John Embry on ROB-TV: Only grapefruits can''t see manipulation of gold price

Section:

By Ted Butler
Tuesday, December 21, 2004

www.InvestmentRarities.com

I had lunch last month with a good friend, Pat, a successful investor
and businessman. He is avidly interested in silver, and owns a
substantial quantity. I like that he asks penetrating questions if he
thinks something I say may not be entirely correct.

Recently I mentioned to him that there was more gold above ground
than silver. I suggested that silver was rarer than gold. I've
written about this frequently in the past, so I didn't quite know
why Pat was rolling his eyes. He asked me if I was sure about this.
How could silver, at 1/60th the price of gold, be rarer?

I told him that 60 years ago the world had about 10 billion ounces of
silver bullion and silver that could be melted (coins, silverware,
etc.). World governments held most of this silver, and the largest
holder was the United States. This 10-billion-ounce silver inventory
was 50 times larger than what was the then-current world mine
production of 200 million ounces. At that same time, the world had
about one billion ounces of gold, which was almost all held by world
governments.

So 60 years ago there was 10 times more silver in inventories than
there was gold. Gold was more rare than silver throughout recorded
history. For thousands of years we mined many more ounces of silver
than we did gold. No wonder people believe that gold is still rarer
than silver; for most of history, it was.

But that was then, and this is now. Something absolutely remarkable
occurred over the past 60 years that turned the old equation on its
head. We went from having 10 times more silver than gold to having
four times more gold than silver. I know that this seems to be an
outrageous claim. But if my outrageous claim is true (as it is), you
are being presented with the investment opportunity of a lifetime,
simply because this fact is not yet recognized by the market.

So how could we go from ten times more silver to four times more gold
than silver?

Easy. Silver became an industrial metal.

Let's face it -- there's no way the world's best conductor of
electricity and heat, the best reflector of light for photographic
material, and a biocide agent could not become a vital industrial
material. Since silver is all of those things, plus many more,
we've used it up.

In the last 60 years, even though we have taken many billions of
ounces of silver from the ground, we have used even more for
industrial consumption. We've also had to use almost all the 10
billion ounces that existed 60 years ago. Today one billion ounces of
silver remain in the world, even though most analysts suggest much
less, and no one can document more than 150 million ounces in bullion
inventories. That's one billion ounces of silver left above ground.
Sixty years ago we had silver inventories that were 50 times larger
than what was produced from mining. Now we have inventories less than
two times annual production. That's a shocking drop of 96 percent.

During that same 60 years we took out of the ground more than three
billion ounces of gold. Since gold is such a revered and valuable
commodity, very little was consumed industrially. Almost all of it
was converted into jewelry and investment bars and coins. These are
forms in which gold can be easily recovered. Therefore, this three
billion ounces of new gold over the past 60 years, when added to the
one billion gold ounces existing back then, gives us a current world
inventory of four billion ounces. Sixty years ago we had 50 times
more gold in inventory than we produced and today we still have 50
times more gold in inventory than the annual mining production.

That's one billion ounces of silver versus four billion ounces of
gold. Today's silver inventory is valued at $7 billion, while the
gold inventory comes to $2 trillion. This means that all the gold in
the world is priced at 250 times more than all the silver. Stated
differently, the value of the silver inventory is priced at a
fraction of 1 percent of what the gold inventory is priced at. Now
when have you ever run across a situation where something much rarer
than another item has sold for a tiny fraction of the price of the
more plentiful item?

I'm not saying anything negative about gold. It is just a clear case
of silver being a better prospective investment. It's not a question
of gold being overvalued; it's a case of silver being undervalued.

As I've written before, a climb in the price of gold will not and
cannot hurt silver. I welcome it. I am convinced that once you learn
there is less above-ground silver in the world than gold, you will
know more than 99.9 percent of all the investors in the world. This
simple fact is not known, but it's all you really need to know to
confirm just what an incredible opportunity is being presented to you.

I encourage those investors who are exclusively invested in gold to
consider diversifying some of their gold holdings into silver. It is
my firm belief that the gold-only investors are the most logical
potential buyers of silver.

People buy gold because it is a true asset diversification, it's no
one else's liability, it has endured through the ages, and it's rare.
But silver is all those things as well and it's even rarer than gold.
Just about everything you can say about gold also applies to silver.

While the knowledge that silver is rarer than gold should be
sufficient, to make gold investors rush to own silver there is even
greater justification. Not only is there much less above ground
silver relative to gold, we know this inventory mismatch is growing
more extreme daily. That's because silver is still in an industrial
consumption deficit. On the other hand, the inventories of gold grow
daily, as they have every day for 5,000 years. Over the next 10 or 20
years, as long as the structural deficit continues in silver, as it
has for the past 60 years, it's a certainty that we will run out of
above ground silver. It's just a matter of time.

In the case of gold, with 80 million ounces coming out of the ground
each year and going primarily into jewelry, investment bars, and
coins, it's only a question of how much the above-ground stocks of
gold will grow. In 10 years we'll have 4.8 billion ounces of gold; in
20 years, 5.6 billion ounces.

Meanwhile, we will have zero silver inventories.

At what point do you think the world will recognize that silver is
more rare than gold? At what point do think there will be a massive
revaluation in the price of silver? You should be asking yourself, if
what I am saying is close to true, how can the price of silver not
reflect these facts? The answer is simple -- a long-term manipulation
of the price, caused by excessive short selling and the defective
practice of metals leasing. There is ample evidence of this in my
archives. Many people already know this, and they have bought silver.

Since silver is rarer than gold, why has this gone unnoticed by the
world? Gold gets enormous exposure and backing. Silver gets nothing.
The World Gold Council, comprised of gold producers, spends tens of
millions of dollars per year promoting and advertising gold. Good for
them. They just introduced gold exchange-traded funds on three
continents. There is even a grassroots group, the Gold Anti-Trust
Action Committee, that promotes gold. Together, the proponents of
gold reach many millions of people; investors and jewelry buyers
combined. They have an impact on the price of gold. In addition,
there are hundreds of analysts and spokespeople around the world who
focus on gold.

Contrast that with silver. There is no producer group trying to bull
the price up. The closest thing is the Silver Institute, but since
that group is comprised of producers and users alike, they never try
to push the price higher. If anything, the only cohesive group in
silver trying to influence the price is the Silver Users Association,
whose clear reason for existence is to reduce the price. Nor are
there hundreds of analysts or promoters pushing silver. There are a
few besides me, but if it weren't for Jim Cook and Investment
Rarities publicizing my analysis, there would be no silver message.
Compare that to the power of the World Gold Council and the rest of
the gold world.

Mind you, I'm not complaining; I'm only explaining. I'm explaining
why the price of silver doesn't reflect its rarity compared to gold.
Not enough people know the real story yet. That's what creates the
lifetime opportunity. If enough people already knew how rare and
valuable silver was, it would be reflected in the price. So it comes
down to waiting for people to learn just how bullish silver is. In
this day and age of instant communications, that can happen in a
flash.

As this essay was being sent to the printer, we commenced the long-
anticipated flushout of the brain-dead technical funds. There is no
other reason why silver dropped more than a dollar except for
reckless tech-fund selling. The good news, of course, is that the
dealers are covering shorts hand over fist, and when the tech funds
are fully flushed out, it will be mother of all buying opportunities
again. This time it feels like that opportunity will get here very
soon.

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