By Casey Research
Commentary by John Fisher
Once institutional and retail investors turn their eyes to gold, the price movement of gold and silver stocks may explode for the simple reason as Casey Research puts it in the title, “How Will Niagara Falls Fit Through a Garden Hose?”
While the returns for the AMEX Gold Bugs Index (HUI) have been phenomenal with a more than 180% rise since the lows of October of 2008, the best may be ahead for gold stocks once investors jump on the band wagon as it will be a bottle neck to buy gold and silver stocks given the small size of the industry compared to others.
Casey Research visualizes this in the graphic below that shows how tiny the entire gold industry is relative to single companies like WalMart (WMT), Microsoft (MSFT), Exxon Mobil (XOM), or even whole industries.
While the gold industry is rather small when viewed in this context, Casey Research points out that the silver industry pales in comparison to the gold industry. The small size of the industry combined with a negligible amount of above ground inventory are two of the many drivers as to why silver may have the ultimate upside if there is an investor precious metals rush in the months and years ahead.
If the gold industry is tiny, then silver’s $9 billion market cap makes it a nano industry. The entire silver industry is over 21 times smaller than gold’s! If gold explodes, silver will go supernova. When the metals markets really begin to move (hint: they haven’t yet), silver will outperform gold by a 4 to 1 margin, minimum.
All Things Considered – John’s Commentary: Just as a home needs a solid foundation, your precious metals (and for that matter your entire investment portfolio) needs a solid basis in silver. Silver is both a precious and industrial metal – two things in its favor. The demand for silver is highly inelastic. Such a small amount of silver is used by industry in any one application that the price could skyrocket and industry would continue to purchase it. Most silver is never reclaimed (recycled). Virtually every electronic component contains silver, including the keyboard, monitor, computer, mouse and printer you have in front of as you read this article. Most of that silver will never be recaptured. Silver will be the first line of financial and monetary defense in the event of a significant financial catastrophe. Around the world, silver serves as “poor man’s gold.” Virtually all of the silver ever mined in the history of mankind has been consumed and is irretrievable. Virtually all the gold ever mined in history is still in existence.
Action to take: Continue to buy silver. Purchase silver over gold on a two-thirds to three-quarters basis. Do not get hung up on the price being up or down two or three dollars. That is nothing in terms of what is ahead. Exercise slow and steady accumulation. Silver at these levels is incredibly cheap based on historic adjustments, silver’s relationship (ratio) with gold, our fiscal and monetary policy and other factors. LESS THAN 5% OF INDIVIDUALS WITH INVESTABLE ASSETS HAVE PURCHASED PHYSICAL METALS! It may seem like everything is abuzz about gold and silver, but 95% plus have not taken any action. The market is still wide open to the upside.
What to buy: Stick with the basics – don’t get fancy or buy into some marketing ploy. Buy 90% pre-1965 coin, 100 oz. bars and 1 oz. generic silver rounds. I have many of these items available for immediate overnight delivery in quantity.
