This is Why NO $50 Silver

I hear what you are saying Cloud, but I get back to a couple of points. one is that "peak oil" has been predicted for at least 30 years now, and we still haven't seen it. "Peak gas" was also predicted, yet with increasing gas prices they were able to use new techniques to find the single largest deposit yet of gas in the US. I am just not a firm believer that natural resource "peaks" are that absolute, that higher prices do not eventually find more of the resource. Will there be a peak eventually? Yes there has to be, but of all of the peaks that have been predicted in my lifetime exactly zero have come to pass. This is why I am skeptical. Maybe I am just an optimist and believe humankind is, given enough money, more industirous or greedy than we give them credit for.

"The more silver that is mined, the greater the annual decline rate becomes" is ONLY against guarantted, proven reserves. This does not take into account any new fields, NOR does it account for changes in mining technology that will increase proven reserves at a certain site. Its a very narrow number, applicable only site specific and only assuming no technology changes. There are numerous mines whose "extractable reserves" have tripled or quadrupled over time with changing technology. Texas would have run out of oil 20 years ago going on 1970 reserve levels.

 

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World oil production stopped growing in 2005 if you strip out natural gas liquids [that can't be turned into gasoline]. So oil production may already be at the peak or plateau [which would explain why the price is rising]. I never heard anybody say that the world had reached a peak in natural gas, so you will have to provide a source for that claim.

Regarding improvements in technology, all this does is accelerate the decline rate of a deposit and increase the amount of new silver [or oil] that must be discovered to keep production level.

Time will tell, but it is my belief that the optimists in the resource sector are in for a shock as time passes and supply either grows more slowly than demand, or doesn't grow at all in some resources. I saw one estimate that it would take $100 trillion of new investment to double world oil production, assuming the oil can be found. I'm sure that the investment to double silver production would be massive too. And to compound the problem, new deposits tend to be in areas that are harder to get to. The easy stuff is largely gone.

Time will tell who is right.

 

"Time will tell who is right."

Yep. Btw, I was referring to a peak in natural gas in the US, (gas is very hard and dangerous to import), and this was leading the runup in 2007-2008 before the major field was uncovered. Also BTW, that major field was in Louisiana and Texas, not exactly hard to reach, just hard to extract due to technology limits.

Regarding peak oil, I put it in this context, the second biggest exporter was in civil war in 2005, (still not fully online), and many of the exporters around the world have cash starved their oil industry to fund social programs, (mexico, venezuela, Iran, etc). The US oil companies KNOW they could triple or quadruple production in Mexico if Mexico simply invested in infrastructure or allowed private investment. Your peak oil is not due to physical scarcity, it is due to manmade barriers. Even limiting drilling off of California and much of the US coast is a manmade barrier, not an economic one, just as the prohibition of drilling in ANWAR. Do you really think the US population will still support these artificial barriers with $250 oil? They are already under pressure at $100 oil.

 

Medora: I'm pretty sure that we're IN peak oil. There are people spending money on trying to extract oil from plastic (which is, by far, the worst idea from a scientific standpoint, ever). Oil use is being off-set heavily by alternative energy. One nuclear disaster caused a 100% jump in liquified natural gas ("LNG") overnight. Peak oil is defined as a period during which oil prices will rise rapidly with great volatility, to be followed by a period of declining prices as consumption wanes. We can't know for certain that we've seen peak oil until it has passed, but given that alternative energy use is being pursued even without requisite price jumps in oil, I believe we're in peak oil (though perhaps in the early phase). In order for sea-floor extraction of oil to be viable, prices must be consistently above $85/barrel. The equivalent level for shale extraction of natural gas ("NG") is ~$48 BOE. The biggest price issue for NG is not extraction, but storage. NG takes up a lot of space. Transportation is pricey without pipelines, but at $10/mm BTU, it's actually viable for the US producers to export to Asia. After all, it will cost them about $1.50 to transport and $1.18 to store. If oil were to have a "discovery" like what happened with NG, we'd see a drop in oil back to the $25 level. I really don't see that happening.

Cloud: Even if we view it from "supply side" restrictions, Precious Metals (and specifically silver) still look more like agriculture. Oil is consumed and not recoverable. Entropy, I believe it's called. Silver, by contrast, can be reclaimed from jewelry, utensils, dishes, coins, etc. The coin hobby has been lucky in that silver prices have floated the coin market. The fact that numismatic "book" values remain suppressed relative to the underlying metals content reflects this. While some view opportunity (and it might be there) in low end coins selling at a very slight premium to spot, I view it as an indicator. The fact that coins aren't commanding a significant premium to spot reflects a subconscious replacement value assigned by society.

