Izzy Friedman: What Now For the Price of Silver?

From SD Contributor  Ted Butler

What Now For the Price of Silver? by Israel Freidman

Many years ago, when the price of silver was $4 to $5, Mr. Ted Butler and I wrote many articles in which we predicted that silver would be a great investment for the long term. Now that prices are 7 to 8 times higher, we can say that we were right. More importantly, the reason we were so bullish on silver had to do with supply and demand and nothing to do with inflation or the value of the dollar. I still feel that way. The only thing that has changed is the price and not the reality of supply and demand. Silver demand still is on a course to overwhelm silver supply and when that occurs in any commodity, look for higher prices.

We must first consider the state of the world today and into the future. The world population has just hit the 7 billion person mark, up from 6 billion twelve years ago. The world adds 75 million new souls each year. In addition to the greater numbers of new potential consumers, there is also a move to increased standards of living in places like India and China. Overall improvements in longevity mean that we have more people living and consuming longer than ever before. At the same time, the raw materials necessary for everyone to live better are getting harder and more expensive to produce. Will we have enough raw materials to sustain the march towards higher living standards? I say yes, but at what cost? Those necessary raw materials will not come to us cheaply. Therefore, it would seem wise to set aside and hold those raw materials which are destined to climb sharply in price.

The best raw material to hold in my opinion is silver.

From Ted Butler:

It has been quite some time since my good friend and silver mentor, Izzy Friedman, has written something about silver. Devastated by the loss of his wonderful wife of 56 years, Gabriella, Izzy withdrew from his daily silver market observation and our telephone conversations in order to restructure his life around family and travel and contemplation. We have started to talk more frequently and he agreed to write something.

For those who may not be familiar with Izzy, it was a personal challenge from him to me almost 30 years ago that started me on my own silver journey. Back in 1985, Izzy asked me how it was possible for a commodity that was being consumed in greater quantities than was being produced could fail to rise in price, as was dictated by the law of supply and demand. There was no doubt that silver had been in a consumption deficit for decades, depleting world inventories all along, yet the price went nowhere. I could not answer his question, but was determined to do so. It took me a year to discover that the price was artificially depressed by excessive and concentrated short selling on the COMEX.

Once you are enlightened by the flame of knowledge, it doesn’t extinguish itself easily. My discovery of the silver manipulation, for better or worse, has been with me ever since. I have always felt in debt to Izzy for enabling me to see the silver manipulation, even when that knowledge seemed more like a curse, back in the 1990’s. The best part about Izzy was always his sound common sense and as the best sounding board possible. Even though he was skeptical of the silver manipulation at first, in reality he’s more responsible for today’s general knowledge and thinking on silver than any other single person. To this day, I remain convinced that his article back in 2007 on US Silver Eagles was the catalyst behind the surge in sales that began shortly after his article and continues to this day. http://www.investmentrarities.com/ted_butler_comentary/12-03-07.html Sales of Silver Eagles quickly doubled and tripled after his article and have never looked back. I do hope in his return that he intends to stick around for a spell.

What Now For the Price of Silver?  by Israel Freidman

Many years ago, when the price of silver was $4 to $5, Mr. Ted Butler and I wrote many articles in which we predicted that silver would be a great investment for the long term. Now that prices are 7 to 8 times higher, we can say that we were right. More importantly, the reason we were so bullish on silver had to do with supply and demand and nothing to do with inflation or the value of the dollar. I still feel that way. The only thing that has changed is the price and not the reality of supply and demand. Silver demand still is on a course to overwhelm silver supply and when that occurs in any commodity, look for higher prices.

We must first consider the state of the world today and into the future. The world population has just hit the 7 billion person mark, up from 6 billion twelve years ago. The world adds 75 million new souls each year. In addition to the greater numbers of new potential consumers, there is also a move to increased standards of living in places like India and China. Overall improvements in longevity mean that we have more people living and consuming longer than ever before. At the same time, the raw materials necessary for everyone to live better are getting harder and more expensive to produce. Will we have enough raw materials to sustain the march towards higher living standards? I say yes, but at what cost? Those necessary raw materials will not come to us cheaply. Therefore, it would seem wise to set aside and hold those raw materials which are destined to climb sharply in price.

