Our Silver and Gold is Too Cheap

(And it's a better product, on better terms)

Silver Stock Report

by Jason Hommel, May 12th, 2010



We have opened a new precious metals silver and gold store in Oakland, California.  Monday, was the opening day. 

Oakland Silver and Gold
http://www.oaklandsilverandgold.com/
3929 Piedmont Ave.,
Oakland, California 94611
osg2010@gmail.com

See the silver and gold on display in a 45 second video.
http://www.youtube.com/watch?v=gg8U1dyvScU



We are selling gold and silver at prices that are way, way, way too cheap, compared to the bullion ETFs.

Our premiums over spot are about 6-9%, and one ETF is at 12% over spot, and another is at 17% over spot!

The entire point of a bullion ETF is to offer 1000 oz. silver bars in an easy to purchase way, such as buying stock, which should be cheaper than typical silver products, since ETF silver is in the form of bulky and unwanted 1000 oz. bars that individual investors don't like to take delivery of, and the ownership is fractionalized, rather than taking the time, energy, and cost to turn that bullion into real 1 oz. rounds. 

Yet, two of the most honest ETFs have prices for the underlying bullion at higher than our prices for bullion that we can ship to you!

We, at JH MINT (www.jhmint.com) offer gold bullion as cheap as 5.9% over spot, and silver as cheap as 7% over spot.

Yet bullion in these two ETFs cost from 12.4% to 17.4% over spot!!!

Quote, from Bill Murphy, at www.lemetropolecafe.com:

"The CEF bullion vehicle closed at a premium to NAV of 12.4% and its peer PHYS at a remarkable premium of 17.417%. This is the highest since before CEF’s last offering in early November and probably the highest ever for PHYS which only started trading in late February."

February was a record month for sales at the JH MINT, and we hit a new record in April.  And the week broke a new record for us, too.

This price anomaly may not last long.  Given the odd pricing structure, we should sell out very soon.  I'd also expect our wholesale suppliers to being selling out, and product will be harder to come by, and/or choices will be limited.

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It may be of interest to you that I have been courting a billionaire who has a net worth that exceeds $10 billion.  I believe it is actually more like $20 billion.  I've been writing to him about silver for quite a few years now, and I finally got his permission to tell you about him.  I've been telling him for years how tiny the silver market is, that a mere $1 billion invested into real silver would simply dwarf the entire market, and move prices up substantially, and could cause silver to sell out worldwide.

I continue to answer his many questions, and sometimes I grow a bit impatient with him.  I'm trying to mature, and be more cordial with my emails.

Here's a letter he sent me last week.

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Maybe you can help me get more clear on one issue in silver investing which is preventing me from taking a larger position.
 
An issue I would like clarity on is the supply of silver inventories.
 
500M to 1B ounces is commonly given for above ground inventories.
 
However, roughly 150M oz/year of silver jewelry and 50M to 75M oz/yr of silverware have been sold into the market place every year for the past 20 to 40 years.   Most of the ounces from those two sources exist today above ground.  Most of those ounces could easily be shipped to refiners, melted, and turned into silver bullion.  (Most of it is not silver plated).  It comes out to over 8B ounces over the last 40 years just laying around above ground.
 
Also, the huge amount of ounces from all the pre-1965 silver coinage exists today and could be considered above ground inventory.
 
Given the huge supply from these three sources being out there in the world, what are the main reasons the Silver Institute, CPM Group and others do not include these massive amounts of silver ounces in their "above ground silver ounces" numbers?
 
The argument of "only silver ounces which are considered .999%  are counted because those are the only ones industrial users can use" seems like a very weak argument because refiners can turn sterling silver, silver jewelry, and real silverware into bullion very quickly if there was a need to do that.   
 
I know what the demand for silver is and how the demand for silver is going up as new applications for silver increase every year; however, price is determined by both demand and supply.   As a silver investor, I believe I should know what the supply of above ground silver really is in order to make a sound decision on silver price potential.
 
Right now, I feel like I only have about half the necessary information (the demand side) to make a clear investment decision on silver.
 
Of course, I want to take advantage of investing in silver if there is only 500M to 1B ounces above ground a year and silver would realistically run out by 2020 as the USGS says.  But what about the other 8B plus ounces out there above ground already and the 200M oz a year going forward which will become above ground inventory ounces as well which can easily be melted and turned into bullion for industrial use. 
 
Yes, I could see silver price going over $200 oz or to the price of gold; however, the supply side issues described above require more light shown on them for a fundamental investor to make a sound decision.
 
What are the choices to go over this with you?  Or are the issues very easily explainable?
Are there any links which discuss this important part of the fundamentals for owning silver?  So far, I have not seen only one to three vague articles on it and that is it.
 
Thank you.

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I replied:

These are very good questions, and answers are a bit complex.  This may be a good subject for my next newsletter, as you are not the only one asking.

