Why You Should Invest in Silver?

  Written by Dr. Kevin Ong, M.D. on Sep 3, 2008 10:16 am

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Why Invest in Silver?

There are several reasons to invest in Silver right now:

- Supply and Demand
- The Gold Ratio
- The Currency Cycle
- Inflation
- Resources
- The Commodity Bull Run

The opportunity that presents itself now is a once in multi-generational opportunity. The Pros for Silver doesn’t just outweigh the Cons, it has produced a platform for a new era of uncharted territory.

Supply and Demand

Demand for silver has out stripped supply for about the last 15 years and the world consumes more then it produces. How can we do this you ask? We draw on above ground reserves usually in the form of investment bullion. Most of what is used each year is depleted in the process and very little can be recycled, this is an element gone from our world for ever. Most is used in electronics, film, medical barriers, laptop and mobile phone batteries, silver plating etc. By comparison little goes to areas that can be recycled, such as jewellery, numismatics etc.

Either a limit of supply or increase in demand will increase Silver’s value - but for both to occur this causes prices to skyrocket.

The two graphs below highlight this best. The first is the world reserves of Silver (Ag) according to the CPM Group, the second shows the spot price for Silver (Ag) sourced from Kitco.

The Gold Ratio

There is a relationship between Gold and Silver, historically it has always been around 15 to 1. This means 15oz of Silver is equivalent to 1oz of Gold. Many currencies around the world have adopted a similar ratio whether it be (15 to 1), (15.5 to 1) or (16 to 1). This relationship ended when the gold standard was removed (interim introduction of bi-metallic coins) then the Cupronickel (as we have today) was introduced and replaced Silver coins completely.

Silver has not really lost its value it’s just not required on the demand side to produce currencies at the present time. The current ratio now is around (50 to 1) but as the supply of Silver diminishes, once again Silver should return closer to the (15 to 1) ratio. It follows, that with a Gold spot price of $US1,000 per ounce, we could soon see Silver closer to $US67.00 per ounce.

The Currency Cycle

All currencies have a life expectancy and have been measured for the last 1600+ years as being approximately the same as the current life expectancy of man. With the last collapse in the 1930’s, and adding the current life expectancy of man (~74 – 78 years) and you get 2004 – 2008. But no crash yet?

We may see a delayed reaction this time round due to globalisation, all currencies will most probably have to collapse in unison, so it will take a lot longer to actually see the effects. It is similar to stock in a property fund, which can drop in price in seconds individually, but it takes a lot longer to actually see the actual property prices decline as the process to sell property is more lengthy and involved. Previously a single country would have its own currency collapse (example: Germany 1923 Hyperinflation) but now it will be a drawn out series of hyperinflation incidence that will spread like a cancer through the global financial markets for years.

A currency is a commodity that is bought, sold and traded. You work for it (Buy it) you spend it (Sell it) and it’s traded on markets all over the work. It has its own supply and demand variables and when supply is increased and demand is decreased (opposite to the current scenario with Silver) it will drop like a rock.

Inflation

As pointed out in ‘The Currency Cycle’ the falling dollar brings about inflation, too much money is printed so each note is worth less so takes more notes to buy something. As in the below graph at point ‘a’ the currency has become its own enemy and like a dam breaching it’s banks is now a loosing battle. In the first 20 years we may have had to only double production of money once, but then in another 7 years we had to double it again, then in 3 etc. until we get to the stage that it becomes worthless before its off the press. It’s a long build up to a very sudden and very tragic end.

Platinum, Gold and Silver are then seen as a great store of wealth as we can not produce infinite amounts as we can do with fiat currencies. Our current currency IS a fiat currency - the banking system can potentially keep adding zero’s to the end of bank accounts forever but it’s the speed of hyperinflation that will mark the end of a fiat currency not the actual value of it.

Resources

Precious metal do not get the respect they are entitled to at the moment, largely because ‘Wall Street’ does not make the huge commissions nor brokerage on metal trades like they do with stocks and bonds. The trading of Silver futures has suppressed the true value of Silver. Realistically, Silver is a resource that, if equaled out amongst everyone in the world, would spread to less than one twentieth (1/20) of an ounce per person - that’s less that US$1.00 to buy your fair share. Silver as a resource is seriously under-valued and only now that Demand is bringing this to light will we see a correction to it’s true value.

The Commodity Bull Run

As this graph below demonstrates we are now at the begging of the next Bull Run in Silver and with everything mentioned above, many analysis and commodity / precious metal experts have predicted prices ranging from US$30.00 to US$10,000.00 an ounce.

In our personal opinion, in the event that our current fiat currencies do not collapse we put the peak at US$120.00 – US$250.00 an ounce, however if history repeats itself and the fall of currencies bring back a gold standard then we predict to see Silver about 10x that price US$1,200.00 – US$2,500.00 an ounce.

In any case one thing is certain for the future; it will be a very exciting time for all Silver (Ag) holders, many believe we are still only 1/10th of the way into this Silver Bull Run that may last for up to another decade. Smart investors are moving in now; this is evident by the recent gains in prices.

For a trusted and reliable source of U.S. Gold and Silver Eagle Coins that is the only sure way to protect your family's finances from inflation and recession, we put our stamp of approval on the Silver Snowball Program promoted by Ed Freeman and Dr. Tom O'Brien. International shipping is also available to all investors for a flat rate of $6. Silver Snowball - The World's Most Affordable Gold and Silver Program.

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