The case for bitcoin at $100,000

If bitcoin really is Gold 2.0, the digital currency could push gold prices down to $300 an ounce and bitcoin could rocket up to $100K.

The Winklevoss twins went on the record on Nov. 12 saying they believe bitcoin could hit a market cap of $400 billion. At the moment, there are nearly 12 million bitcoins in circulation, that would make them each worth $33,333. And that’s the Winklevoss’s “conservative” estimate.

“The small bull case scenario is a $400 billion market cap. So the market cap is around $4 billion right now,” Tyler Winklevoss said in an interview at the DealBook conference that aired on CNBC’s “Squawk Box.”

Their “small bull case” is $400 billion. What’s their “big bull case?” The Winklevoss’s don’t say, but they do argue that bitcoin shares a lot of similarities with precious metals.

“Some people definitely view it as Gold 2.0,” Tyler says. “As a store of value, it definitely has the properties of gold and people are viewing it that way.”

So, let’s take a peek at the investment markets in gold and silver to see if we can get a sense of just how big the bitcoin market could grow. According to the World Gold Council, the total investment market for gold stood around $1.2 trillion in 2010.

The gold council also shows that investment demand for gold GREW by roughly 1,483 tonnes between 2008 and 2012. With gold averaging $1,100 an ounce over that period, we can say the investment market for the yellow metal grew by $52.2 billion or just over $10 billion a year. That means that by now, the gold market’s worth $1.5 trillion at 2010’s much-lower prices.

I can’t find great numbers on the total size of the silver investment market, but I’ve seen rough estimates that say the silver market is about 1/60th the size of the gold market. That would put it around $25 billion. So, the combined gold and silver investment markets are worth somewhere around $1.75 trillion. If 25 percent of that cash moved into bitcoin, we’d see that “small bull case” the Winklevoss brothers talked about. On top of that, gold would be trading around $970 an ounce (a price we last saw early in 2010).

Let’s say bitcoin really is Gold 2.0 and prices for gold tumble back to $300 an ounce – a level where the metal languished for some 20 years from the mid-1980s to the early 2000s. In that case, $1.3 trillion would flow into bitcoin. If that happened today (and there were only 12 million bitcoin in circulation), each bitcoin would be worth $108,000.

Of course, things get even more interesting when you consider the fact that if bitcoin truly is here to stay, everyone’s going to want some to make purchases and payments, so the market could get even larger. There you have it; the case for bitcoin at $100,000+. Please note that this is NOT a price prediction or forecast for bitcoin. It’s just a hypothetical “what if.”

Interested in learning more? Check out my post on How to buy bitcoin.

Why silver investors should stay away from silver coins

There is nothing wrong with collecting coins if you ARE ALREADY A MILLIONAIRE. If you are not then you need to sell your coin collection right now to the highest bidders.

-Posted by Alejandro Guillú Mendoza

Introduction

This article tries to explain in a simple way to readers without a college degree in economics or finance some macro economic factors that are currently changing the global supply and demand of silver.

Ground rules

Silver coins ARE NOT INVESTMENTS. Silver coins are still minted by countries to satisfy the unlimited demand for numismatists around the world. When you acquire a silver coin you are not only paying for the precious metal itself but also for the graphic design and for the minting.

Countries make billions of dollars each year buying silver by the ton and reselling it as coins.

There is nothing wrong with collecting coins if you ARE ALREADY A MILLIONAIRE. If you are not then you need to sell your coin collection right now to the highest bidders.

The problem with silver coins is that you need to pay for insurance each year and that cost eats some of your profits.

If you want to invest in silver then you need to buy either a silver mine or the ETF SLV. There are other financial instruments for more sophisticated investors that I am not going to cover in this article. If you want me to write about them then drop me a line.

Does Apple buys a lot of silver?

Silver is the best conductor for electricity, and in some cases the cost is not as important and it is used instead of copper which is cheaper (i.e. for small, complex electronics). One easy way to predict if we will buy more technologically advanced things made with silver is to closely watch the global GDP. If the world is expanding then it is likely that we will build more expensive things made with silver.