I found a nifty chart at silverinstitute.org (http://www.silverinstitute.org/images/stories/silver/demand10.jpg) which shows the consumption trend of silver since 2000 with price pegged to 2009 dollars. I won't comment on the drop in industrial demand, since there are inherent problems related to the economic landscape 2008/9 that would have caused that. HOWEVER, I will comment on the photography drop significance. It's completely possible that the digital revolution demand construct assumed in the 80s/90s is finally coming to fruition as drops in ink prices and printer resolution/output efficiency create technological advantages to using photographic alternatives to silver. The other expected result relayed by the chart: demand is being driven by investment (aka: speculation). Silver demand might outpace production in the short-run, but silver is never really exhausted. We're just too lazy/bull-headed to convert old silver into new use silver.

Long-run, I still contend silver finds value in the $24-27 to consumer price point. Liquidation of the speculator hoards could cause a downward shock to the $14-$18 range, with a possible bottom around $12, but eventually the price would plateau and flatten in the $20-$25 spot range. However, in the short-run, anything is possible, and we could see triple-digit silver on speculation demand and artificial supply constraints. This is most prevalent in the fact that you see silver prices spike during the last week of every month, as forward contracts for the following month become due. Artificial pricing... the only surefire way to time the market, until someone decides they want to play a new game.

 

I'm afraid you're mistaken. While they do not trade (much) in a world of fiat money, for sure, it is only due to Gresham's Law. Gold is still the core reserve asset of central banks and private hoards worldwide. And silver is not only privately hoarded for future monetary usage when the fiat regime breaks down, but is actually circulating in some instances, e.g. the American Open Currency Standard. So gold and silver indeed are money, not just because their physical characteristics make them the best money known to man, but because people still think of them that way despite decades of Keynesianism. As far as the above ground quantities, that's why we will see the 16:1 ratio again soon and will probably even overshoot it a bit. But as mining supply comes online due to the higher prices, the age old ratio will resume and stabilize.

 

You have to stop thinking of it as a bubble in precious metals and start thinking of it as a collapse of fiat currency. And when billionaires realize that most of their net worth is denominated in fiat currency, they will panic into precious metals.

Sorry, but this is quite frankly among the stupidest and most sexist things I've ever heard. Anyone who has accumulated a large net worth -- male or female -- is concerned about both protecting their wealth and new opportunities, and they are also both subject to fear and greed. When it comes to monetary collapse, look at history: everyone, particularly the rich, will panic into precious metals.

My point about Buffet (who is the majority shareholder, CEO, and chief investor of Berkshire Hathaway, and therefore essentially synonymous) is that 130 million ounces was nothing to him. He bought it almost as a lark. He doesn't even believe in precious metals, but saw that they were severely undervalued at the time, so made a speculation. When the currency starts collapsing, how hard is it going to be for Buffet to buy 130 million ounces or double that? If he bought it just as a speculation before, buying for actual wealth preservation will be a much easier decision. And if 1200 billionaires each buy 100 million ounces or more, well there won't be much left for anyone else. NOBODY is going to be buying Treasuries!

Get back to me when they quit their day jobs to trade precious metals full time. Then we'll be near the top.

That is only reasonable if Congress caps the national debt, passes a balanced budget amendment, reforms Social Security and Medicare, and cuts $1.65 trillion of spending. Otherwise, you're dreaming and the Dollar is toast.

 

So your argument is don't be concerned about the effects of billionaires getting into the market... but don't count the historical examples of billionaires getting into the market. Sure, that's sane.
:rolling: :bangg:

 

You're right of course. Any "peak" is only true at a given price. We long ago passed peak oil at $20/bbl. But peak oil at $200/bbl has yet to come. We will never ever deplete any resource because it will become far too expensive long before we deplete it. Some other cheaper alternative will always arise.

But I think you misunderstood "peak oil" in the first place. The Hubbert theory was a bell curve of maximum production in any given region. That has held true. The easiest and cheapest oil (or any other non-renewable resource) always is discovered and extracted first while subsequent exploration and production is more difficult and costly. Shallow oil followed a bell curve. Now shale oil and oil sand will follow a bell curve.

Gold and silver, same thing... most of that which could have been extracted already has been. We're not going to double the world's gold supply in the foreseeable future if ever. But we might move to mining astroids at some point.

 

The Marcellus Shale underlying Pennsylvania, New York, Ohio, and West Virginia contains roughly one quadrillion cubic feet of extractable natural gas. The Utica Shale, underlying the Marcellus, may contain even more than that. We're nowhere near peak gas.

 

I think if 1200 Billionaires each purchased 100 million ounces of silver and the US Dollar failed that 1200 billionaires would end up holding a bunch of worthless warehouse receipts.

 

No, I am advocating ignoring the actions of one billionaire, actions that which are now illegal. The rules of the market were changed after this incident.

 

I am fully cognizant of peak theories. It is in toto production of a resource. My point was it is technology or geology that has brought us to peak oil, it is human action, if one is arguing that we are at peak production now. There are a number of proven reserves and rich prospecting grounds that oil executives will tell you confidently hold oil that are not being explored due to malfunctioning governments, either by civil war, socialistic policies, environmentalism, etc. The Hubbert theory does not account for technology changes, changes which has greatly changed how we extract oil and gas in this country, and could change the rest of the world's extraction if not for problems I already cited.

