View Full Version : Silver – knowns and unknowns, but a still bullish appraisal

6th November 2008, 07:32
Silver – knowns and unknowns, but a still bullish appraisal


An interesting viewpoint on the current state of the silver investment market form one of London’s specialist precious metals fund managers.
Author: Lawrence Williams
Posted: Thursday , 06 Nov 2008


In his opening address to the successful London Silver Summit yesterday specialist precious metals and natural resources fund manager Ned Naylor-Leyland chose to quote Donald Rumsfeld as indicative of analysis of the precious metals sectors at the moment. The well-known poetic Rumsfeld utterance chosen was: "As we know, there are known knowns. There are things we know we know. We also know there are known unknowns. That is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know."

The reactions of the gold and silver prices in the current markets really bear this out, with disputed fundamentals, partly depending on one's viewpoint of precious metals as money or a store of wealth or not, suggesting big advances while in reality prices have fallen.

Naylor-Leyland said the "Death of fiat money will happen" and pointed out that a new series of Bretton Woods discussions getting under way at the end of this month will at least focus people's minds on the idea of a precious metals backing for world currencies, even though the general government and Central Bank opposition to such an idea will make serious consideration of this unlikely. This could, however, raise the profile of an opinion that "silver is money".

Whether one agrees with this concept or not, Naylor-Leyland felt that, contrary to a Societe Generale view we published yesterday - Commodities in recession as speculative bubble bursts - but the purge is over - the case for silver and silver equities as investments is "compelling". Small physical metal purchases are currently being made at up to 60 percent over spot prices as demand exceeds actual supply contrary to what the overall market may be telling us. The market, according to Naylor-Leyland "hasn't understood the dynamics of silver compared with other industrial metals."

Because investors are finding it difficult to buy silver bullion in reasonable quantities, they are likely to have to look to silver equities to gain a foothold in the market. These may well be particularly cheap at the moment with many down around 75 percent or more from their peaks.

Governments printing money to try to mitigate the current financial crisis are building up to a situation where it is going to be almost impossible to avoid significant inflation - indeed managed inflation can be a popular policy for governments. Tthe problem here is that there is the possibility of unmanaged, or out-of-control inflation as a result of the huge increases in money supply currently being generated.

Naylor-Leyland primarily recommends buying silver bullion as an inflation hedge, but if bullion prices rise then equities in those silver miners which survive the current downturn should also soar if he is correct in his analysis. He is firmly in the ‘silver is money' camp, although talks a more rational scenario than some of the real silver bulls. An interesting viewpoint.