A new Dawn for Silver

Excerpts From – “Gold Forecaster – Global Watch”

March 27, 2006

It is clear that the permission to list on AMEX is confirmation that the Silver E.T.F. will list, despite final clearance not having been given yet. “The S-1, which is the registration statement submitted by BGI, has not become effective yet with the SEC, so we are still in the quiet period of the registration and a launch date cannot be determined," says Christine Hudacko, spokeswoman for Barclays Global Investors, which is behind the creation of the silver ETF.

Barclays Global Investors is applying to list 13 million shares backed by 129 million ounces of silver in an arrangement similar to that for the streetTRACKS Gold Trust shares. Under this structure, silver will be held in the Bank’s vaults and each share will represent 10 ounces of Silver.

Present Demand / Supply for Silver

As we have said consistently, the demand for Silver is going to overtake supply and it may well be in the process of doing so now. With demand for silver for photography having dropped, but being more than replaced by new applications in industry and prints of digital photographs, global demand has moved to a point where it is greater than new global production. This deficit has been accommodated by sales of "Official" silver from the government of China. Sales of Indian "Official" silver should be completed by the end of the year. At that point Indian demand should spill over into the global silver market. We suspect that the sales of Chinese "Official" silver are near to completion as we see imports of silver into China rising quickly. However, we cannot be sure that this has happened. When it is completed, Chinese demand will come to the global market for the needs that are in excess of its present internal supplies. So irrespective of any other factors, the Silver market and its price will have to deal with a potentially very large demand on top of present global demand.

Now add to that the prospects of a Silver based E.T.F. and you have an explosive situation! At its start the Exchange Traded Fund will require 129 million ounces of Silver. Whichever way one looks at it they purchase over a relatively short period of time of 129 million ounces is a massive off-take from the market, equating to roughly 16% of the world's annual silver production and 21% of the known above-ground inventories of silver. This by itself will send the Silver price well up on present levels. However more pertinently a vast array of new Investors into Silver will come forward possessing investment power the Silver market has never experienced, even with the Hunt Brothers and Warren Buffet’s Berkshire Hathaway, 130 million ounce holding already present.

Because Speculators/Investors will delight in taking new long-term positions in Silver through an E.T.F. we would expect the holdings of the E.T.F. to grow very quickly, on the back of the success of the gold E.T.F.

It was one thing a single Investor trying to corner the market, but when many large Investors move in like a pack, the chance of huge silver price ‘spikes’ grows. The difference also lying in the fact that individual control of such a situation has to give way to the group, so giving a decent market at much higher prices. This translates to the addition of a genuine investment side to Silver.

The complaint that this will prejudice industrial users has to be true to some extent, but at the same time the S.E.C. could not withhold permission on that ground, for that would have been manipulation of the worst kind. After all the S.E.C. could not withhold permission because Silver buyers didn’t want to pay more. Industrial users will simply have to adjust to higher prices or alternatives, if a free market is to be continued. Silver Producers are delighted, with the prospect of earning more, against the annoyance of Silver users having to pay more. We also wait with curiosity to see just how much scrap or hoarded silver finds its way back to the market as prices rise and how quickly new production comes on stream?

This is a major step for Silver, which has to transform the whole market. We do expect the silver price, should it be placed under such pressures as these, to be considerably higher than we see at the moment. Relatively speaking silver could outperform gold, price-wise and volatility-wise.

Having said all this we have to emphasize that Silver companies and their share are likely to outperform the Silver price simply because of their gearing!

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