 

The point is that the silver market is TINY. When billionaires decide they need precious metals to preserve their wealth (and it is WHEN, not if), the price will absolutely explode. And no they won't be stupid enough to use the futures market, which will long since have defaulted anyway when it is unable to make physical delivery. They will buy physical. They will hire personal buyers to scour the countryside for physical metal and pay whatever is necessary to pry it from the fingers of the previous owner. They will buy mines -- the total market cap of all companies combined in the Global X Silver Miners ETF ($78 billion) is less than the Walton fortune ($90 billion). Obviously silver isn't going to be their only go-to wealth preservation medium; there's also gold, platinum, artwork, antique cars, etc. But the silver market is so small, and it will be so universally demanded, that the price will react disproportionately.

This is true. Many resources will never be extracted because there are cities on top of them or they are watersheds for cities' drinking water, etc. That's just something we will have to accept. The area of the planet that is suitable and acceptable for resource extraction is shrinking. Sometimes those resources will become available again, such as when a government changes hands, but in many other circumstances they are locked away forever.

 

Found this 03/29/11 Financial Times article interesting for several reasons:
http://www.ft.com/cms/s/0/fe701e4e-5a1f-11e0-86d3-00144feab49a.html#axzz1I94xuvU6

1."the US Mint has sold 12.4m ounces of silver American Eagles in the first three months of the year – equivalent to about 6 per cent of quarterly global mine output."

2. "Mr Brebner of Deutsche Bank is expecting silver to average a record $50 a troy ounce next year, compared with current prices of $37. Others are even more bullish, calling for the ratio of gold to silver prices to fall in line with the relative abundance of the two metals in the earth’s crust – about 19:1 – or for silver to surpass its inflation-adjusted high of 1980, which stands at about $150."

It appears that demand is still brisk. I wasn't aware of the 19:1 ratio of silver to gold in the earth's crust, which would seem to indicate that silver is undervalued. Of course, I don't know as well whether this is a realistic ratio...

Although this is a thread on silver, several very recent FT articles have been written on how Swiss smelters that specialize in processing gold bars have barely been able to keep up with demand the last several years. They are prioritizing the production of larger size bars, normally not what you would expect a smaller investor to buy. My take away is that demand is still peaking and hence prices have room to climb.

 

It might be sexist, but it's not stupid. It's observed across 1800 client groups. Women tend to hold onto investments with the expectation that their return should be at least equal to what they paid. Men, by contrast, will sell investments significantly below their expected intrinsic value in a search for a better intrinsic value.

As for the quitting day jobs indicating a top, that's completely inaccurate. People don't quit their jobs to participate in a bubble under any but the most extreme of circumstances. This is a personality issue, and not one related to the general population. It's a good indicator that a bubble has ensued when the layman talks openly about an investment. When I say silver is nearing a top, I don't mean in pricing. I mean in time before there is a correction. Silver is in a bubble (as are most precious metals, but not all), though the bubble may have a lot more room for hot air.

I'm wondering why you had to make five posts in a row. The button next to "Reply With Quote" allows you to quote multiple posts at the same time.

Your billionaire analogies are faulty. I know two billionaires, so my position on thought is slanted by them, but the reasoning is sound. Fiat currency is the basis for the growth of wealth. If there is a collapse in fiat currency, there will be a complete meltdown of the economic system. Billionaires won't be worried about finding silver. There will be significantly worse things on their collective plates.

 

Good article for you skeptics....
http://www.24hgold.com/english/news...0G10020&redirect=false&contributor=David+Bond

 

So what are the billionaires going to use as a medium of exchange to buy all these hard assets with?

 

Even if silver hits $150oz what good is it if you dont sell it? and I think you got to be nuts to buy it at that price.

 

Dollars of course. When the spot price is $100/oz, they will find plenty of willing sellers at $120/oz. Offering a premium above the market price is the tried and true method for billionaires to acquire large quantities of what they want and what they know will be a cheap price once they have it.

When the inflation rate goes into the double digits, you'll find $150/oz to be cheap. You're stuck in a normalcy bias. 15 years ago, nobody thought anyone would drive anywhere if gas was $3.50/gallon, but now it's normal. 50 years ago, you could buy lunch with two dimes, but now you think $5 for a McD's value meal is cheap. What you consider normal will change significantly in the future.

 

I'll just say my crystal ball is broken, apparently being sure of billionaire's desiring a certain metal, and all of the costs associated with storing, security, and lack of return is certain. Have you factored in declining industrial usage at these levels, declining to make most silver sales strictly to investors? Are we factoring in these investors simply willing to hold silver forever and never sell it back to the market to fund other investments? Just wondering.