How Rosy Is the Silver Picture?

Silver Profits in the Eighties, by Jerome Smith, New York: Books in Focus, 1982, 212 pp., $16.95.

Ten years after the publication of his prophetic book, Silver Profits in the Seventies, Jerome Smith has come out with a sequel, aptly titled Silver Profits in the Eighties. Whether this book will prove as far-sighted as the last one is questionable, given Smith's near-term prediction for $100-per-ounce silver and even higher prices beyond.

Coming out as it did when silver was below $10 an ounce and, at one point a few months ago, below $5 an ounce, compared to its January 1980 high of $52, Smith's book certainly hit the market at the right time. Whether or not his ambitious price forecasts are to be believed, readers who buy at current levels could hardly go wrong in the long run.

But caution is needed in reading Silver Profits in the Eighties. For this book filled with charts and tables makes some questionable assertions.

The thrust of Smith's argument, now as 10 years ago, is that demand for silver is rising and supply is falling. It is true that since 1946 there has been a gap of 100–150 million ounces between silver consumption and new silver production. But that gap has always been filled by above-ground supplies. It is true that available supplies, including new production, are becoming increasingly strained. But Smith goes too far in asserting, "There are no longer any sizable hoards of silver in the world."

In fact, a Bureau of Mines study, prepared by private consultants and for some reason not publicly released, estimated that in the United States alone there are private silver stocks amounting to 2.5 billion ounces. That's in addition to the government's 140-million-ounce stockpile.

Smith also contends that India, long a great source of smuggled silver, is drying up. It could be, but he would find plenty of argument to the contrary. Some experts estimate that there are probably still 3 to 4 billion ounces of the metal in India. That's a lot of silver.

The other side of the coin, according to Smith, is that silver demand is steady, if not rising. Curiously, in a large section devoted to gold, Smith stresses slackened demand for gold, thus buttressing his point that the gold-silver price ratio is out of alignment. But he fails to take account of similar evidence of slackened demand for silver.

In 1981, according to the latest adjusted figures from the Bureau of Mines, US silver consumption, at 117 million ounces, was at its lowest since 1963. It was even lower than in 1980, considered a black year for the white metal. Consumption for the first half of 1982 was up about 7 million ounces from the same period the previous year—encouraging, but hardly exciting. And total 1982 consumption was still far below the peak consumption year of 1973, when the United States used 196 million ounces.

None of this means, of course, that silver prices aren't due to rise. Smith's valuable discussion of the history of price relationships among the precious metals and much of his other information, however flawed it is on occasion, leads one to the inescapable conclusion that silver is undervalued. But don't hold your breath waiting for $100 silver.

Steve Beckner is the author of The Hard Money Book and a reporter and columnist for the Washington Times.