You can read the World Economic Outlook published by the IMF.

If you want to invest in silver, then you need to keep an eye on the price of copper because this metal is used only because silver is too expensive. If the price of copper starts to rise too much, then some companies may just decide to switch to silver.

Obviously, this is just a theoretical point. In reality, Chile, Peru, Argentina, Brazil and Mexico won’t let that happen, and they will just lend billions of dollars to publicly-traded copper mining companies to keep the price of copper low.

Digital cameras for everybody

Silver nitrate has always been used for photographs, and over half of all the silver mined was used for this before the digital camera was invented. This number is getting smaller and smaller every year, and one day we won’t use silver nitrate anymore. That would increase the number of silver available for other industrial uses bringing down the price of silver in the future.

If you are a politician in a country with a very limited supply of silver, then you need to reduce the demand for silver nitrate in your country as much as you can with the expansion of access to digital cameras to the general population.

Let companies like Nikon, Olympus and Canon import digital cameras without paying any taxes.

Allow these companies to issue Visa, MasterCard, American Express, Discover, UnionPay and JCB credit cards to buy their digital cameras insured by the government.

More than 90% of the world’s silver is produced in Mexico, Peru, China, Australia, Russia, Chile, Bolivia, Poland, the United States and Canada. If these countries reduce their own consumption in silver nitrate, then they will have more silver for export.

As you can see, the price of silver is not really about finding more silver mines but about finding smarter ways to use LESS SILVER.

What is the Protect our Silverware Act?

Most people with silver jewelry, silverware or silver coins are wealthy, and they don’t lose any money every time a burglar enters their house because they’re reimbursed by insurance. The rest of us are hurt by the insurance companies because every time they write a check to pay for these crimes, they increase the bill for all of us.

If less silver is stolen then the prices we pay to protect our homes will be reduced over time.

It is a known fact that burglars only steal from you when you are not home. A very popular trick among thieves is to call everybody until you get an answering machine. I strongly suggest you to get rid of your answering machine and just reroute your old telephone to a cell phone answered by one of your employees in China, India, Indonesia, Brazil, Pakistan, Nigeria, Bangladesh, Russia or Mexico.

You can hire one on Elance for just a few cents per hour.

I propose a new law that will force any silver seller to register every silver buyer into a national database and each silver holder will be forced to hire a silver sitter when they are not home.

Let’s say that you are going to leave town for a few days on business. You call the Silver Police and they will send you an employee that will stay in your home for a few days until you return. Each silver holder will pay a “Silver Police Tax” each time he buys something made of silver to pay for this new Police Department.

This will reduce crime among families holding silver and will also reduce unemployment.

Conclusion

I believe these 10 countries will enact new smarter laws to keep the domestic supply of silver very tight and will also increase silver exports to other least developed countries with more loans to small businesses exporting jewelry and mirrors and other clever measures like a silver stamp that you can use to ship any item made of silver to an eBay or Amazon buyer in another country.

Top 10 silver price predictions for 2013

Where have all the silver bulls gone? Price predictions for the white metal are all over the board in 2013.

Posted by Alejandro Guillú Mendoza.

Many people around the world want to know the answer to the question, “Where is silver going?”

I invested several hours browsing the Internet searching for answers to save you time and money (because time is money, after all). Have another financial question? Drop me a line. Please don’t ask me where your lost kitten is or why she left you. Ask me about topics that can make you money, like silver!

Here are my findings on the latest silver price predictions for 2013, 2014 and beyond. The prices are sorted from low to high:

1) $26 Barclays according to CommodityOnline

Barclays believes strong production growth in mining will knock silver prices down and keep them low in 2013. “We expect it to grow to 25.2kt in 2013, with the slowdown in output from Australia and Europe being offset by strong growth across South America and Asia. We expect modest growth from the major producers, with Mexico retaining its pole position.”

2) $30-$32 Neil Meader (Head of Precious Metals Research and Forecast) according to Forbes

“For the moment, we would expect to see a continuation of the price volatility that we’ve seen of late.

“The unknown for the longer term is inflation.”

