Silver, Y’all

Thursday morning my 401k was roughly 70% gold and 30% silver. By market close I sold some gold and bought some silver so that I’m now roughly 50/50. I think both metals are going to increase due to additional Federal Reserve money printing announced Tuesday, but odds are silver will increase at a faster rate than gold.

Here’s why I think silver will do even better than gold in the near term. For reference purposes, as I write this gold is at $1,389.39 per ounce and silver is at $26.29 per ounce.

At these prices, history tells us silver has more upside potential than gold

Casey Research – More on the Case of Silver:

Last month gold broke into new record territory – reaching an all-time high of $1,387 on October 14. A new record in nominal terms, that is. To top the previous high in inflation-adjusted dollars, gold will have to approximately double from there.

Silver, however, has barely made it halfway back to its prior nominal high of $49.45 an ounce, achieved on January 21, 1980. In order to break into new territory in inflation-adjusted dollars (using the same CPI calculation methodology used in 1980), silver would have to rise to over $250 an ounce – more than ten times where it is today.

Likewise, people have long looked at the ratio of gold to silver prices. At Thursday’s close the ratio was 53:1, which is on the high side. When gold and silver took off in the Seventies the ratio went into the forties and even thirties, meaning that the price of silver rose relative to gold.

The price suppression of silver is becoming a topic of polite conversation

There’s always been talk that gold and silver prices were being suppressed by short positions. GATA has been the most organized and vocal proponent of that view. Now there’s open talk of silver price suppression from officials, investigations into same, and articles in the mainstream media that can’t be ignored.

RICO Suit Filed Against HSBC And JPMorgan For Silver Market Manipulation:

According to the complaint, JP Morgan amassed a sizeable short position in silver futures and options in part through its March 2008 acquisition of investment bank Bear Stearns. By August 2008, JP Morgan and London-based HSBC controlled more than 85 percent of the commercial net short position in silver futures contracts.

The suit alleges that, starting in early 2008, the two banks began manipulating the silver futures market by accumulating unusually large “short” positions and then secretly coordinating enormous sales of silver futures contracts on the Commodity Exchange, which is known as “COMEX” and is part of the New York Mercantile Exchange.

According to the lawsuit, JP Morgan and HSBC used a variety of methods to coordinate their manipulation of the market for silver futures contracts, signaling when to flood the COMEX market with short positions, which caused the price of silver futures and options contracts to crash.

CFTC Commissioner Chilton sees manipulation in silver markets:

“I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price.”

With those words, Bart Chilton – one of the five commissioners of the Commodity Futures Trading Commission – gave some validation to physical silver traders and investors who alleged that some banks have been working to keep the price of silver from rising. In September 2008, the CFTC began investigating the silver futures market, partially at the urging of a group of troubled investors.

Has the silver price been suppressed? Maybe yes, maybe no. I lean slightly to yes. If yes, this official attention will put the spotlight on the market manipulators and curb the worst abuses, which could cause dramatic upswings in a short timeframe. I think gold and silver will both go up in the next few years, but for this reason alone silver could do very well in the short term.

Some gold and silver trivia

That Casey Research article above has a piece of trivia I’ve used to stump people. Which is rarer, silver or gold? You’d think since gold is more expensive it must be rarer, but silver is actually rarer.

Due to the fact that silver’s industrial applications result in destroying the stuff, there is currently a total of only 1,234,590,000 “investable” ounces of silver in aboveground supplies. At $21 per ounce, the total value of aboveground silver comes to only about $26 billion.

By contrast, because pretty much every ounce of gold ever mined still exists, there are a total of 4,585,620,000 “investable” ounces of gold in aboveground stocks. At $1,330 per ounce, that comes to $6 trillion worth.

Thus, the silver/gold ratio is currently about 63:1, yet the total value of all the investable gold on the planet is about 235 times that of silver.

For the record, the ratio of silver to gold in the earth’s crust is 17:1. That’s in the ballpark of the 15:1 average silver/gold price ratio that has held sway over the centuries.

Previously – Gold and Silver, Y’all