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November 28, 2004

Silver ETF - Shock & Awe
by T. Stein / S. McIntyre

The recent launch of the first U.S. gold ETF (ticker: GLD) has already shown incredible demand and we surmise it will only grow from here. In its first three days of trading, GLD traded roughly 30 million shares...and nearly all of that has been incremental demand (new buyers) according to the press. Carl Wittnebert, director of research at TrimTabs, was quoted saying "There's been nothing like it in the history of ETFs!"

So let's do some simple math. GLD (which represents 1/10 of an ounce of gold) is trading at approximately $45 per share. So 30 million shares times $45/share equals $1.3+ billion in new gold demand generated by GLD.

If silver, through its ETF, can add annually in demand what GLD did in 3 days, we are talking about an additional 180 million ounces being sucked up in one year. Add to this the preexisting silver deficit that runs around 75 million ounces per annum, and we are talking about a new annual deficit of approx 250 million ounces. 250 million ounces is roughly one-third of the world's supply of above ground silver.

If silver, through its ETF, can add quarterly in demand what GLD did in 3 days, we are talking about an additional 720 million ounces being sucked up in one year. Add to this the preexisting silver deficit that runs around 75 million ounces per annum, and we are talking about a new annual deficit of 800 million ounces. This would almost certainly wipe out the entire world's supply of above ground silver in less than one year.

When we read articles written by gold & silver promoters talking about how precious metals prices are going to the moon, we often groan. Serious investors do not like this "cheap" salesman talk. But if you are intellectually honest and realize that these ETFs are remarkable distribution mechanisms (similar to online brokers in the 1990s) which can expand the metals' reach to investors, then you can see how a revolution is about to take place. Our readers know that we have been bullish on gold & silver for a long time, and the ETFs are just one more reason (albeit an exciting one) to "back up the truck".

Todd Stein & Steven McIntyre
Texas Hedge Report

Todd Stein & Steven McIntyre are internationally known analysts and editors of The Texas Hedge Report, a market newsletter that highlights under and overvalued securities in the equity, bond, currency, and commodity markets. For more information, go to http://www.texashedge.com

Copyright © 2004-2008 Todd Stein and Steven McIntyre

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