Let me see what I can do for you briefly, and please respond if this answer is acceptable.

First of all, you will never "know" for certain the inventory that exists when it is distributed among millions and billions of people.

Second, it is not "inventory" in any sense of the word, given that this belongs to the millions and billions of people that hold it, and that silver does not belong to JP Morgan who has the short position!

Third, the people who buy silver in jewelry and flatware forms pay a hefty multiple for that silver, like 3 to 10 times over the price of silver.

Fourth, when that form of silver is sold, the people get about 40-60% of the spot price of silver, which is a significant discount to spot, because of the high costs of refining silver.

Fifth, when the silver price rose in 1980, a lot of that kind of silver was melted down, and most of the nations refineries were backed up by about 6 months, so it is not so easily and quickly refined.

Sixth, recycling is a part of current supply/demand stats in silver counted by the CPM Group, which is up to about 200 million oz. per year, more than you counted as going into those forms of silver.  Some recycling consists of sterling coins that nobody buys, or old generic 1 oz. rounds that are beaten up, irregular in shape, or odd weight bars or large novelty coins that are not easily commoditized for inventors.

To expand on points 3-4 for a bit.  If a person pays $25 for a silver ring that contains 1/5th of an oz. of silver in it, they are literally buying silver at $125/oz.  That silver cannot be sold for profit until AFTER silver hits over about $200/oz., due to refining and middlemen costs.

Therefore, silver jewelry and tableware is not considered a form of silver that can stop this rally, unless gains of greater than 10 fold return happen. 

When silver was at $5/oz., some people were predicting that silver scrap would flood the market to lower the price if silver went above $7/oz.  Clearly, that never happened, and thus, it can't realistically be said to be a prediction, but rather a futile attempt to talk down the silver market and to scare away potential investors.

I hope that most directly answers the bulk of your questions.  If not please elaborate on where I should elaborate further.

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In case you are wondering who the billionaire is, let me tell you, by way of getting to the statistics:

I share these statistics regularly, such as in my last email.  One man highlighted the following sections:

People continue to ask, "Which is better, silver, or gold?"
I tell people, we like silver best, because it's a much smaller market.
World annual silver mining is about $10 billion, but world annual gold mining is about $80 billion.
But most of the silver market is consumed by industry, as silver is used in all sorts of electrical contacts and devices.  In fact, industry consumes more silver than world annual mine supply, and the gap is being met by recycling.
So the amount of silver left over for investors is shockingly small, perhaps only $2 billion.
The silver story is surprisingly simple.  The entire world once used silver as money, but today, no nation on earth has silver circulating as currency.  This reduced monetary demand has created a very low price.
But silver remains a better store of wealth than ever, due to the increased scarcity, and the growing awareness of silver ownership as a way to make money.
Money is more than a currency or medium of exchange, it's also a store of value.  As demand for silver, as a store of value, increases, so will the price, and this demand will continue as a positive feedback loop that will eventually destroy paper money.
But the real shocking fact of the silver market is that 99% of silver investors are getting scammed by paper silver, that is basically all fraud.
The proof of this is the BIS report, from the Bank of International Settlements, here:
http://www.bis.org/statistics/otcder/dt21c22a.pdf
The proof is in the numbers.  The BIS keeps track of the derivatives of the banks worldwide.  It shows that the notional value of "other precious metals" over the counter derivatives, which are mostly all silver, increased from $100 billion to over $200 billion in six months.
When the entire annual physical silver investment market is only $2 billion, and when the paper silver investment market increased by $100 billion in six months, there is only one way that can happen.  The silver investment must be all fraud.

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So, getting back to the identify of our billionaire friend.  Total wealth in the USA has been estimated as exceeding $70 trillion.  I'll go with $40 trillion, as I know that is "household" wealth, that exceeds that.  If you divide that by 300 million, the population of the usa, then wealth averages out to $40,000,000 million / 300 million = $133,333 per person in assets.  People who read investment newsletters have a significantly higher net worth, on average, but let's go with that.

I have 80,000 emails on my email list.  80,000 x $133,333 = $10.6 billion.  I would suppose that my readers are significantly wealthier than average, as that's what the statistics also say.

Thus, the billionaire is you, my dear reader.  Collectively, it's you.

Many of you have asked me, "Jason, why don't you start a fund to help pool people's investment dollars together to buy silver?"

Answer?  Because such funds already exist.  Because such funds are not as safe as if 10,000 different people buy silver.  Also, today individual silver is also cheaper than fund silver!

Many people say they won't act to buy silver until after a billionaire buys it.  You ARE that billionaire.  And just as there is not enough silver for a multi billionaire, there is NOT NEARLY ENOUGH silver for all of you.

That's why I say, get some while you still can.

WE ARE ONLY SELLING SILVER, BECAUSE WE CAN STILL GET SOME, TOO!