CIBC - Slams Silver
David Morgan
February 13, 2009
This week I’m going to comment on Jon Nadler’s
remarks in his February 9 article titled The
Silver Medalist. Jon pointed out some
interesting quotes about the silver market and some
of these I have issue with and some I don’t. Mostly
what he did is quote CIBC Global Markets and their
assessment of the silver market. And one thing that
he quotes from CIBC is that in 2008 silver had risen
to about $20 an ounce and lately it’s been
languishing at around the $10 level; those are
facts, no dispute there. And then they (CIBC) goes
on to state at the first sign of a decline in gold,
investors are likely to sell their silver holding
but retain more of their gold holdings since gold
has a superior reputation as an insurance policy,
compared to silver. I really don’t have an issue
with that, yet.
For one thing, in this part of the cycle, gold has
certainly gotten most of the publicity and will
continue to do so. Secondly, gold is almost
mainstream and even Wall Street’s starting to talk
about gold. Silver is not frequently discussed; it
certainly is not thought of as a safe-haven asset by
most investors in North America. However, that fails
to recognize that there are 6.2 billion people on
the planet and many of those will never hear of Jon
Nadler or David Morgan or Ted Butler or any
commentator for that matter, but they have eons of
history where silver was a store of value. And those
people, as things unwind globally, will move to the
silver market, simply because gold is outside their
price range.
So for now, I think the CIBC statement referred to
in the first paragraph is a fairly accurate one.
Certainly it’s an opinion. As far as the future is
concerned, however, my opinion is a bit different
because of what I see coming down the road, and that
is my reason for using the word “yet,” above.
What bothers me about this CIBC article that Jon has
quoted is that they believe the increase in base
metals will lead to a low in silver prices because
there’s going to be more and more silver as a result
of base metal mining. That’s something I take some
issue with for 2009 and probably well into 2010.
I’ve already written an article about that; in fact
I said 70 percent of silver is not coming to the
market—and that was just a catch phrase so people
would understand that 70 percent of the silver that
does come to market is a result of base metal
mining. From everything I have read and all
indications I get, the amount of silver mined in
2009 as a result of base metal mining will probably
be less than what it was in 2008.
Thus the CIBC article is certainly worth reading and
commenting on, and I think Jon handled it very well,
because basically what he’s doing is quoting what
CIBC said. His look at it is somewhat similar: there
has been a big ratio drop. Silver has outperformed
gold from the time silver started its bull market in
2003, but depending where you draw the starting
line, you can make just about any argument you want.
You can also say that from 2003, which is where I
think the silver bull market started, after
the gold bull market began, silver has outperformed
gold until recently. And since then, gold has
outperformed silver based on total performance and
the gold/silver ratio.
The ratio went from basically 80 to 1, down to
around 50 to 1, until the credit crisis started
unwinding and once that took place, the silver/gold
ratio got back up—actually above 80, temporarily.
Now it’s worked itself down to around 70 . . . will
it continue down or up, nobody knows. I actually
suspect that the ratio is not going to get real
favorable toward silver, probably for the rest of
the year. Not that I’m agreeing with the CIBC
article, but I have to maintain my integrity in what
I’ve written to my membership site,
Silver-Investor.com,
and have told readers of
The Morgan Report—that
I saw a good rally going into the early months and
after that, it might be a time to build cash and
look for some good values.
The amount of silver that is available for
investment is so small, probably 50 million to 100
million ounces at best. That is a pitifully small
market, relative to all the paper that’s flying
around. And there will be a day like no other day,
when someone is not going to be able to deliver
silver to someone who can make some noise, and when
that event takes place it will probably be pushed
aside, looked at askew, and not recognized as the
fact that it is. But eventually the truth will leak
out, and once that happens I think more and more
people will start to get much more interested in the
silver market.
It is an honor to be,
David Morgan
Founder Silver-Investor.com
Mr. Morgan has followed the silver market daily for more than 30 years. Much of his Web site, www.silver-investor.com, is devoted to education about the precious metals. David Morgan will be speaking in Vancouver Canada Jan 25- Feb 1st.
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