There are 105 trillion reasons to own silver. Very few investors in the world realize this, which makes it one of most undervalued assets in the world. While the paper price of silver could go a bit lower, it’s forming a bottom while the major stock indexes are developing the BIGGEST TOPS in history.
You see, investors no longer understand what a “Store of Value” is anymore. Back in the day, if a person wanted to save something for retirement, they would put away gold and silver coins. So when they retired, they would cash in these gold or silver coins for goods and services.
Today, the overwhelming majority of individuals have their funds invested in DIGITS or PAPER ASSETS in one form or another. Just how large is the total Global Conventional Paper Assets under management?? Look at the chart below:
According to the CityUK 2014 Fund Management Report, total global conventional assets under management increased from $97.2 trillion in 2013 to an estimated $105.1 trillion in 2014. That’s a lot of paper and digits.
Investors have switched their faith from owning physical stores of value such as gold and silver to a more sophisticated highly leveraged system based on paper a digits. The institutions that create, package and sell these supposed financial products (garbage) label them as ASSETS. Unfortunately for the naive masses, these are not assets, but rather future IOU’s.
On the other hand, a real asset is a silver coin. Here’s why.
The Two Ways To Value Silver
I’ve explained the two ways to value silver in several of my past interviews. Unfortunately, most precious metal investors today do not want to listen to long interviews as they don’t have the patience for it. I know this is true due to the views I receive on my articles compared to my interviews.
Furthermore, when I put out a tweet for one of my top articles, I might receive 1,500 tweet views. Guess how many folks who view that tweet actually hit the twitter link to read the article? Oh, about 30-50 on a good day… LOL. Individuals today don’t even have the time to read more than few sentences, much less an article… forget about a 30 minute interview.
Regardless, there are two ways to value silver:
1) It’s Just-In-Time supply chain price mechanism based on supply-demand-cost
2) It’s true Store of Value
Currently, the price of silver is valued based upon the present supply demand fundamentals including its production cost. If the cost to produce silver from primary silver mines was $50, the price would be closer to that figure. As I stated in my recent article, 2014 FULL YEAR RESULTS: Top Primary Silver Miners Lost $1.9 Billion the average estimated breakeven for the group was $19 in 2014. I would imagine with the cost of oil down significantly, the breakeven should fall a little further in 2015.
So, the market calculates silver consumption and investment demand versus the supply. While this market pricing mechanism is manipulated, that’s basically how it’s done. It’s based on the degree of CONSUMPTION, not VALUE.
The second more important way to value silver is its STORE OF VALUE. Gold and silver have been the best stores of value and money over the past 2,000 years except for the nearly 45 years worth of fiat monetary insanity ever since Nixon cancelled the convertibility of the U.S. Dollar to gold in 1971.
Investors have been brainwashed to believe their monthly flow of funds into their retirement or IRA accounts are a store of value. Little do they know, the financial institutions take these INFLOWS to guarantee the OUTFLOWS to individuals who have retired or are cashing in on their paper investments.
It’s basically the BIGGEST PONZI SCHEME in history. Why is that so? Because if everyone asked to cash in on their paper assets (even with penalties), there isn’t the available capital or funds to do so. We must remember energy has to be burned and economic activity generated to create the surplus capital to pay the retiree or individual cashing out.
Folks, we just can’t BURN ENOUGH ENERGY in a given time or year to pay back all these digit based paper assets. However, if you own physical silver, you already have stored ECONOMIC ENERGY in that one ounce silver coin. The energy and labor were already burned to create that coin.
The SILVER COIN is the highest form of value because it already contains stored economic energy while the $105 trillion in global conventional assets under management are ENERGY IOU’S. This would be fine if the world planned on expanding its oil supply. However, the opposite will occur in the future.
Very few realize if the United States expensive tight oil production was removed from the global supply, world oil production has declined since 2011. Individuals who believe Shale oil will make the U.S. energy independent, will be in for a rude awakening when we start to see production dropping like a rock by midyear.
Whether or not the precious metal investor wants to hear it, ENERGY DRIVES THE MARKETS. Gold and silver would be nothing without labor or energy. The 1.2 grams per ton of gold which is the average yield of the top five gold mining companies would stay in the ground if it wasn’t for ENERGY… in all forms and in all stages.
When the world finally realizes that the peak of unconventional oil production is here (conventional peaked in 2005), the NET PRESENT VALUE of most paper assets will head south down the toilet and into the cesspool. This is when the second and more important way to value silver will occur.
There will be a MAD RUSH out of paper assets and into physical to protect wealth. When this occurs, silver will probably outperform gold due to it being more rare and more affordable.