BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

Silver In The Twenty-First Century

August 16, 2006

Gold at $1000

          Silver at $50
             in the interest of America.
We would control the gold market, we
would control the silver market and we
would be on the right path ----- regain
control of the US Dollar ----AGAIN.

 

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.

"It is the time to put 'gold' into the commodity pages, next to pork bellies, because this is where it belongs.

Secretary of Treasury William Simons, December, 1974
Hearings for the Legalization of Gold

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.

THE SILVER MARKET GOES INTERNATIONAL

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

Total Value of Silver Share

$8B  

Market value of General Motors 

$40B

Market value of Goldcorp

$14B

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!


Price per
ounce ($)

Fabrication Demand

Investment
Demand (ounces)

Investment Demand (projected)

12

800

200

$500

15

9.6B

2.4B

6.0B

20

 

3.0B

7.5B

25

 

4.0B

10.0B

 

 

5.0B

12.5B

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.


 

Deficit
(million ounces
)

Average Price
$/ounce

1990

- 60M

4.00

1995

- 200M

4.00

1999

- 150M

4.50

2000

- 100M

4.50

2003

- 50M

5.50

2005

- 20M

7.00

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.

Yearly Silver Supply

 

Mine production, annual figures)

 

(Mil. ounces)

($, billion)

(Price)

1980

350

$1.750

$5.00

1990

470

 2.120

 4.50

2000

570

 3.135

 5.50

2006E

550

 6.600

 12.0

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.

Chile

43M ounces -----------> 45M ounces

Bolivia

14.5M ounces -----------> 25-30M ounces

China

??

90.0M ounces

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.

 

2000

2006

 

(MIL, ounces)

Photography

262

180

Jewelry

286

270

Electronics/
Batteries

115

105

------------------------------------------------------------------

Other
(monetary)

180

195

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:

1.   Silver has been mentioned more and more often with gold as a monetary metal. Gold has gone up 300 points in the last five years and at $650, it is now selling around 65 times, the same as the gold/silver curve.

2.    If we use the gold/silver ratio on a historical basis, as an arithmetic tool, we have noticed the factors which are the basis of our monetary-based analysis.

3.    Further to our thesis about the new silver is the fact that there are various pockets ro be filled with the available production. The combined numbers point to a sharp defecit. In the last two or three years, two things happened which were not in place many years ago.

4.   Barclays was permitted to float a silver EFT which contains 125 million ounces of silver. It is obvious that if we take a market which is supplied from production, less than 800 million ounces, 125 is a very big factor.

5.   Furthermore, if other silver-related EFT is established, the total market may be, lets say, 300 million, which would create an acute shortage on the market.

6.   At the time of writing, there are other markets besides the Comex. The Nimex in Chicago, the London market, the Dubai market trade in silver. Each and every one absorbs at least 100 million ounces of silver. With let's say three active markets, and that does not take into account the potential Indian market in Bombay or a Chinese market in Shanghai, we are talking about another 300 million ounces of silver.

7.   This could make the actual traditional operating usage amounting to at least 500 million ounces totally subject to the financial valuation of silver.

. . . 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!

Total mine production

800M ounces

Price: $12/ounce

 

Valuation

$9.6B

1EFT

 -1.2B
$8.4B

Comex and other storage 
       (London, Chicago, Dubai)
        300,000,000 ounces

-3.6B

Coin, investment demand

$4.8

100,000,000 ounces

 1.2

 

$3.6B

Basic industrial use

06.0B

500,000,000 ounces

02.4B

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.

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

Disclaimer