The best raw material to hold in my opinion is silver. That’s what I felt 30 years ago and is what I feel today. Silver one of the very few commodities that the average person is capable of holding in his own possession. In particular, the US Mint makes the most beautiful and popular coin in the world in the form of the US Silver Eagle. So popular is this coin that I am still convinced that someday the US Mint will not be able to keep up with demand and the premiums on these coins will explode when the US Mint stops producing them. The way the world is going it appears that all the trends point towards greater silver demand. It looks to me that everything in the future will run on electricity, of which silver is the best conductor. Throw in the tremendous appeal and growth of solar panels and it’s hard to foresee how silver won’t be a raw material superstar. Because it is so easy for the average person to hold and so cheap compared to gold, one of the biggest demands for silver will be from investors. These investors will compete long term with the silver users who must have silver as a raw material. This is a potential buying combination that is not present in any other commodity. That’s what makes silver so special.

Naturally, if silver looks set to move sharply higher in price over the long run, it is normal to try to guess when and how high? I didn’t know the timing 30 or 10 years ago and still don’t know today, so the easiest thing to do is not to focus on the timing. Just don’t fool yourself into thinking the high price of silver will come when you want it to, as that is not how things usually work in life. The best thing to do is to only buy and hold silver with spare money and not to borrow money to buy it. This way you don’t create unnecessary pressures to sell along the way. It’s easier not to worry about an investment when you don’t owe money on it. This is especially important because it is clear that there are some big shorts that do nothing but try to knock the price down. Try to be prepared for sharp sell offs and use them to add positions at times when the price is down.

How high can the price of silver climb? Based upon its importance as a raw material, I still believe that silver will pass the price of gold which is not needed as an industrial material. Besides, I still believe that silver is much rarer than gold in above ground inventories and even my grandchildren know that the rarer item should be more valuable. While Mr. Butler is not quite this bullish, I remind him that if the shorts he always talks about are forced to buy back in a physical shortage that will add a lift to silver prices almost beyond our comprehension. I also remind him that because there are no big government stockpiles in silver (as there are in gold), no government can come to the aid of the shorts when the moment of truth arrives and there is not enough silver to go around. Since the world has never seen a real silver shortage, it hard to pick a precise price to reflect something that has never happened.

What I can tell you from my experience is that the most insane prices occur when there is a shortage. From the beginning 35 years ago, I have always expected a silver shortage to occur. That was the main reasoning behind my attraction to silver. I think the big increase of 7 to 8 times in price was due to the market sensing that a big silver shortage is developing, but there have been no signs of a big silver shortage that is clear to everyone. When the big silver shortage comes and everyone can see it in widespread delivery delays and force majeure, only then should the price be measured. A price can sound crazy-high in conditions we are familiar with, but not high at all in a true shortage where the only other choice is to do without and send factory workers home. Maybe you and I won’t buy at the high prices in a shortage, but an industrial user doesn’t have much choice to buy if he needs silver, the raw material. My goal is to sell when the shortage is at fever pitch. That’s why I don’t look at inflation or the dollar – I’m more interested in considering the silver shortage.

As time has passed, I am happy to have written about silver and how it has gone up and rewarded so many. I think the future will look the same way. This is the first article I have written since my beloved wife passed away and this is for her memory.

SD readers interested in subscribing to Ted Butler’s premium service can do so at www.butlerresearch.com

Comments

  1. Very informative, thanks Izzy, Ted, Doc! :D

  2. thanks Izzy

  3. Taking physical off the market, and not selling, will accelerate it’s scarcity. People selling, making it available for resell, just slows down the acceleration of value.

    • So true, but most of us buy from these “resellers” in some capacity. 
      Trickle-Down Economics, if you will ;)  

    • There are also mines who are producing a lot of silver so they will also accelerate down silver’s value. But yes you are right about taking physicals off of the market. I’ve heard somewhere that we will only need one billion dollars to take off all silvers from the market.

