Gary North

September 11, 2008

Silver is down by 50% for one reason: in a recession, commodities fall in price. We are in a recession. Commodity prices have fallen. I predicted this in mid-March. It was obvious to me. The market has confirmed my prediction.

The war factor is always a wild card. But the silver bulls never mention war with Iran. They talk only about supply and demand in peacetime. So, let us take them at their word. Let us ignore war with Iran.

There is no more expensive, money-losing error than the great myth of the great silver shortage. It never dies. Like Dracula, it keeps rising from the grave -- the grave of broken dreams of the victims.

I have heard this argument since 1967. By 1967, I had been a silver investor for four years. The argument was still #1 in 1973, when I sold silver at Monex, before it was called Monex. (I refused to use it.) It was still being used by Jerome Smith in 1982, long after silver had peaked at $50 in January, 1980.

For 21 years, 1980-2001, the silver shortage argument led investors into a trap. Silver fell from $50 to $4, and all the way down, sellers of silver said there was a silver shortage. Yet "out of nowhere" came two billion ounces of silver -- silver that the silver bulls had somehow overlooked. They were wrong. Year after year, they reported the statistics, said, "Strange; no one knew about these last, hidden reserves," but said that the silver shortage was now inevitable. It wasn't.

They are still selling this tired, erroneous story. Silver peaked on March 17 at $21.60. It has collapsed -- this is the correct word -- by 50%. This is a huge loss. This is no correction. This is a collapse.

I saw it coming. On March 19, I said the precious metals had peaked on March 17. I was right. The silver bulls were wrong. Not a little wrong. Breathtakingly wrong.

And all the way down, they have screamed two things: (1) Manipulation! (2) Shortage!

Wrong on both counts. There is no physical shortage of silver. You can buy all you want. I would not recommend it. We are barely into recession. But you can buy all you want.

Ted Butler is the main source of this nonsense. The other source is Jason Hommel.

Jason Hommel ("Ted Butler Lite") on September 10 said he does not know what silver's price is. I do. It's half of what it was on March 17.

I have tried to be polite to this enthusiastic but uninformed newcomer to the world of precious metals. I have not mentioned him by name. But this time, he has gone too far. People who have listened to him since March 17 have lost a lot of money. There comes a time to issue a warning. Now is the time.

There is an old rule: "When you're in a hole, stop digging." Jason Hommel does not believe this rule. His latest performance is wonder to behold.

Mr. Hommel, who has been trying to overtake Ted Butler as the man of 1,000 unconvincing explanations, has written an article: "What's the Price of Silver?" It is dated September 10.

Before you read it, look at two charts. The first is for silver from January, 2008, to September 8.

The second is the price of silver on September 10.

This is all you need to know about the price of silver.

But all this is irrelevant in the world of Jason Hommel. His article is titled, "What's the Price of Silver?" He tells us he does not know.

Then he launches into a long, rambling article citing dozens of utterly irrelevant statistics on silver supplies.

This young man has been dead wrong on silver ever since March 18. He has written article after article in a vain attempt to explain away the fact that silver is collapsing. You can read them all here, if you are a glutton for punishment.

On March 19, I said the precious metals had entered a bear market. I have not changed my mind.

I have always told investors that silver is volatile, and its price falls much faster than gold in a bear market. See my 2006 debate with Franklin Sanders.

So far, silver is down 50% since March 17 -- the day I ran an article on how to short gold. Gold is down about 25%. Silver is down 50%.

But Mr. Hommel will not face reality. Reality is too painful. So, he goes on and on about how he does not know what the price of silver is.

I called Camino Coin company on September 10. I asked if they were selling bags of 90% silver coins. They were. At what premium above spot? Eighty cents per ounce, or 7%.

There is no shortage of silver. Owners of coins do not want to sell ("It's going back up!"), so there is a price premium for coins. This is normal in a sell-off and price collapse. We have seen it over and over for four decades.

American silver eagles are in high demand, and the U.S. Mint cannot meet it. It takes a year or more to order more presses. But you can buy silver. At a price.

But Mr. Hommel says he just doesn't know what the price of silver is. To which I respond: "Call a coin store and ask!" (Camino: 800-348-8001)

I would respond in detail to Mr. Hommel's rambling, incoherent article, but it is locked. I cannot extract its text to respond to it. I see no reason to type out every irrelevant point to respond to it. There are dozens of irrelevant points. "So many blunders. So little time!"

You will have to read it yourself. As you read it, argument by argument, think, "The price of silver is down by approximately 50%."

Also think, "Never treat your readers as if they were idiots -- especially if you have lost them a pile of money."

Read it here.

Mr. Hommel should cease competing with Mr. Butler for the Jerome Smith Silver Medal. Mr. Smith, who was "Mr. Silver" in 1967-80, became "Mr. Tarnish" thereafter. You can buy a used copy of his book, Silver Profits in the Eighties, for one cent, plus postage. It's a true collector's item. Mr. Hommel and Mr. Butler should both order one.

Silver was $50 an ounce in 1980. It was $6 an ounce in late 1989.

For the story of Jerome Smith, read the testimony of the man who made millions of dollars with Smith's story, Jim Cook, who owns Investment Rarities. This company was recommended by Howard Ruff, 1974, beginning in 1974. I worked for Ruff, from 1977 to late 1979. Cook says he gave up on silver in 1985, and went to gold. Too late. But he changed his mind in 2000, he says, when he was convinced by Ted Butler. He wrote this in 2004:

There comes a time to call a spade a spade. I am calling it. Butler and Hommel don't know what they are talking about. The market has proven this. Anyone who believed them is down 50% from the top. If these two analysts knew what they were talking about, they would have warned their readers in mid-March that there was a real risk of a big fall in the price of silver, despite the so-called shortage. They were caught flat-footed.

For Butler's equally silly explanations for the collapse, and his refusal to tell his readers to sell, all the way down, go here:

Hommel says he does not know what the price of silver is. In 44 years of investing in silver, this is the most preposterous argument I have heard from any financial analyst on any topic. This is the low point. This is the bottom -- not for the price of silver, but for the sheer, blatant bankruptcy of arguments by an analyst who did not see a collapse coming in the investment in which he claimed to be an expert.

If you don't know what the price of a commodity is, pick up the phone and order some. You will find out exactly what its price is.

"Mr. Hommel, call Camino!"