Historical precedent coupled with current silver fundamentals
point to the likelihood of an explosive super spike in the silver price and
a high price plateau beyond that. In the last super spike in 1979, silver
went from $6 per ounce, to over $49 just 12 months later. In other words,
that's an incredible 700% upsurge over the course of a single year! Today,
the industrial demand of silver will continually increase along with its
investment benefits. These factors will cause the price of silver per ounce
to reach new highs, or possibly another huge spike similar to 1980. Let's
look at additional factors why we're bullish on silver:
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The U.S. is reaching record highs in debt and the tipping
point may come sooner than later. In 1980, the
national debt was a mere $930 billion. Today, it's over $17 trillion
officially, with tens of trillions more in "off budget" debts and
obligations accumulated in the last 40 years. The Federal Reserve's balance
sheet now tops $4 trillion, with no end in sight to ultra-accommodative
policies.
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Above ground
silver inventories are diminishing. In 1980, available above ground
stockpiles of silver were estimated to be 4 billion ounces. Today, many
estimate these stocks at less than 1 billion ounces. Silver industry
experts, including David Morgan of Silver-Investor.com, calculate silver
consumption exceeds the supply by 10 million ounces per month. And as
industry finds new ways to use silver, the rate of inventory depletion has
been accelerating.
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Silver mining
production appears to be reaching its peak. There may be 18 billion
ounces of extractable silver left according to the according to the U.S.
Geological Survey. If this is indeed the case, there won't be enough
supply left due to the steady increase in demand. Just last year, the demand
for silver rose to a record 1,081 million ounces according to The Silver
Institute's World Silver Survey 2014. While the demand for silver rises,
production has increased less rapidly. So not only are we running out of
silver, the supply is diminishing faster than ever.
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Global silver
demand is high and getting higher. Considering the record growth in
silver demand last year, all signs are pointing to a continuous increase. In
1980, the world population was 4.6 billion. We've since added another 2.5
billion people. Silver is required in a multitude of industrial, electrical,
consumer, health, and energy-related applications critical to today's modern
economy. (Silver is the world's best conductor of electricity and heat, best
natural biocide, and best reflector of light.)
Unlike other metals, silver is consumed in very small
increments, making recycling very difficult. In other words, once silver is
used, it is usually gone forever practically speaking.
At the same time, silver is generally an incidental cost in
the products that use it – such that a dramatic increase in the price will
not necessarily cause substitution. A hint of shortages could cause industry
users suddenly to hoard the metal and drain remaining available inventories.
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Investor demand is surging. From
1990 to 2005, investors had been net sellers of silver. In 2006, we
witnessed what appears to be a major sea change in the market. The public
again became net buyers of silver. In 2013, demand for silver American
Eagles soared to a record-high of more than 42,000,000 coins – a number that
would surely have been higher if demand had not completely overwhelmed the
Mint and forced the slow-to-react government operation to halt accepting new
orders at times. Other government and private mints around the world have
been cranking out silver coins, rounds, and bars at record setting levels.
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The gold / silver ratio is currently around 70, which suggests silver is
vastly undervalued. The ratio of silver to gold in the earth's crust
is 17.5:1 – and the price ratio has hovered in that range for most of
recorded history (see graph). If history is any guide, the remaining bull
market in precious metals could see silver outperform gold by a factor of 4
or more.
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Save for
recent decades, silver
coins have
been used as money throughout human history and is in the process of
reassuming that role. As faith in government fiat money (such as
Federal Reserve notes) diminishes, savers and investors worldwide are
embracing gold and silver as a store of value. Savvy investors are paying
more attention to the declining purchasing power of the U.S dollar than ever
before.
Ronald Reagan Rounds
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