. What's Next for Silver? David Morgan The Silver Investor Vol. 5 - No. 6 June 2003 "Blessed is the man who finds wisdom, the man who gains understanding, for she is more profitable than silver and yields better returns than gold." Proverbs 3:13-18 (New Int'l Version) This month's quote is a reminder to all that as important as money and financial security are to people; living life wisely and honestly always yields a profit. Some of our younger readers are very concerned about the potential problems during a financial debacle, but it is important to remember that all wealth stays in place. All the roads, schools, factories, houses, land, crops, mines, stores, and malls remain and the ownership changes. By having some of your assets in real money you have shown your wisdom and will be able to weather the storm better than those less wise. Gold has shown strength and many were commenting on the ability for gold to take out the most recent high of 390. It appeared to us that gold was running out of gas and would not break above 390 before more consolidation takes place. Silver was a disappointment again. Last month's prediction that silver could breech the five dollar level was just plain wrong! Silver actually topped out and started down before gold. Some could consider this to be a leading indicator; others simply ignore silver and class it as an industrial use metal only. We take the silver market seriously and did use it as an indication that gold might not make a new high here. The bigger question is now what is going to happen? We expect both gold and silver to pull back this summer and test support. It is possible for silver to test the 4.40 level and gold might pull back further than most bulls think possible. The dollar rescue team will be put into action soon. The most common and disturbing question is why is gold showing so much strength and silver performing so poorly? Again, long-term readers understand that the futures pits hold the answer. The open interest in gold was substantial in the near (spot) month. This condition did not exist in silver. We witnessed this same condition during the last rally. Once the gold traders take their paper profits the market slows down. Some investors think these paper games can continue indefinitely, this is not true. The physical cash market for both gold and silver will one day be the market leader and the futures market will be following the physical demand. This is expected to actually happen in silver before it takes place in gold. Although we cannot be certain about this, once the bull market becomes obvious to the average investor both metals will be moving more in tandem. While attending the Vancouver Natural Resources Conference last year, the world panel was asked about gold's performance during an inflationary environment vs. a deflation. The answer given by the panel was accurate and very similar by all participants. All stated that gold was a crisis hedge and therefore expected gold to perform well during either financial condition. This is true, and as silver investor readers know, gold actually performs better during a deflation. This was proven by Professor Jastram in "The Golden Constant." Looking over commodity data for centuries, gold's purchasing power remained steady and actually improved during depressions. What about silver? Is silver simply an industrial metal? Before answering this most important question, let us build a foundation. Back when Stone Investment Group was trading actively, we had a computer trading program that was in beta testing. This simply means we were allowed to try the software and comment on how to improve it and to also catch any bugs in the programming. One of the main technical features that was most important was how ALL the data was analyzed. A priority system was developed that weighted the data giving more importance to the newest set of numbers. What happen most recently was more important than what happened last month for example. This is common sense, although we all know that silver touched over $50 US per ounce in 1980 that is old data and would not help us much in trading today. However, if silver was UP LIMIT two days ago, then we would have pretty good assurance that silver was in high demand and would most likely continue up until the immediate demand was satisfied. In other words, what is happening in any market TODAY is more important than what happened one week, one month, or one year ago. This is not to say that a long term down or up trend is not taken into account, just that recent events are considered more carefully. Now what does this have to do with silver as a crisis hedge? Few would argue that September 11, 2001 was a crisis in America. How did silver perform? Silver moved up eleven percent and gold moved up 7%. So gold did what was expected of it, a move up reflecting financial protection during a crisis. Silver however, did even better based upon the same event. So, the point is our most recent "crisis" can be used as a pretty good indicator that silver will perform side by side with gold to secure financial stability to those that own it. Our purpose in bringing this to your attention is many give gold glitter and tarnish silver. Remember, silver is the most reflective element and the truth will shine on the naysayers someday. One final point, our Swiss sources made an interesting point in their latest written correspondence. This exclusive publication stated clearly that gold and SILVER would protect investors more than even the Swiss Franc. This corresponds with our study of currency problems throughout monetary history. Eventually all currencies devalue against real money, need I say it again? Gold AND silver!! We have some interesting news on the investment and monetary issue for silver later in this issue. The gold to silver ratio expanded again and could peak around 80, this would not really concern us, in fact it might be an opportunity for some to trade gold coins for silver. We would not recommend giving up your gold position, merely to check the balance of your personal holdings. Many have asked what is the correct investment ratio of silver to gold. There is no correct answer, it depends upon risk, age, and investment goals, but generally holding a fifty to one ratio is good. This applies to physical bullion or coins only. The precious mining stocks are per our allotment and percentages given on the final page of each letter. Many of our silver companies are really gold and silver companies, although they are perceived to be silver primarily. For example both Hecla and Coeur are gold/silver companies. This month we are making a portfolio change. We are going to sell Agnico Eagle and replace it with Royal Gold. We have followed AEM for more than twenty years and will still use it as a leading indicator in our work. However, the market has punished the stock due to a rock fall recently and we feel Royal Gold is one of the best. We ran a quick analysis on the company and it turned out to be within the top five gold companies per Investment Business Daily. For new subscribers and those wishing to add to positions, it appears that the normal cycle low for silver will be in mid to late August. We recommend that new purchases be delayed until that time frame. We planned on sending out a "trading" alert for those that position trade, but the rally we forecast did take place and it is still possible to lock in some profits if you followed our earlier advice on our buy back on March 17th. If you plan to lock in some profits, never sell more than 25% of your holdings. David Morgan June 2003 website: Silver-Investor.com email to : silverguru22@hotmail.com 321gold Inc Miami USA