"SILVER IN THE TWENTY-FIRST CENTURY"

SILVER IN THE TWENTY-FIRST CENTURY  

The Hunt brothers in the 1970's discovered the "Commodity Age". They were 30 years ahead of their time.

I discussed with President Nixon in 1981 and 1982 using our precious metal reserve to forward our foreign policy aggressively. The President liked the idea!! Frankly, a $1,000 gold and $50 silver price is, today more than ever, in the interest of the United States of America. I would like to explain it to President Bush.

Silver started to participate in the current unprecedented commodity boom. Only in February, 2005 did silver break the $6.90 level and ended in December, 2006 at $9.00. In early 2006, the $10/ounce price was broken and hit $15 in May.

Even at $15 per ounce and production at 550M ounces, a value of $8.25 billion. International demand of 767M ounces -- a dollar value of $11.5B.

This is a minute sum, when we consider that the total aggregate (market) value of the six largest silver mines has a market value of $8B.

The recent cash tender offer for INCO is $18B.

Silver is cheap on current fundamentals. However, silver has another face!!

      . . . and this is where the money comes from.

      
             The world consumes 84M barrels a day.

                              1M barrels/day at $75 $75M

                               One year $27B

Accordingly, 1M barrels monetary diversification is about $27B, available for gold, silver and Swiss francs. 10% of $27B is greater than our projected silver deficit. If, however, the intrinsic $2.4B deficit brings up the silver price to $15, silver becomes a monetary winner!

Another $27B is available to PLAY the winner.

If silver passes $20, a new MONETARY METAL is born.

The monetary valuation of silver is growing daily. The growth of international futures markets, the first EFT with $1.2B value in silver (iShares Silver Trust); the usage of silver as a monetary asset (India, Dubai, Japan and China) is being supported theoretically by the 20B ounces of global storage, or $300 billion. None of this 20B is being monetized.

The trend to monetize silver is part of the "Commodity Age".

Total value of all mining shares                              1.400B

With only gold and silver in the mainstream of monetization in the commodity world, the drastic revaluation of silver shares and demand for monetized silver may offer a major reevaluation of the price of silver.

We expect a range of trading between $10 to $25 in 2006, 2007 and 2008.

It is my considered opinion that the basic concept, the basic evaluation, the basic position of silver in our vocabulary is going to change in the 21st century.

At any one time, there are various ways to measure the silver market. The most simplistic number is to multiply the annual worldwide fabrication demand for silver which we assume to be over 800 million ounces, with the assumed price. If we assume industrial and monetary demand of a billion ounces at $15, we are talking about a $15 billion market. At $20 it is a $20 billion market. This is 80% fabrication demand which is price elastic. This 20% monetary demand is an early market -- it can expand substantially!

Accordingly, the investment demand for silver is 2 EFT at current prices (2x $1.2B) but only 10 EFT at an inflated but expected 500M demand at an assumed $25 per ounce hypothetical level.

Against this combined demand, we have to calculate the actual yearly production and the difference is what we call the annual deficit. The silver market has been in the deficit column since 1986, starting with 5 million ounces to 250 million ounces in the year 2005.

The ratio between the actual silver which is stored in various exchanges or warehouses is very large. It has averaged for twenty years now at over 30 basis points, meaning that the actual storage is about 30% of the annual silver demand, which is a very volatile number. If, for instance, the demand for silver increases, the ratio can fall to 10% or to a negative percentage point.

Since 1986, the price of silver has remained about $5.00 an ounce. In 1988, it went to over $6.00 and as of today the price is over $12.00 an ounce. The silver price hit $15 in May of 2006. It fell down and currently it is over $12 an ounce.

Thus, in 25 years the value of worldwide silver production increased 378%. This is not for jewelry! It is the monetary silver. New production anticipates monetary demand, a demand that can only be met by new production.

Paraphrasing Art Buchwald, the commodity futures market is stepping in. $100B is invested in futures contracts tied to commodities indexes, up from $20B only three years ago. China, with its 90 million ounce production, at the $12 per ounce level, accounts for $1.1 billion valuation, or 16.7% of the world's total. The first silver EFT holds $1.2B value of silver, or 15% of the world's production. China and 1 EFT accounts for 32.7%.

... and this is where the SILVER exists!!

We have lost control of silver, and the price of silver.

Up until recently, the silver storage had been quite pedestrian. Coins used up $20 million worth of silver and Comex's the main inventory about 130 million ounces. The following table illustrates the annual industrial demand.

An analysis of the industrial usage of silver has been directly opposite to silver's financial future.

The annual supply with secondary distribution has been more or less in balance and accounted for by electroplating jewelry, sterlingware, foils, industrial use, and basically non-financial needs. In the late 1960s, a new trend established itself. Silver began to be used as a financial instrument. The factors which contributes to this assumption are as follows:

. . . and this is where the demand (for silver) comes from!

Note: The silver players must know all factors that govern today and tomorrow the price of silver. Full disclosure!

At this stage, we are creating our own table to summarize all the steps and methods which are being done or being born which absorb silver, absorb current production.

Furthermore, as silver goes up compared to gold, we find that the so-called silver/gold ratio is vastly in favor of silver, which indicates that if we have a monetary interpretation of silver, it would be obviously in the positive.

Last but not least, when we say that silver is going international and going monetary, it is a healthy trend. World trade is expanding, world pressure on storing money is expanding, world trade demands more and more value where trade can be conducted. The resistance to precious metals as monetary instruments has lasted now for at least fifty years. It has not been officially resisted. It is, however, obvious that total value of silver if it's open for monetary transactions in the next ten years is less than $500 billion. Even that $500 billion would require a relatively high price of silver per ounce. The financing of a new monetary instrument may have begun, but if it becomes popular it will be one of the unique features of the 21st century.

(Article 34 - posted August 16, 2006)

e-mail: mlikar@aol.com

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