt and powerful. I know the technical fund longs have been easy to deceive. I know the COT structure is negative. I know what usually happens in previous set ups. The price gets temporarily crushed. And I know that it may happen again. But I also know that if a physical silver shortage is at hand, the shorts don’t have a prayer. I know that a regulated entity should not insult its regulator. I know how Chairman Gensler’s words have been unusually clear. I have sent him just about everything I have written on this matter and warned him that the bank could be robbed at a precise time and place.

For silver investors, the advice is clear. Be prepared for a sell-off. Be just as prepared for a price explosion. No matter what, you should own silver.  This matter must soon be resolved.

EXPROPRIATE THE CAPITALISTS
By James Cook

Columnist Vasko Kohlmayer quotes Michael Moore in his current film, “Capitalism: A Love Story.” “Capitalism is an evil, and you cannot regulate evil... you have to eliminate it and replace it with something that is good for all people.”

Kohlmayer goes on to say that, “Capitalism is increasingly cast as the great villain of our time. It’s blamed for exploitation, poverty, fraud, alienation, crime, racism and nearly everything else.”
Kohlmayer continues, “The bad rap could not be more undeserved. Rather than mankind's scourge, capitalism has been its greatest benefactor. It is, in fact, the only socio-economic system that can provide ordinary people with dignified and prosperous lives. It was only with the advent of capitalism that the common man was able to escape the penury and filth of his existence to which he had been previously consigned. Until then, the lives of most people were short, hard and miserable. Today, as if by miracle, we can enjoy greater comforts and ease of life than the kings of the past.”

As author Lew Rockwell confirms, “Capitalism, and capitalism alone, has rescued the human race from degrading poverty, rampant sickness and early death.”

Kohlmayer points out, “Capitalism is responsible for nearly everything that makes human existence easy and comfortable. The automobile, the supermarket, the personal computer, the washing machine, the hammer-drill, the iPhone, the airplane, the TV set, the chewing gum, electricity and countless other good things have all been birthed and mass produced by capitalism.”

Rockwell agrees, “The profit system balances human needs with the availability of all the world’s resources, unleashes the amazing power of human creativity, and works to meet the material needs of every member of society at the least possible cost.  It does this through exchange, cooperation, competition, entrepreneurship, and all the institutions that make possible capitalism – the most productive economic system this side of heaven.”

Says Kohlmayer, “Because of its immense wealth generating power, people who live in capitalist societies enjoy rising standards of living and material affluence. Conversely, those who live in non-capitalist societies invariably experience the opposite. . . . The rule always holds: Capitalist societies are invariably prosperous. Non-capitalist ones are always poor.”

What’s going on with Michael Moore and the Hollywood left?  Actors like Sean Penn and Danny Glover are kissing up to the socialist dictator Chavez in Venezuela.  They seem to prefer a government strong man who will confiscate the property and wealth of those who earned it and transfer it to illiterates in exchange for their votes.  This must also be their vision for America.  These are dangerous trends.  If they were to prevail, those of us who aim to prosper will be on the outside looking in.  Capitalists may even become like the Russian kulaks (farmers) who were exterminated by Lenin and Stalin in order to implement collective farming.  Socialists and communists have often murdered those who disagreed with them.  As Che Guevara advised, “the oppressors must be killed mercilessly  . . . . the revolutionary must become an efficient and selective killing machine.”

Michael Moore has a lot more in common with the Bolsheviks than anyone would like to think.  The author David Horowitz (a former associate of the Black Panthers who experienced the Panther’s murder of a friend) has become the leading authority on the radical left.

He puts it this way, “It’s interesting that we have words like ‘neo-Nazi’ to describe post-Hitler Nazis, and ‘neo-conservative’ to describe liberals who left the Democratic Party when it took a sharp turn to the left, but not ‘neo-Communist’ to describe the massive numbers of people on the left – and among them very influential people – who share, almost to the jot and title, the old communist view of capitalism, and are prepared to act on that perception. . .   Neo-communists like Moore share the old communists’ antipathy for the United States and sympathy for its enemies, even enemies as evil as Iran and Hizbollah.