  4. Thank you Izzy  We sympathize with you on the loss of your beloved wife.

    What I’d now like to say I’ve said before.
      The price of silver is inelastic.  The price of silver has little bearing on its greater utility or increasing demand.  At $33 an ounce it is still very cheap as an industrial commodity. A little silver goes a long way.  As vital as silver is to the solar, electronic, medical and clothing industries, the amount of silver used in any product is nearly infinitesimily small.  A smart phone uses no more than .2 grams of silver. That amounts to pennies of silver per item.  A solar panel uses 20 grams, about $20 per panel and those panels will absorb 6% of the entire world’s annual supply; 60 MOZ   There is no replacement to silver in that use and that use in China, Japan and India is set in stone.  They are crying for energy that is not hydrocarbon based. 
    If the world’s supply/production of silver is 1 billion ounces that’s $33 billion.   We spend more on dog food and manicures.  If silver tripled to $100 an ounce, would we blink for a second that silver prices bumped the cost of a smart phone by 20 cents.  I don’t think so.
    If silver went to $250 an ounce we are now talking about $250 billion in silver production/supply.  Will we bat an eye if the silver in our $500 smart phone now goes to $2.  Not likely.  We may salvage silver from trash and recyclables but we will use silver at the traditional rate, or even a higher rate, thus making an even more serious dent in silver supply.
    The one thing that’s in vital to keep in mind is that we can’t print silver.   It is impossible to ramp up silver production quickly since 70% of the white metal production is a by product of base metals.  Base metal mining is dropping due to the world wide economic slowdown. That condition will last for years.  There is nothing on the horizon that shows any indication that the world wide GDP will ramp upwards any time soon. 
      As SRSrocco has wisely pointed out so many times that even I get it, the PM ore grades are dropping like a stone, the EROI is rising exponentially and the demand for silver continues unabated. We are already beyond the mythical 100% demand/supply ratio.
    China and India alone will take 25% of world supply this year, next year and to the foreseeable future. That’s 250 MOZ. When countries representing 40% of the world’s population and 20% of its GDP want something, they will have it at any price.  Not having it is completely unacceptable. They will buy it now and take it, by force if necessary, in the future.
    Survival issues loom large in the front window for these countries since nothing replaces silver; price will be no object. Picture another billion people moving from the stone age into the silver age. Imagine voraciousness of their appetite will be for any technological tool that incorporates silver.
    It may take a year or two for the real demand/supply crunch hits but it will hit.  War will exacerbate this demand. World wide wars are in now our future, whether they embroil us or not.  War begets every sort of bad economic condition and if some of you  remember the metal drives of WWII, silver metal war drives will replace steel and aluminum as the modern equivalent of commodities in short supply.
    With a bit of patience and an eye to the volatility of the metals markets, we will most certainly see a steady rise in the price of our favorite PMs. What price? Who knows. It is important to predict the price? No, because it will increase in steady stair step manner with vicious up and down spikes, as does any commodity. Stack high and keep the faith

    • Another SUPERB writing, AGXIIK.  Thank you!

    • Couldn’t have said it better myself! 

      Condolences to Israel Friedman, on his loss, and many thanks for his (& TB’s) work over the years on our behalf, and for the world.  

    • I want to express my condolences to Izzy as well.

    • That’s really well explained about silver. It is still hard to believe that silver is still that low even if it has a lot of demands. I can’t believe that dog foods cost more than silver, a precious metal. In think that the reason why the price is so low is because there are a lot less people holding physical silver compare to the others from the past since it was used as money before so there were more demand. Silver will go back to its historical ratio once everyone starts using it as money.

  5. Good article. Thanks Izzy.

  6. Thanks Doc, Ted & Izzy and well said AGXIIK

  7. This is an excellent article by Izzy Friedman, and very apt as a memorial.  It is hopeful to see that a person so advanced in age can still write with such clear thinking.  He is most certainly right that silver’s role as an indispensable consumable commodity that anyone can hold long-term as a store of value is unique among all of the commodities in existence (compared to gold which is not consumed).
     
    At the rate that things are going, silver will not only be the investment of the decade (per Eric Sprott); silver will be the investment of a lifetime for those who are alive today.

    • Silver is also the investment of a lifetime for those who are aware of the current financial and economic situations which are the minority of the population. Chris Duane said that your sons are going to curse you in the future for not taking this opportunity if you are not aware of it.

  8. Thanks Izzy and Ted for getting me into silver in 2001, and for my resultant career as a bullion trader in Australia. I owe you guys my current financial security. 

  9. I have often given credit citing Izzy and Ted because without them, I would not have had the crucial education necessary to take steps to give my family a foundation (in silver) to survive the coming dark days.

    Izzy, as to your terrible loss of your dear mate, my condolences go out to you, sir.  The tears are now flowing as I write this because I cannot fathom losing my wife of 52 years.  God bless you and your dear wife.    Thank you for your service to your countrymen.

  10. Is there a concern to be had in the future when graphene (carbon based material like nanotubes and wires) may possibly replace the industrial use of silver in electronics?

    I guess I’ll answer my own question here. I google mined silverdoctors.com:graphene and found this from feb ’12 on the .blogspot

    Anonymous said…
    Hey Canuck,

    Your are right about industries finding other means to replace silver in electronics. The Graphene/copper is currently only used in low current applications if I remember right. This has actually been in use for several years. And though this is great for some electronics it’s not good for other industrial uses (yet). The speed of travel for the electrons is still not as fast as silver along the printed wire. Fortunately for us, I think by the time this process is perfected, if ever, the crash will have long passed. Can you imagine carrying around copper-graphene coins. Ah yes, the next fiat. LOL. I’ll try to find out where I read the above mentioned information and get back to you.

