Understanding silver and the silver market..

Early November 2009

THE SILVER CHALLENGE
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.)

Recently, Investment Rarities, Inc. has been heavily marketing silver through magazine (Forbes) advertisements and television commercials (Fox and CNBC). This is somewhat unusual, in that most marketing efforts by other companies involve the purchase of gold, not silver. Since IRI first started sponsoring my research nine years ago, most of their marketing has been in silver. As a result of the response to their current marketing campaign, Jim Cook, the president of IRI, asked me if I would address the question of investing in silver for someone brand new to the idea.

It’s is always a worthwhile exercise to explain why someone new should invest in silver. My responsibility is to explain a complicated issue in simple terms. I know if I start talking about things like concentrated short selling, manipulation and prospective regulatory developments in the futures market, someone new to the subject is going to move onto something else. So let me get down to basics.

The first and most important reason why someone should seriously consider silver is that silver will make you more money in the long run than anything else of which I’m aware. I admit that’s a strong statement, so let’s see if I can back it up. When I first started writing for IRI, nine years ago, the price of silver ranged between $4 and $5 per ounce. Because the price of silver averaged close to $5 for the decade prior to my association with IRI, in late 2000, it was an investment asset largely neglected. Although there was near universal disdain for silver as an investment, I knew and wrote that the real facts surrounding silver were wildly bullish. Furthermore, I also knew that there was a good explanation as to why the price was so low for so long, in spite of the bullish supply and demand fundamentals. I explained that silver was manipulated in price, mainly due to excessive and uneconomic short selling on the COMEX, the principal world silver exchange.

Those early investors who came to believe that silver was undervalued and took the time to investigate have been richly rewarded. The price of silver has climbed as much as 400% to 500% from earlier in this decade. There are not many assets that have performed as well over the past nine years. Certainly, the stock market and real estate have performed poorly when compared to the price appreciation that silver has recorded since the end of 2000. While no one can turn back the clock and make $4 silver available again, I think an investment in silver today will yield returns similar to those achieved in the past. That’s because the facts in silver today are more bullish than they were 9 years ago.

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