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Bill Haynes
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CMI Gold & Silver, Inc.

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See Myths, Misunderstandings, and Outright Lies to learn about the pitfalls of investing in precious metals.
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Why Not Silver?

December 20, 2002

With the $355 high posted two days ago, gold was up some $95 over 18 months, for an impressive 37% gain. Yet, during this embryonic precious metals bull market, silver managed to register only a 17% gain (calculated from its $4.04 low to Thursday’s overnight high of $4.75.) Even if silver’s mid-July of high of $5.10 is used, silver's performance has lagged gold’s.

CMI’s position is that gold started a precious metals bull market when it launched off the $260 level 18 months ago. Yet, why has silver not turned in a comparable performance? Many factors determine a commodity's price; silver is no exception.

The sophisticated money--the "smart money," the "professionals," the wealthy--are the first to recognize a turn in a market. (The public always comes in later.) For several reasons, the smart money prefers gold to silver.

One, gold is viewed as the hard money. This comes primary from the world having been on the gold standard before the world’s monetary system morphed into the gold exchange standard, which was abandoned for the present fiatmoney system. Talk about an alternative to paper money, and only gold is suggested.

This is despite silver being used more often as money and by more people. A perfect example: the US Mint turned silver coins until 1965, while having minted the last gold coins in 1933. Further, in fourteen languages the words for silver and money are the same. There are two other reasons, however, thatsmart money prefers gold to silver.

Compared with the price of gold, silver is cheap, really cheap. Eleven million dollars would buy about one metric ton of gold but more than 74 tons of silver. This adds to the storage, and sometimes, transportation costs.

However, the main reason smart money avoids silver is the misperception that silver is only an industrial metal, not a monetary metal. This stems from the huge industrial demand, about 800 million ounces a year, for silver. Consequently, when articles or analytical reports about silver are written, the emphasis is nearly always on the industrial demand for silver. (By comparison, the industrial demand for gold is small.)

Such reports ignore silver’s historical role in hard money monetary systems; consequently, when smart money looks for protection against financial chaos, it goes straight to gold. This is a major mistake because silver clearly has just as stellar--if not better--a record as a safe haven.

The smart money exception to this, of course, is Warren Buffett, who is the smart money. Buffett roiled the silver market five years ago when he bought--and took delivery of--129,700,000 ounces of silver. (David Morgan, of silver-investor.com, believes that Buffett may not have taken delivery on the last 40 million ounces, but we will leave a discussion of that speculation for another time.) Admittedly, we do not know--because Buffett has not said--whether Buffett invested in silver because of the industrial demand or because silver is a monetary metal. Probably, it was for both. It would not have been politically acceptable for Buffet to have plowed $650 million into gold. That would have been a slap at the dollar and could have caused ire in Washington. Yet, by investing in silver, Buffett hedged against the dollar.

Regardless, Buffett owns a metal that is essential for the manufacture of the goods that proliferate in today’s world and a metal that will protect against financial crises. Investors with less money than Warren Buffet--that leaves about everyone except Bill Gates, who already has silver holdings--should seriously consider silver when making precious metals investments.

Because silver has not yet made the gains registered by gold is another reason for going with silver now. For information on the various forms of silver available, visit www.silvercoinguide.com.

About Gold

Some investors are disappointed because gold did not hold the $355 achieved in Wednesday’s overnight market. The important thing is that gold closed the week at $340.30, well above last week’s $333. In this move, gold ruptured the previously impervious $329 and should have convinced even the most ardent gold bear that higher prices lie in the future.

Call CMI at 1-800-528-1380 for answers to any questions or clarifications.  Our hours are 7:00 a.m. to 5:00 p.m. Mountain Standard Time, Mondays through Fridays.  Our offices are in the middle of the Phoenix, Arizona financial district.  CMI has had the same bank account since its inception in 1973.  References available on request.  http://www.certifiedmint.com

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