    2 OZ.
    http://silverdoctors.blogspot.com/2012/02/guest-post-war-costs-much-silver.html

    if 2 OZ is around. Thx for the answer.

    • Before the inventions of electronics, silver still had way more uses than today since it was used as money before and not currently. All we need is the fiat system to collapse so that people would start using silver as money and its demands are going to rise.
      I remember Crazy Canuck! He was a good contributor to the old Silver Doctors blog. It brings back good memories! :)

  11. Good reading, thanks everyone.

  12. Silver possession=empowerment. It allows me to vote my conscience, not my pocketbook. It allows me to dream of big ideas, not telling what they are, but I will be going into buisness when everybody else is losing their standard of living. It protects me from trading my time for paper promises that never really come true. It allows me to save in a world where every gov’t is screaming spend! spend! spend!!! Which forces me to live within my means, and not get caught up in the materialistic culture that is destructive not only to the long term economy, but also to the character of an individual, (I can’t even count the people I know that cut corners and try to screw other people just to get a little fed paper, and temporary riches.) It is my security blanket, and a catalyst to my future prosperity. It makes me part of a larger group of like minded individuals, who are hard working, honest, and intelligent enough to teach me many things from their experience and perspectives. It protects me from getting involved in relationships with people who do not really value these things. Why would I listen to someone who told me not to do it? On the contrary, when I run into those people, I turn and run in the other direction. I’m certainly thankful that God created gold and silver. For these are the times that try men’s souls. I don’t think it any coincidence that the tabernacle in the wilderness had silver at it’s foundation, it is a foundation for those who can see it for what it is,(real money) in these times of nearly universal deceit. I do not love silver, but I do love the freedom that owning it at this time in history has, and will continue to afford me.

    • <standing ovation>

      No BS, I’m gonna save this and place it in my “notable Quotes” file! 
       

      Thanx @savesilver! Well Said! Words to Live By. 

    • @undeRGRound If you want more notable quotes and well explained information, here are some of mines that I’ve saved in my files just in case if want to save some. Not all of them are quotes but they are good information. I keep them because whenever a sheep over the Internet argues with me about financial none senses, I just copy and paste them to fight against the sheep. I always win! LOL! :D Also, I have to agree that the other quote is also good!
       
      “Put 11 fools on one side, 10 philosophers on the other side… the idiots prevail. This is what democracy is.
      - Jacques Brel”

      “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
      - Thomas Jefferson”
       
      “You do not understand what money is. Silver and gold are not just there for bartering; they are MONEY. Even in the worst of conditions, any human civilization will still need money to function as a unit of account and as a currency. Throughout all of human history (except for recent times), silver and gold have served the function of MONEY to near perfection. Why? Because they have the right characteristics of what money should be.

      Ultimately, it is the people who will decide what money is. Debt-based fiat paper money is an evil creation designed to concentrate power into the hands of the few who give themselves the privilege of creating ‘money’. It was not designed to serve humanity, but rather to enslave it. Money is a store of value, a store of labor… a store of wealth. Silver and gold are money.

      Unless mankind becomes totally uncivilized, silver and gold will not serve as barter commodities, but as MONEY.”
       
      “People forget that the Rothschilds were the creators of the First Bank Of America who came from Europe and already possessed the bank of England until the Queen wanted to end them but she didn’t succeed. And they used there wealth and money to pay off the Government and insisted they made a Federal System protecting the Bankers.

      So the Bankers now can print as much money as they want making the currency worth NOTHING! while shoving the debts on the tax-payers!

      (Rothschild- Family are bankers)”
       
      ” You’re a slave because you need someone to tell you that killing, stealing, etc is wrong. I don’t need a fictional character to dictate my morals and ethics. I’m man enough to stand on my own without hiding behind the Bible or Christianity. I find it amusing that your entire argument about doing the “right thing” is based on you feeling guilty. I rest my case.”
       
