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May 02, 2009

Silver -- Too Little or Too Much?
by David Morgan

As most readers know, I have been interested in the silver market from a very early age, and this interest has brought me in touch with many interesting people. One group that I have met and have many friends and associates among is the precious metals dealers. In fact, it would be tough for me to estimate how many I know on a first-name basis, so let's just say many!

What strikes me as odd is that quite a number of the people who buy and sell silver and gold on a daily basis are really not very favorable to the product that provides their livelihood.

The first time I ran across such an owner of a precious metals shop, it surprised me that the proprietor was pretty negative on silver, or gold investing for that matter. He made the usual mainstream arguments about not paying interest, static investment, and so on. But then he stated the clincher, the one phrase I have heard more from the precious metals dealer community than probably anywhere else; he said, "I think everyone should own a little silver and gold."

I do not know how many times over the years I have heard those exact words, "Everyone should own a 'little' silver and gold." The main idea being, of course, that if you have a little disaster insurance then you can move on with your life and bury your tinfoil hat because you can be totally mainstream while secretly having "just a little" of the shiny stuff -- just in case.

However, I have always wondered if these people really thought about what they were saying. First, who is everyone? If it's truly everyone, then we are looking at about 6.5 billion people on the planet. The next definition is even tougher: how much is a little? Let us look at how much might comprise a "little" first and then we can come back and be a bit realistic about the "everyone" question.

First, we all know it is impossible to define the term "little"; however, we can make a few educated guesses. When I wrote The Ten Rules of Silver Investing, it was suggested that ten percent of an investor's assets be devoted to precious metals investing. Is this a little? Let's not argue, let's just start and see if all these precious metals dealers really know what the heck they are saying. . . .

To verify the facts, this link provides the median net worth of U.S. citizens by age group. If we look at the lowest age category, 20-29, we find $7900 as the average net worth, and taking my recommended ten percent would be about US$800.

The reason I chose the lower age group is because it is the smallest number. And in my view this is one age group that might really "wake up" and "get it," meaning at some point many young people will dig deep enough to understand the real basis for the entire financial system as being nothing more than an I owe you -- nothing!

Moving on, ten percent of $7900 today (5/1/09) does not quite buy one ounce of gold, but it will purchase about 50 ounces of silver in coin form. For this discussion, I am going to focus on silver. (Surprise! But you can carry on the same math with gold if you wish.) Now is 50 ounces of silver a "little"? Compared to someone with zero, it is a lot. But from a monetary aspect, ten percent of the lowest net worth people in the U.S. certainly qualifies as little in my view.

So, 50 ounces for everyone in the U.S. would be 300 million times 50 ounces, which is 15 billion ounces. This does not compute; I mean the math is good, but our precious metals dealer said everyone should have a little, and we just took a look and surely not everyone could have as little as under $1000 worth. And in this example, we are looking at only a "little" part of "everyone"; after all, the U.S. population is about 5% of the entire world's population.

In reality, if everyone in the U.S. had as little as three ounces of silver it would probably deplete the entire aboveground silver stockpile, both in coin and bullion. But heck, this is just theoretical, and we are now reading about all the surplus silver coming up from the earth. And to be fair, the silver market is no longer in a deficit situation, according to the best studies on the silver market. Also, more silver is being mined at this time than probably at any time previously. I certainly do not want to misstate the facts.

But I do want to restate the comment from those who should know better. Not everyone can own a little . . . it is simply too precious.

It is an honor to be.

David Morgan
Silver-Investor.com

Mr. Morgan has followed the silver market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and The Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing, which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided. His private Internet-only newsletter, The Morgan Report, is $129.99 annually. To suscribe to the Morgan Report click here.

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be taken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein.

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