LETTER TO THE EDITOR — Silver price headed much higher

A new study about silver (T.N.M., Sept. 26/94) by the British firm Metals & Minerals Research Services (MMRS) paints a bleak outlook for the rest of the decade. According to the study, silver prices are unlikely to break US$7.50 per oz. by the year 2000.

In 1993, James Blanchard and I wrote Silver Bonanza: How to profit from the coming bull market in silver. Because we concluded in the book that silver was headed much higher in a new bull market, we might be accused of a bias in silver’s favor. (I should add that when I undertook that study, I had been beaten black and blue by silver for 13 years, and any case in silver’s favor had to be proved by me.)

The facts persuaded me that most analysts were wrong and that silver fundamentals alone, without regard to inflation, would push the metal much higher in the next decade. When The Silver Institute published its 1994 World Silver Survey earlier this year, the new supply and demand numbers confirmed, in spades, our case for silver.

For all of these reasons, the MMRS report shocked me. I admit I have not seen the full report and so have been unable to study the exact supply and demand figures responsible for this projection. We don’t know what methods were used to gather data, either.

What is obvious from MMRS’s press release is that the company believes that “ample spare capacity exists for cents mine] reactivations to accommodate any looming supply gap.” The release also says that MMRS believes these reactivations would come “not long after real prices had established themselves above the US$6-per-oz. level and would dampen the potential for further price increases.”

In the first place, the supply gap is not “looming.” It is here — has been since 1990 — and is growing all the time. Second, our conversations with mining company chief executive officers and our knowledge of silver-mining costs led us to believe that shut-down mines will not be reopened until silver crosses US$7-7.50, and convinces those notoriously hard-eyed businessmen that it intends to stay above that mark.

The MMRS report also cites large silver stocks overhanging the market, more stocks than others have estimated. Based on our study, I believe these stocks are not readily available to the market at prices below US$10, and some won’t come onto the market at any price we will see in the near future. Our source in India (the largest national market for silver), when asked about the prospects for silver demand in that country, cited inflation, population growth, traditional savings patterns and the incredible growth of agricultural income as factors stoking demand.

In short, even in the brief abstract that we have seen, the MMRS report has not shown us anything to alter our conclusion that silver is headed much, much higher.

Franklin Sanders

Memphis, Tenn.