“A neo-communist is someone who is convinced that  race, class, and gender hierarchies make it not only legitimate but necessary to describe America as a “white supremacist” society.  Neo-communists believe that a revolution is necessary (if not opportune at the moment), that the Constitution is a disposable document, and that America’s communist and Islamo-fascist enemies (Iran, Venezuela, Cuba, Nicaragua, Hizbollah, the PLO and Hamas) are freedom fighters or at least on the right side of the armageddon that faces us.

“These are views shared by The Nation magazine, by Commonsense.org, by the Indymedia crowd, by the social justice movement, by the majority of the Black Caucus and the Progressive Caucus on the Democratic side in Congress and by tens of thousands of university professors who indoctrinate their students in these pernicious ideologies every day.  They are the views held by the leaders of ACORN, the SEIU, AFCSME, and other leftwing unions, by radical feminists, by organizations like MALDEF and La Raza, by the ACLU and the Center for Constitutional Rights. . . .  This coalition, which I have called the ‘unholy alliance,’ presents a massive threat to America’s security and its individual freedoms and its free market system.”

Commenting on Michael Moore’s new film, which he calls lying propaganda, columnist Walter Williams sums it up; “Not withstanding all of the demagoguery, it is capitalism not socialism that made us a great country and it’s socialism that will be our undoing.”

Silver Sagacity

Put 10% of your net worth into physical silver.  Hold it for the long term. Buy actual silver bars and coins.  Get them in your possession.  Store in a bank deposit box, home safe or hidden area in your home.  If you can’t take possession, store your silver at Brink’s and get your own storage certificate.  Don’t buy on margin.  Don’t store you silver unless you get the serial numbers in your name.  Avoid pool accounts.  Avoid small dealers and new start-up companies. (The failure rate is 90% every decade.) Don’t send your money across the country to some Internet dealer who is behind on his car payment. Don’t get talked into buying rare coins, switching from silver to gold, or any kind of leverage.  Don’t store silver that is co-mingled with other silver.  Don’t buy paper silver; it isn’t all there.  Buy physical, put it away and hold it.

There are no guarantees, but the evidence indicates exciting times ahead for silver.  As Mr. Butler has often said, “this could be an opportunity like nothing else.”

We recommend bags of 90% silver coins.  You get 715 ounces of silver in the form of 10,000 Roosevelt dimes, 4,000 Washington quarters, or 2,000 Franklin or Kennedy half dollars (your
choice).  All are dated prior to 1965.  A bag weighs 55 pounds  and we ship it to you in two boxes, each weighing 28 pounds.  We ship by U.S. mail.

Another good way to own silver is with 100-ounce bars of .999 pure silver. These bars are struck by various mints. We have good sources and our bars are attractive and problem free. These bars stack well and fit into corners of your safe or secure place. You can stack them to the ceiling.

We also recommend you buy shiny, new one- ounces silver coins struck by the U.S. Mint.  The U.S. silver Eagle is .999 pure and has been struck every year since 1986.  You can also get one-ounce silver Maple Leafs struck at the Canadian Mint or Philharmonics from the Austrian Mint.  They come in rolls of 20.  It’s possible to acquire a roll set of silver Eagles.  That’s one roll for every year or 24 rolls with different dates.  Call us today at 1-800-328-1860 and order silver.

Sincerely,

James R. Cook

President

Investment Rarities Incorporated has prepared this material for your private use.  Although the information in this publication has been obtained from sources which Investment Rarities Incorporated believes to be reliable, we do not guarantee its accuracy and such information may be incomplete or condensed.  All opinions expressed in this publication are those of Investment Rarities Incorporated and are subject to change without notice.  Predictions or projections can be wrong and financial advice can prove to be unprofitable. Gold and silver can go up or down in value. Gold, Silver and coins are not necessarily a medium appropriate for every individual. All rights reserved. Copyright 2009 Investment Rarities Incorporated.