“It would be wrong to assume that a year-on-year price fall automatically presages an end to the multi-year rally; that occurred in 2009 and yet prices (based on the annual average) then more than doubled in just two years.”

3) $31 Deutsche Bank

The bank lowered its forecast last month 16.5% to $31 according to Fox because the demand for stocks over commodities is rising and the growth in the United States of America is improving. The 2014 forecast was also significantly reduced.

Excluding major banks currently in the red. Deutsche Bank is the fifth least profitable major bank in the world with barely $400 million in profits. It appears they are no longer qualified to give financial advice to anybody. Perhaps they should hire me. I can easily turn a profit of $40 million. I am just a regular guy. They have 100,000 employees.

4) $33 HSBC

The bank increased its target for silver from $32 based on four factors driving prices higher: industrial demand, investor appetite, strong coin and bar purchases and a bottoming out of jewelry demand according to the Wall Street Journal.

“Greater industrial silver consumption is one of the most compelling arguments in favor of higher prices.”

5) $34.10 BNP Paribas

The bank reduced its silver 2013 forecast a few months ago to $34.10 from $39.05 according to Reuters.

6) $35 Morgan Stanley

Morgan Stanley is very bullish on silver and selected the precious metal as one of the Top Picks for 2013 according to BusinessWeek.

“Gold, silver and corn will outperform other raw materials next year as a weaker dollar and rising investor demand bolster precious metals while supply curbs aid grains.”

7) $38 Commerzbank according to the Wall Street Journal

Silver is “establishing itself as a precious metal with an industrial character, setting itself significantly apart from gold.”

8) $40.25 Michel O’Brien

Silver To Gain 29% in 2013 – Analysts, Traders and Investors.

“The silver market remains a very small market and this continuing global investment and store of value demand should lead to silver reaching a real record high, inflation adjusted, of over $140/oz in the coming years.”

9) $50-$60 Ge Christenson according to SilverSeek

“This is not a prediction based on wishful thinking and hope, but a best estimate based on rational analysis of data stretching back to 1975.”

“Silver (and gold) will continue to rise, doubling every 3 – 4 years, until our government manages to tame the deficits, the borrowing, and the inevitable inflation.”

10) $91 Equity Management Academy

Silver Doctors started recently in 2011 and they are visited by over 750,000 each month. The video analysis by Steve Roy is only 9 minutes long.

This was the highest forecast I could find at the time of this writing – a time when, admittedly, silver prices are extremely low. It’ll be interesting to see which of the predictions above come the closest to the truth by the end of the year.

The real reason 2013 Silver Eagles hit an all-time high in January

The U.S. Mint probably isn’t the best gauge of market demand for silver. It’s too easily overwhelmed by demand, and that pushes sales forward into months when demand could otherwise have been low.

Because the silver investment market is so small, it’s particularly vulnerable to hype. That’s exactly what the commodities research firm CPM Group thinks is happening now as investors trumpet the “incredible” demand for silver coins in January. While the U.S. Mint did announce all-time sales records for 2013 silver eagles in January (with 7,498,000 coins sold), CPM Group argues that’s just a hold-over of pent-up demand from earlier in the winter.

“All of this talk about a shortage of silver is irrational and not supported by readily available market data,” CPM Group says in its latest report.

Specifically, the company cites worries over the Fiscal Cliff in November and December as driving up demand for American Eagles. Since the Mint sold-out of coins in both November and December, that demand rolled forward into January driving sales up to record levels.

CPM Group’s been painting a pretty bleak picture of silver prices going forward. The commodities research firm believes prices will head lower over the next decade (through 2022) rather than higher as most silver price prognosticators would have you believe.

I’m not ready to make that assumption, but there are lessons to be learned from CPM Group. Mainly that the U.S. Mint isn’t the best gauge of market demand for silver. It’s too easily overwhelmed by demand, and that pushes sales forward into months when demand could have otherwise been low.

Silver will surge 400% through 2016, Williams says

A British fund manager looks for silver prices to peak in the third quarter of 2015.

Ok. I’ll admit I’m not entirely sure who Ian Williams is. This UK article describes him simply as “a City-based asset fund manager.” Still, he’s rather brazen in his predictions for the white metal.

