Buying Silver While Itís Still Relatively Cheap
by Richard Daughty
The Daily Reckoning
by Richard Daughty: The
Nomadic Nature of Money
reminds us, in his Market Update newsletter, that the silver
inventory held above ground totals 1.4 billion ounces, and that
annual industrial use of silver is 900 million ounces, so that a
year and halfs worth of silver exists, although a third
of it is destined for industrial consumption, which has been
increasing its use of silver by 18% in 2010.
And it surely
will be used in industrial consumption, because as Mr. Cook says,
its hard to fathom all the bullish aspects credited
to silver. You have a rare metal used in so many important industrial
applications as to be termed miraculous, so much so that the
billions of ounces mined over 2,000 years are gone forever.
In fact, I
am considering raising money to launch a Discovery Channel special,
which will be a revealing new documentary that blows the lid off
the explosive situation in silver, beginning with how things would
have been worse a long time ago if the Neanderthals had invented
electrical generation and a distribution network, both silver-consuming,
100,000 years ago.
And ditto those
Renaissance hotshots who everybody thinks are so hot, but couldnt
even come up with a good cell-phone, or how Thomas Edison can invent
a light bulb and the phonograph, but not take the logical next step
of inventing the CD and CD player, which would have produced much
better sound quality than those stupid, scratchy, tinny wax cylinders
Now, as interesting
as all this is, it is not enough to enthrall us because we have
such short attention spans, but as soon as we say, Bah! Show
me how to make money on it! and reach for the remote control
with which to change channels, our ears prick up in sudden rapt
attention when he says, The disappearance of this hoard should
have sent the price to much higher levels. It didnt.
so odd that Theodore Butler went to track down the reason
and, as I understand it, discovered the gigantic short futures position
in silver, and all of that slimy, illegal rigging of the silver
futures markets, and by extension, all the rigged markets, and all
of it made possible only because the foul Federal Reserve created
the excess money to finance it all! Hahahaha!
rigged markets are nothing new, and again our interest wanes, and
soon we are beginning to think of pizza, and our stomachs gurgle,
This was unfortunate,
because while we were distracted, we almost missed the whole point,
which is making a lot of money without working. And on that subject,
the aforementioned Theodore Butler writes that JP Morgan, apparently
the biggest naked short-seller of silver futures and thus the biggest
price suppressor, looks like it has decided to get out of the business
of depressing the price of silver by creating and selling so much
paper silver futures out of thin air, and has unexpectedly
covered roughly 4,000 contracts in the past month and 8,000
contracts in the last two months, the equivalent of 40 million ounces
the explosive results of suppressed prices that stop being suppressed,
I am beside myself in Greedy Mogambo Glee (GMG) in anticipation
of silver shooting to the moon, and I am humming the tune Were
in the money! Were in the money! We got a lot of what it takes
to get along!
who is much more professional than I, calmly and cautiously opines
that This holds profoundly bullish implications for the future
of silver prices, which may have something to do with the
fact that covering a naked short position when the price of silver
is rising means taking a loss, and, In the history of the
silver manipulation going back to 1983, never has the big concentrated
silver short ever covered shorts on rising silver prices.
I am always
impressed with the use of the word never, probably because
of that time when I was young and full of hormones, when I asked
Debra Sue, the hottest girl in the tenth grade and who knew it,
too, to go out with me, but she pretended not to hear me, but who
told her friend Jessica, who told her friend Mary, who told her
boyfriend Bob, who was my friend, who told me that Debra Sue said
she would never never! go out with me because she
thinks I am icky.
she never did go out with me! Or even acknowledge my existence,
for that matter, except to once say to me, in the hallway outside
of the chemistry lab, Get out of my way, creep!
think I was creepy is not interesting, not surprising to anybody,
but probably the most interesting fact about silver is that it is
used in tiny amounts in its multitude of applications. This
makes much of its usage insensitive to price.
If you are
not sure what being insensitive to price means, imagine
that you are the CEO of a company manufacturing Mogambo Hair-Growing
Machines (MHGM) under license from Mogambo Interstellar Enterprises
In the course
of production, you use one ten-thousandth of a cent of silver per
unit, meaning that you use 10 cents worth of silver a day to make
a full days run of 100,000 units, most of which are defective
because my design is bad and I insist that you use the cheapest
and shoddiest of materials and labor so as to keep profit margins
high enough to make the most money on the front-end before people
find out what a worthless rip-off my stupid hair-growing machine
really is, and people stop buying the damned things because word
gets around that they dont work.
In my defense,
the business plan looked good on paper, but my lack of ethics as
the price of greed is neither here nor there, and the point is that
you are insensitive to price if the price of silver
doubles to 20 cents a day. Ho-hum, you would say, unconcerned
about such a trifle.
And you dont
care if the price triples to 30 cents a day, either, as would be
evidenced by another bored ho-hum were you even told
of this trifling news.
Ditto if the
price quadruples to 40 cents a day, or quintuples to 50 cents a
And you dont
even care if the price of silver goes up by a thousand-fold to cost
you $100 per day, even though there will plenty of people who will
care if the price of silver is $29,000 an ounce!
And now with
China, a third of the worlds population is going to want electrical
and electronic things that all must have silver in them, insensitive
to price as those things are, the upper end on the price of silver
is so hard to imagine that I dont even try, and I just buy
it now while the price is still ludicrously low.
investing stuff is easy!
Richard Daughty (Mogambo
Guru) is general partner and COO for Smith Consultant Group, serving
the financial and medical communities, and the writer/publisher
of the Mogambo Guru economic newsletter, an avocational exercise
to better heap disrespect on those who desperately deserve it. The
Mogambo Guru is quoted frequently in Barrons, The
Daily Reckoning, and other fine publications.
© 2011 Richard Daughty
Best of Richard Daughty