Wednesday , 26 July 2017


The Case For $5,000 Silver – Yes, $5,000 Silver

If the price of silver were based directly on the real physical silver market, silver’s price should be at $5,000 an10 Ounce Silver Bullion Bars ounce. I’m not saying the price of silver will reach $5,000 an ounce; I’m just saying that the actual PHYSICAL silver spot price is not only extremely undervalued, but that it is an illusion compared to the real value of an ounce of physical silver, since it is totally disconnected from reality. [Let me explain further.]

By Fabrice Drouin Ristori (goldbroker.com) as originally entitled The Paper Silver Market is 250 Times the Size of the Physical Silver Market.

…[A price of $5,000] may seem totally crazy, but who can pretend knowing exactly how an ounce of silver is worth, after decades of manipulation and turning real investors’ demand from the physical market to the paper one, and years of exponential monetary printing by all the planet’s central banks?

The Physical vs. Paper Market Difference

The actual spot price for silver has no real value and is not legitimate when we seriously compare the real physical silver market to the paper market and its myriad of financial derivatives.

  • [According to an] article by Bloomberg, which has always been a reliable source with their published data, the size of the global annual silver market is equal to $5 trillion
  • [According to a recent interview with] David Morgan…the annual physical silver production is roughly one billion ounces.
  • With silver trading around $20 currently, this represents a $20 billion market for physical silver so the size of the physical silver market is of $20 billion.
[The difference between the $5 trillion & the $20 billion number is that]… Bloomberg’s $5 trillion number represent the entirety of the paper silver market, including all paper financial products (certificates, options, ETFs etc.) derived from the real physical market…[that allows] investors to be exposed to silver.

The 250:1 Leverage

[The above discrepancy]…makes for a 250 to 1 ratio between the paper market and the physical silver market…meaning that, for every ounce of physical silver, there are 250 ounces of paper silver circulating in several financial products. In other words, only one contract or certificate issued out of 250 could be convertible into physical silver…[that is,] the silver market is being leveraged 250 to 1.

(The multiplication of those financial products on silver has skirted investors’ demand from the real physical market, thus creating a virtual silver supply without putting any pressure on the physical silver market. A roundabout way of keeping the price low.)

If now, as the regulation agencies are claiming, the goal is to create a new fixing for silver that would better reflect the physical market (notably from pressure coming from countries, like China, wishing to have their say in the fixing of precious metals prices), the leverage between paper silver and physical silver is at risk of radically evolving.

Let’s hypothesize what the silver price would be directly based on the physical silver market:

  • Today, the actual size of the silver market is, according to Bloomberg, of $5 trillion.
  • $5 trillion divided by 20 billion (physical market) = 250
  • 250 X $20 (silver spot price) = $5,000 an ounce

Conclusion

Every investor holding silver in the form of financial products, without the possibility of verifying the physical existence of their investment, should ask the question as to what will happen when more holders of said products will ask for physical delivery. (In reality, we already know what will happen, because one of the large banks from the Netherlands, ABN-AMRO, already defaulted, a little more than a year ago, on its gold  certificates by settling customers in cash.)

[The above article is presented by  Lorimer Wilson, editor of  www.munKNEE.com and www.FinancialArticleSummariesToday.com and the FREE Market Intelligence Report newsletter (sample hereregister here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]

*https://www.goldbroker.com/en/news/paper-silver-market-250-times-size-physical-silver-market-526 (GoldBroker.com © 2011-2014; All rights reserved )

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13 comments

  1. Applying a similar argument to horses, rather than silver: if the average amount of money bet on each racehorse is 250 times the market value of the racehorse, then racehorses should trade at 250 times the present price.

  2. The amount of silver contained in the world is unchanged, but the amount of available silver is much reduced due to silver disposed in landfills or previously used in photography.

  3. Although I agree that silver is a good thing to own, I do not agree with your valuation. You stated that every year we are producing 1 billion ounces of silver. Then you imply that only new silver production is bought and sold but not silver older than one year, and that any additional silver above and beyond 1 billion ounces must be paper silver. In reality, the production of all previous years still exists and that silver can be and in fact is bought and sold. Additionally a given ounce of physical silver could be bought and sold multiple times during a given year. So you need to find out: how many ounces of silver have been mined in totality since we started mining it? How many physical ounces of silver are bought and sold each year compared to paper silver? Only then can you figure out what the correct price should be. The old silver of previous years has not disappeared. It is still around and circulating just like the new silver is.

    • The old silver is not circulating anymore – it’s all been consumed by industry and lost in land-fills.

  4. If silver did go to 5,000/ounce then it would only take a mere 20 ounces to buy a decently-sized house which sounds too good to be true for silver holders, but you’re not alone in your analysis. Over the years I’ve seen countless (probably hundreds) of well-respected economists and experts cite a future price for silver between $200-$8000/ounce. While their prognostications may remain spurious to the layman, their math is sound and reasoning good. I think when silver makes its run and goes ballistic everyone around the world will let out a collective gawp in amazement and wish they had invested in it.

  5. One reason for Silver’s value to go upward as compared to Gold is that so few Countries hold so much Gold, it becomes easy for them to manipulate the Gold market. Since Silver assets are much more spread out, Silver’s value may better reflect fair prices. I look for Silver’s value to start upward since the way it is being priced is now receiving much closer scrutiny by regulars globally.

  6. If Silver goes WAY UP and even passes the value of Gold, I think that it will be no different than if anything else suddenly went WAY UP, those with a supply of Silver would be suddenly much wealthier and those without Silver would be left with what they do have.

    As I have posted before, if you invest a percentage of the “residual” value of your portfolio (that is money that you don’t plan on using for a very long time) in one or more physical PM’s, then should PM’s “Take Off” for any reason, you will be much better off than if you only hold stock/bonds and/or flat money…

  7. If silver goes to $5K ~ $70K, then why could it not buy anything? If it could not buy anything, why assign any value to it?

    • Silver including other PM’s will always have a “Value” unless we have a complete breakdown of Society as we now know it and therefore if you had some, you will be able to trade/barter/swap/buy something with it, just like people do with paper or flat money.

  8. Eight years ago I calculated the correct price of silver at $70,000.00 per ounce.
    With the risk of global pandemic never higher the price of silver would be higher.
    As all should know, the real reason for holding silver is its prophylactic properties.
    When silver peaks, whether at 5 or 70 thousand, what will you do, sell it?
    You won’t be able to buy anything of value with it. Like seeds, clean water, cloth, fuel.
    Don’t kid yourself.
    Secure farm land in a tight, secure community is the only REAL investment.

    • Sure Society could “break down” but if that happened, then unless you happened to live in a well fortified area, things would get ugly, especially in the first few months.

      But If things were not that BAD and it was “just” the value of the US$ that took a big hit, then PM’s would be very useful, since they could be used to bolster your financial situation, especially compared to those that only had flat money; which is why many still believe in the value of owning physical PM’s.