Download A Case for Gold and Silver July 2008

A Case for
Gold and Silver
By Jason Tillberg
July 2008
“We have gold
because we cannot
trust governments”
Herbert Hoover to President Roosevelt, 1933
Gold



Unlike any other element on Earth, almost all the gold
mined is still around.
Found in museums, buried beneath central banks, in
bars, on statues, on furniture, on fingers, around necks,
in teeth, etc.
Approximately 120,000 tons of gold have been mined
(32,000 ounces per ton)


3.84 billion ounces at $900/oz = $3.456 Trillion dollars
Total Assets in US as of Q12008: $70.465 Trillion dollars
US Gold: Fort Knox




Early 1933, as part of new deal, all gold in
circulation was seized by the government
Gold was exchanged for dollars at a fixed rate of
$20.67 per ounce.
Current holdings at Fort Knox are approximately
147.3 million per ounces.
$900/ oz = $132 billion dollars.
Silver Demand


In 2007, 895 million ounces
were demanded.
455 million for industrial
applications (approx. 50%).







Batteries
Solders
Electronics
Medical applications
Mirrors
Solar Cells
Water Purification




Photography: 128 million
Jewelry: 163 million
Silverware: 58 million
Coins and medals: 37.8
million
Solar

Silver paste is used in 90 percent of all
crystalline silicon photovoltaic cells, which are
the most common solar cell.



Source: Photovoltaic Technology Division of the U.S.
Department of Energy
Silver is the best reflector of thermal energy
(after gold).
Silver plays yet another role in the collection of
solar energy: efficient reflection of solar heat.
Silver Cont’.

44.54 billion ounces of silver has been
mined various sources.


http://www.gold-eagle.com/editorials_05/zurbuchen011506.html
Net supply of silver from above-ground
stocks dropped by 8 percent in 2007 to
173.1 million ounces

Source: Silver Institute
Silver Inventories Above Ground
Total Ounces of Silver in the Trust
250,000,000
200,000,000
Ounces
150,000,000
100,000,000
50,000,000
0
Date
History of Gold vs Silver Price
1000
25
900
800
20
700
15
500
400
10
300
200
5
100
0
1833
1858
1883
1908
1933
Year
Gold
Silver
1958
1983
0
2008
Silver Price
Gold Price
600
1000
100
900
90
800
80
700
70
600
60
500
50
400
40
300
30
200
20
100
10
0
0
Year
Gold
Silver
Ratio
Ratio
Price
Ratio of Gold to Silver
Percent Rate of Return on CD & Bonds vs. Gold
10%
1000
900
8%
800
700
500
2%
400
300
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0%
200
-2%
100
-4%
0
Year
Real Long Term 1 year CD
Real Long Term 5 year Bond
Gold
Gold Price
600
4%
1970
Percent Rate of Return
6%
Percent Rate of Return on CD & Bonds vs. Silver
10%
25
8%
20
15
Silver Price
4%
2%
10
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0%
1970
Percent Rate of Return
6%
5
-2%
-4%
0
Year
Real Long Term 1 year CD
Real Long Term 5 year Bond
Silver
Where are we now?
Supply of silver is low.
 Investment demand for “hording silver” is
picking up.

Where are we now?
Supply of silver is low .
 Investment demand for “hording silver” is
picking up.
 Warren Buffett, Billionaire Investor quoted
on July 26, 2008:

 “United
States was experiencing "exploding"
inflation amid a slowing economy.”
How can the Fed fight Inflation?
Raise interest rates to slow economy and
strengthen dollar???
 I Disagree and I will tell you why…

Debt Bubble
Year
Median US house price
Median Household Income
Ratio
1980
$47,200
$17,710
2.66
1990
$79,100
$29,943
2.64
2000
$119,600
$41,990
2.84
2007
$196,300
$48,201
4.07
Equity Nightmare
In 1999, the total value of residential real
estate in America was $10.429 Trillion.
 Today, there is total of $10.600 Trillion in
home mortgages outstanding.


Source: Federal Flow of Funds
My forecast for 2010
If Household income rose 3% from 2007 2010 household income: $52,671
 Ratio of median house price back to mean
of 2.7 would make median house price
$142,213 or a decline of 28% from 2007
 $19.717 Trillion – 28% = $14.2 Trillion

Uh Oh..
$10.6 Trillion in Mortgages
 Total Residential Real Estate Falls to
$14.2 Trillion.
 Homeowners Equity would become 25%

Conclusions
Lots more write downs from over
leveraged borrowers.
 Fed is not in a position to raise rates as
that would lead to higher mortgage rates.
 Negative Real Rates of Return could be
here for a while.

Finding Stocks
… will show you on computer
Thank You
Tillberg Capital Management
www.TillbergCapital.com
631-902-5146