The current price action in the precious metals markets have excited the gold bulls, recently we watched as gold touched the $390 per ounce level in overseas trading. As I write this, gold has pulled back near the $350 area and is well above the 200-day moving average.
What about silver? Many asked why silver has acted so poorly, while gold was forging ahead. Silver was able to move up to $4.95 or so as gold made it's recent high. As gold moved down silver prices moved down as well. These are facts, that have to be recognized and certainly they question the true fundamental picture for silver.
Recently checking the COMEX silver inventory, we find that 108 Million ounces are stored in COMEX-approved facilities. Although this may sound like a large quantity, I assure you it is not. Unless you follow the silver market closely, you may have missed some recent and important news regarding the silver market. Legislation has recently been introduced into both the House and Senate that could require 100 million ounces of silver on an ANNUAL basis.
Think about that for just a moment. If this legislation is passed, the possibility of using what is currently held on the COMEX would be eaten up per year. One hundred million ounces of silver demand year in and year out. Year after year, someone in the silver market buying roughly what Mr. Warren Buffett bought, again and again, and again.This news certainly falls into the bullish argument for silver.
Another point which seems to be overlooked is exactly how much silver on the COMEX is available? At first glance this appears a rather silly question, certainly one could state all of it. This is only partially true, because in fact all of it is for sale at some price but, only half of it is held in dealer inventory. The other half is held mostly, by long term investors holding title to the silver and most of these people do anticipate higher prices. The point is about half of the inventory on the COMEX is tightly held and might not be willing to come to the marketplace until substantially higher prices are achieved.
So where does this information leave the silver investor. It should reinforce their conviction that silver is one of the best investment opportunities available today. This information should be used as ammunition to those in the precious metals community that argue "Digital is Killing Silver." Digital is not killing silver but that discussion I will leave to another day.
One more point before I share the good news, as most who follow the silver market closely know Mr. Warren Buffett purchased just shy of 130 million ounces of silver. What is interesting is the fact that this amount at the time was equivalent to only about 2% of Berkshire Hathaway's total asset base. The current silver inventory of the COMEX would not be able to fill Mr. Buffett's buy order if he were to make an equivalent purchase today.
Now on to the good news!!
The following quote is straight from the Silver Institute and should help to affirm any silver investor worries:
"Since ancient times silver has been used as a treatment to prevent the spread of bacteria and has acted as a purifying agent. Its healthful properties are well known, and it's projected that by 2006 silver's use as a biocide in various applications could grow by 600%," said Paul Bateman, Executive Director of the Silver Institute. "However, if silver-based biocides were used as an alternative to harmful arsenic-based preservatives, over 100 million ounces a year would be consumed in this application alone, adding significantly to overall worldwide fabrication demand," Bateman added.
Very positive news for the silver bulls correct? The following is for verification for those that wish to check further:
(Washington, D.C. - October 10, 2002) - Senator Larry Craig (R-ID) has introduced legislation directing the Secretary of Agriculture to conduct a study of the effectiveness of silver-based biocides as an alternative treatment to preserve wood. Senator John Ensign (R-NV) has cosponsored the bill. see http://www.silverinstitute.org/news/pr10oct02.html
Now that was in the fall of last year and I have been watching this closely ever since. In fact I made a good contact point in Senator Craig's office. Since last Friday, the 21st of February, we have learned the following:
(Washington, D.C. - February 21, 2003) - Members of the United States House of Representatives introduced legislation last week directing the Secretary of Agriculture to conduct a study of the effectiveness of silver-based biocides as an alternative treatment to preserve wood. see http://www.silverinstitute.org/news/pr21feb03.html
The House has introduced, but it needs to go to the Senate to become law, and of course, passed by both the House and the Senate. Fine, a few days ago we learned the following:
(Washington, D.C. - February 25, 2003) - Three leading U.S. Senators introduced S. 432, legislation to authorize both the Secretary of the Interior and the Secretary of Agriculture to conduct and support research into alternative preservation treatments for wood using silver-based biocides. Senator Larry Craig (R-ID), Senator Mike Crapo (R-ID) and Senator John Ensign (R-NV) introduced the bill. see http://www.silverinstitute.org/news/pr25feb03.html
Certainly, this legislation will need to be watched closely and does not guarantee that an additional 100 million ounces of silver will be demanded immediately. I just wish to eliminate some of the silver blues and spread the good news.