      “GOOD MONEY MUST HAVE SEVEN CHARACTERISTICS.
      (1) It must be durable, which is why we don’t use wheat or corn or rice.
      (2) It must be divisible, which is why we don’t use art work.
      (3) It must be convenient, which is why we don’t use lead or copper.
      (4) It must be consistent, which is why we don’t use real estate.
      (5) It must possess value in itself, which is why we don’t use paper.
      (6) It must be limited in the quantity that is available, which is why we don’t use aluminum or
      iron.
      (7) It should have a long history of acceptance, which is why we don’t use molybdenum or rhodium.
      Only GOLD and SILVER fit all seven characteristics”
       
      “here’s why inflation is actually a hidden tax. say you buy some asset, like 100 oz of silver for example. you pay the market price of 100 oz X $30/oz = $3,000. Time goes by and 10 years later you decide to sell the silver and buy a boat. The price of silver has gone up to $70 an ounce due to inflation and you get $7,000 when you sell. But the IRS steps in and says you owe income tax on $4,000 and they take $1,000. Now you can’t even buy back what you had. That’s how inflation works.”

      “”“Tax fraud is theft from the people,” she said.”

      Uh, no. Tax is theft from the people. Tax fraud is the people keeping what the hell they earned. Thus, tax fraud is theft from the government, not the people. And if governments weren’t so damned big and bloated, they wouldn’t need so much in taxes to support themselves. Who’s the real thief here, really?”

      “I want a good healthy economy which means a balanced budget and no more inflation. I want the government out of my life and to stop restricting my freedoms, I want all the wars to end and for the government only to declare war in defense unless there is a really good reason otherwise. He is a real small government Constitutionalists conservative, not someone who just calls himself that to get votes. Ron Paul 2012!”

    • Thanks SK! Great post.

  13. Jim Sinclair’s Mineset posted a ‘rumor’ piece earlier today stating a massive COMEX Silver withdraw is scheduled for this Friday.
     
    http://www.jsmineset.com/

  14. The paramount ‘good’ in metallic money is that it serves as the ideal objective arbiter of optimal value through rationalization. The ‘Austrian’ concept of ‘marginal utility’ is fine as an … adjunct … to explain phenomenona only subsequent to this core facility.

    It is certainly NOT to say that Messrs. Friedman or Butler fall into this category, but the self-interested perveyors of banknote currency distract us from the full understanding of money’s chief benefit, by having us focus too intently on the supply side of the equation. In doing so, their false ‘credits’ give appearance of circumventing rationality … making demand values of all other goods resolve in their favor … to the extreme detrement of the vast majority of Peoples on this Earth.

    Metallic money is a thing apart from its commodity substance. It serves a far greater purpose. It affords all its possessors, great and humble, the inestimable Liberty and Individual Power to bring into effect the ‘Austrian marginal utilities’ strung to the anchor of rationality.

  15. @PatFields

    Due to the dumbing down of the public school systems in the last 30+ years, I am compelled to insert this request for an edit, if you would be so kind.

    “The paramount ‘good’ in metallic money is that it serves as the ideal objective arbiter of optimal value through rationalization. The ‘Austrian’ concept of ‘marginal utility’
    _is fine as an … adjunct … to explain phenomenona only subsequent to this core facility.”_

    Please clarify the underlined and define your use of the term “adjunct”. 

    TIA, 

    RGR
     

    • @undeRGRound

      Thank you for your sentiment, your reward is knowing that you are one of those good people.

    •  
      undeRGRound, I’m pleased to re-state it for you. What I mean is that the ratio of metallic money against all other goods-at-market presents its own condition of supply and demand which inherently drives people to keep everything at optimal pricing. In situations where an optimal price (that is one commonly derived in a balanced environment) is affected by aberrations in either money or goods (causing ‘marginal utility’ to come into play … thus, an ‘adjunct’ to the more fundamental rationality), the consequent arbitrage is seized upon by entrepreneurs whose activity restores as much of the optimum pricing as is possible, given the local forces behind the aberration.

      Goods-at-market (including money) are best visualized as a grand matrix, where distortion in any part of it is relayed throughout the whole. Since the commodity metals used to produce money are extracted from the Earth at an average rate of recovery, their ‘supply’ characteristic coincidentally meshes with that of everything else. This results in a synergistic inter-relationship that yields a natural harmony … the ‘rationality’ I so often speak of.

      Its intrinsically structural doom aside, I hold ‘conceptual money’ in such deep disdain because it obliterates the harmony between natural, metallic money and the other goods-at-market. Smooth discovery of optimal pricing is a basic social benefit derived from an Honest Money regime. It affects the lives of all humankind. To contrive circumvention of it is truly a ‘crime against humanity’.

  16. Even if silver was at 5$ many years ago, the premiums of them were very high compare to today’s premiums. I now lost my track when silver hit 50$ per ounce in 2011 because it made silver’s price very volatile after that so it is harder to know the future silver’s price.

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