Silver is destined to enter a “sustained bull market” in the coming weeks. Mr Williams believes the price of silver will increase fivefold between now and 2016, with a peak expected in the third quarter of 2015.

Good news for silver bulls if Mr. Williams can be trusted. More at livecharts.co.uk.

Four reasons to be bullish on silver in 2013

Global Resource Specialist Peter Krauth of Money Morning believes silver prices could hit $54 an ounce in 2013. Here’s why.

Global Resource Specialist Peter Krauth of Money Morning believes silver prices could hit $54 an ounce in 2013. Here are four reasons why he’s so bullish on the metal:

  1. An expected normalization in the gold-silver ratio
  2. President Obama’s prediliction for money-printing
  3. Hard asset investor demand as paper currencies continue to slide
  4. Growing industrial demand

More at ETFDailyNews.

Silver prices setting up for “trade of a lifetime”?

The global economy appears to be at a tipping point, and that could be very good for silver prices or very bad.

The ferocity of the collapse in silver prices last week leads me to two conclusions: 1) the threat of economic collapse in Europe is very real, and we’re heading for a wholesale sell-off in all asset classes: stocks, bonds, precious metals, commodities, etc.; or 2) the market got spooked, and we’re setting up for what could be the “trade of a lifetime” in silver.

I didn’t label it the “trade of a lifetime,” but that’s what Benzinga columnist George Maniere’s thinking.

“Either this is a total capitulation of the silver market which I can only conclude means even weaker global growth as silver has many industrial uses, or it is a classic head fake to shake out anyone that had an inkling of going long,” Maniere writes.

He goes on to argue that tomorrow could be the tipping point either way. If the IMF and the ECB fail to act on a plan to save Greece’s economy, expect selling in stocks and – quite likely – silver, too.

While many investors look at silver as a hedge against inflation and economic malaise, the fact is, its price is influenced heavily by industrial activity. When the world economic engine slows down, prices for silver fall with it.

Industrial applications for silver make up the single largest demand segment for the white metal. Indeed, industrial demand grew by 20 percent last year to 487 million ounces (per the Silver Institute). Coins and investment demand make up less than half of the world-wide industrial demand for silver.

Silver’s a very close cousin, but gold is the asset of last resort. Gold is the vehicle that the richest organizations in the world – central banks, hedge funds and mutual funds – turn to when they’re trying to preserve their wealth.

That’s not to say I’m counting silver down and out. In fact, I took a long position in the ProShares Ultra Silver ETF (NYSE:AGQ) earlier this morning. Why? I’m just not convinced that Europe’s ready to let Greece default. On top of that, last week’s selling in the silver market was just too brutal. Silver futures contracts plunged by 18 percent in a single day. That was the biggest dollar-drop for the metal in more than 30 years.

All told, silver prices were down nearly 30 percent last week, and AGQ – the leveraged ETF I like to use to invest in silver – is down 43 percent in the past three trading days alone. As I wrote yesterday in my post “Can silver prices bounce back in October after 27 percent decline?,” part of today’s sell-off was no-doubt courtesy of the CME Group’s announcement that it was raising silver margin requirements by 16 percent (a move that took effect at the close of trading today).

If Europe’s banking officials pull out yet more bailout cash for Greece, it may be enough to stave off more panic in the markets. It would likely set up a whipsaw recovery in silver prices, and that’s what I’m banking on. Lift the gloom enough for investors to start thinking about inflation again, and this trade in silver just might be the trade of a lifetime.

If, on the other hand, Europe fails to act and we get any more negative economic news, I just might have to sell my stake in AGQ and take Maniere’s advice: investing in the ProShares UltraPro Short S&P 500 ETF (NYSE:SPXU). Buying shares in SPXU isn’t just a bet that the S&P 500 is going down, it’s a triple-leveraged bet. That means that for every one percent the S&P declines, SPXU should go up by three percent. That’s what pushed the ETF up more than 20 percent last week.

