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[ThatHawaiiGuy]

There Is A Silver Lining


"...Warren Buffet sought "wealth insurance" for his vast stock holdings; instead of a "golden anchor," he bought one of silver. Soros, who historically has been willing to take greater risks than Buffet in his portfolio, saw silver as one of several undervalued commodities. Most investors don't realize how truly important silver is to industry and how strong the demand is. At today's prices, there is not enough silver to go around..."





Michael Checkan

What do two of the best investors during the past generation have in common? The answer is pure silver (.999 fine).

In 1997, Warren Buffet bought 130,000,000 ounces of silver. He put 1% of Berkshire Hathaway assets into "the poor man's gold." Likewise, George Soros, the man who made US$1 billion in one day and brought the Bank of England to its knees, has invested heavily in silver over the past five years.

What do these two giants of investing see in silver? In my opinion, Warren Buffet sought "wealth insurance" for his vast stock holdings; instead of a "golden anchor," he bought one of silver. Soros, who historically has been willing to take greater risks than Buffet in his portfolio, saw silver as one of several undervalued commodities.

The 1990s may have been the time of the "new paradigm" with money being made with paper investments. But, so far in the 21st century, the best investments have been tangible ones like real estate, platinum, oil, gold, natural gas etc.

Through most of the 1960s, silver was "fixed" at US$ 1.29 per ounce. In the 1970s, both silver and currency rates were freed, and the values of these commodities were determined by supply and demand.

Silver's image became tarnished in the late 1970s, after the failed attempt by the Hunt family to corner the silver market. Falling from a record high of US$50 per ounce in January 1980, silver bottomed out in the early 1990s at US$3.50 where it languished in a trading range of US$3.50-US$6.00.

But all of this changed in late 1997 when silver shot up to US$6.38 per ounce in reaction to dramatic reductions of warehouse stockpiles. It was finally confirmed in February 1998 that Warren Buffet had purchased more than 130 million ounces of silver.

Silver Is Irreplaceable

Silver is primarily an industrial metal, not a monetary one. It has properties that make it unique and irreplaceable for industry. Nothing else combines strength, elasticity, electrical conductivity, malleability, fatigue and corrosion resistance.

Industrial and health uses make up almost half of the demand for silver. Another 30% goes into silver jewelry. Most industrial silver is used in photography, and this use isn't likely to be replaced by digital cameras anytime soon. According to the 2003 Silver Survey, digital cameras have resulted in a mere eight million ounce decrease of silver for photography in 2002.

And new industrial uses for silver are constantly being discovered. This is evidenced by the four million ounces of increased silver consumption by industry in 2002, according to the same survey. Keep in mind that this increase in consumption occurred as U.S. industry contracted!

Most investors don't realize how truly important silver is to industry and how strong the demand is. Nor do they know that the U.S. government, which had over 3 billion ounces of silver in 1942, ran out of silver in 2002. At today's prices, there is not enough silver to go around.

Silver's price is close to a 5,000-year inflation-adjusted low. Over 90% of all the silver that's been mined in the past 5,000 years has been used up by industry. Today, the world's silver inventories are at the lowest point in 200 years. At the same time, demand for silver is greater than ever. Therefore, it should come as no surprise that 2002 marked the 14th straight year in which silver was produced at a significant deficit to demand!

The Best Ways to Buy Silver

The case for buying silver is airtight. Methods of acquiring it include:

Silver bullion bars of approved refiners. This was the technique chosen by Mr. Buffett, with storage overseas for geographic diversification. Advantages: small markup; easily converted into cash; internationally negotiable. Disadvantages: Must be stored securely with storage fees amounting to 0.5% annually or more; possible need for assay at time of sale.

Silver bullion coins. Advantages: Relatively inexpensive, some less than US$10/coin; easily converted into cash; internationally negotiable. Disadvantages: Must be stored securely; premium over bar prices.

Silver mining stocks or mutual funds. Advantages: Offers leveraged profits in a silver bull market; no storage fees; may yield a dividend. Disadvantages: Profits are dependent upon a given companies management; losses are greater during price dips; may not be as easily liquidated as bullion.

Silver warehouse certificates. Advantages: small markup; easily converted into cash; internationally negotiable; storage fees reduced or eliminated. Disadvantages: Reduced liquidity for some issuers; possible risk to holdings in the event of issuer bankruptcy.



Michael Checkan is President of Asset Strategies International, Inc. (ASI) in Rockville, Maryland and is a member of The Sovereign Society's Council of Experts. For more information about silver investments, you can contact him toll free at [phone], or from outside North America direct at [phone]. Or you can e-mail him at [e-mail] or visit www.assetstrategies.com.

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