The 3 Stages of the Coming Silver Shortage

 Ted Butler’s friend and mentor Izzy takes the soapbox on “The 3 Stages of the Coming Silver Shortage”. 

Editor’s note: Izzy’s article was originally published a few years back, when silver was at $9+/oz and before the recent run-up in silver to $16. True then, moreso today. Consider this: we have already experienced Izzy’s STAGE ONE scenario (last year), get ready for STAGE TWO.

PHYSICAL SILVER YES, SPECULATION NO
By Israel Friedman

(This very bullish opinion was written by silver enthusiast Israel Friedman, age 73, a friend and mentor to Theodore Butler. Mr. Friedman has owned and studied silver for 30 years.)

I hope that the sell-off in the metals made you think about the way you perceive gold and silver as investments. This wasn’t just a correction, this was a slaughter by the paper short sharks who call themselves commercials.

Yes, COMEX Is Rigged
Mr. Butler wrote to the authorities in detail and asked why these so-called commercials can break the law. But up to now, he has not received any answers. I am in the camp that believes you can’t change the paper market to be honest. But that doesn’t mean you can’t do anything about it, because you can.

To those people who speculate in the paper market, I say you’d be better off giving your money to charity than give it to the paper sharks.

This sell-off brings two conclusions. One, that gold and silver don’t have monetary value, because money value doesn’t change so much in value in such a short period of time. Gold and silver aren’t insurance for anything, not for inflation, not for a collapsing dollar and they are simply controlled metals. Two, the naked short sellers aren’t afraid of anybody. The users are also controlled by the commercials and aren’t buying at dumping prices. They will regret not buying at the low prices, as they need silver to live.

So, the conclusion is that paper trading is dictating the prices, and if you think for one moment that they will not take your money when you trade paper, forget it.

Should You Buy Precious Metals?
Not to lose your investment money and participate in the future bull market in silver is the most important thing, and you have to choose the right course to achieve that. What kind of decision do you have to make to buy metals? You have to ask yourself some questions.

One, will any of the metals be in short supply?

Two, if I invest money can I make a minimum of 5 times my investment?

Three, can I hold for the long term?

Lastly, do I have extra cash to buy with?

If you can answer yes on all four questions, in my opinion you can buy. After you answer yes, the question then becomes should you buy gold or silver? I am a silver sympathizer, and in my opinion, only in silver can you have a shortage situation.

Gold no.

Only a shortage in physicals can bring high prices and defeat the paper market and force the naked short sellers into bankruptcy.

Price Points and the Coming Silver Squeeze
To define what I mean by shortage in silver, I say categorically that I’m not interested in the level of world inventories of silver, COMEX inventories and the guru’s stories. I am only interested to know if the users are receiving their shipments of silver on time. When a delay of silver shipments occurs, and affects most the users, I will consider this as a shortage.

Let’s see the stages of a shortage. 
1) Pre-shortage – the users will have to wait 3 to 6 weeks extra for shipments. Then the prices can rise to $20-30/oz.
2) Shortage – the users will wait an extra 6 weeks to 4 months for silver. Then the prices can rise above the old all-time highs of $50/oz.
3) Super shortage – the users have to wait more than 4 months for their silver shipments. The price will range from $100 to prices you won’t believe.

If this last scenario occurs, and gold has plenty of supply, the price of silver, at a minimum, will equal the price of gold. And my crystal ball tells me that silver can exceed the price of gold by a great deal.

You should be asking, how did I calculate the prices for the different stages?

My calculation is very conservative. I only take into consideration the future deficits between the producers and users, which is running currently at around 50 million ounces annually. I also take into consideration that private investors have 400 million ounces in bullion and coins that they will sell in some stages.

-In stage one, pre-shortage, I think investors will be willing to sell 50 million ounces at a price between $20 to $30.
-Stage two, shortage, investors will sell 200 million ounces between $30 and $100.
-And the remaining 150 million ounces will be sold in stage three, super shortage and the prices will be truly shocking.

These prices are very conservative, in my opinion, because they don’t take into consideration the naked shorts, new investments, or those banks worldwide that sold silver certificates without real silver backing, only derivatives backing.

Commercial Silver Users (Manufacturers)
The users will be the key for the future price of silver. No user wants to stop production, and will pay any price for silver if that means staying in business. For you the investor, who wants to know when stage one will start, my answer is simple – not me or anyone will know in advance when it will start. No one will ring a bell.

In my opinion, all of these stages will happen in silver, and super stage three will take years to develop. I ask you, do you believe that, when stage three comes, you will benefit if you hold a paper-leveraged contract? The Exchange will change the rules; including changing margins, and maybe by canceling the delivery process, and you will be left with a paper only contract.

The conclusion is, if you believe in a shortage situation, you will be secure only if you buy physical.

The Best Kind of Silver to Own for Stage 3
The only question is what to buy? Because I believe that at some point we will arrive at stage three, super shortage, when prices will be over the old all-time highs and will fluctuate by dollars per day, no investor will have the money to buy 100 or 1000 ounce bars.

For the small to medium investor, I say buy U.S. Silver Eagles.

And for rich investors buy Eagles and bars. I like Eagles because I think, at some point, the Mint will stop minting them and they will develop a numismatic and scarcity premium. Plus, in my opinion, they are the most beautiful coins in the world, and when I hold one they make me feel good about America.

Dance to the Bank
If my vision comes true, and we arrive at the super shortage stage, the Congress will ask a lot people hard questions, and the questions will be how we came to this situation. And Mr. Butler’s past complaints will be checked.

Physical investment is the safest way to riches, in my opinion. When the naked shorts go to bankruptcy courts, including the big sharks, you will dance to the bank.

Remember, do your homework before you invest. Cover all the angles, but don’t speculate, only invest in physical silver with free cash money. And take in consideration you can buy silver 30% cheaper than a month ago. And this is a fantastic, fantastic, fantastic opportunity.

Good luck and remember the modern gold is silver.
Israel Friedman

 

June 2009. We’re already through Stage One. See also:
Scared By Silver? (or should it read, “Scared? Buy Silver”)
US Precious Metal Coin Shortage Continues
No Gold, No Silver
Butler: “Silver Blowback”
APMEX Explains Shortage/Outage