As long as you stay fluid with you investments in the coming days by betting against the S&P (if Europe fails to act) or going long silver (if Europe does act) you might not have the trade of a lifetime, but I suspect there’s plenty of money to be made.

Related

Silver price manipulation case narrows in on JPMorgan; drops HSBC for now

The media tends to brush off reports of manipulation in the silver market. Hopefully, this lawsuit will change that.

A new wrinkle in the silver price manipulation lawsuit against JPMorgan Chase & Co. (NYSE:JPM) has dropped the spotlight off HSBC Holdings PLC (NYSE:HBC) for now. The fresh lawsuit amendment, which was filed last Tuesday, now names JPMorgan as the sole defendant in the case (per the Wall Street Journal).

Here’s what we know: a lawsuit filed by individual silver investors alleged that JPMorgan and HSBC amassed massive short positions in silver futures between 2008 and 2010, then reaped the rewards as silver prices declined in the face of the large short positions. The new move drops allegations against HSBC, as investors have entered into a tolling agreement with the London bank.

Tolling agreements give both sides in the case time to negotiate a settlement. Should those talks crumble, HSBC could be re-added to the lawsuit. A tolling agreement certainly isn’t an admission of guilt on HSBC’s part, but it’s a clear signal that they don’t want to go to trial (perhaps to avoid the massive legal fees, the bad press, or because they fear they’d be on the losing side of the case). What bothers me about the agreement is the fact that we may never know whether HSBC was truly involved in attempting to manipulate the price of silver – especially if JPMorgan enters into a similar agreement in the future.

New numbers in the amended lawsuit allege that JPMorgan’s shorts pushed silver prices down 12 percent in a single day – a move that, if true, made the bank $220 million.

All told, more than 43 separate silver price manipulation lawsuits were filed against JPMorgan and HSBC (per Reuters). Those lawsuits were eventually combined into a class action lawsuit.

“The complaint alleges that HSBC and J.P. Morgan made large, coordinated trades, among other things, to artificially lower the price of silver at key times when the precious metal should have been trading at higher levels,” the law firm Girard Gibbs LLP writes on its web site. “By depressing the price of silver, the class action alleges that the defendants made substantial illegal profits while harming investors and restraining competition in the COMEX silver futures market.”

Due to it’s small size and relative lack of liquidity, the silver market has often been the target of price manipulation (see my post Silver Thursday, the Hunt Brothers, and the collapse of a precious metal for more). But there’s also a tendency for the media to brush off reports of manipulation in any markets – particularly emotionally-charged markets like precious metals. This lawsuit could help bring visibility to a problem that’s lost a lot of money for a lot of people. Let’s just hope it makes it to trial.

Related

How to buy silver coins cheaply

From buying in bulk to using special online search services, you can probably find silver coins cheaper than you thought online.

1) Buy in bulk. If you want to get the best possible price on silver bullion coins, consider stashing your cash, waiting for a pull-back in prices and buying a bulk lot. Some web sites offer reduced pricing for bulk silver coin purchases. In the image below, I’ve taken a sample of GoldSilver.com‘s bulk pricing rates for Silver American Eagles as of Sept. 6, 2001:

As you can see above, if you purchase 10,000 silver American Eagles, you stand to save more than $20,000. Not bad! If you don’t have the cash to buy silver coins in bulk, consider partnering up with friends or family to place a larger order than you could on your own.

2) Buy direct from third-party sellers. eBay and Amazon have become two of the most popular places for consumers to sell silver coins directly to other consumers. Prices can be hit-or-miss depending on who’s selling when. As of this writing, for instance, Amazon sellers have listed silver American Eagles for as low as $50. That’s pretty high compared to some specialty online coin vendors, so you’ll want to check Amazon and eBay frequently. When sellers list coins at low prices, they get snatched up quickly.

3) Roam your local flea market. While it’s hit-or-miss, you might come across great deals at garage sales, community sales and flea markets. Most flea markets have specialty coin booths that are set up year-round, but you’ll probably find better deals if you stumble across an individual who just happened to set up for the weekend and has a coin or two to sell (along with a whole lot of junk from his or her garage). For most investors, this approach isn’t worth the effort, but if you’re already at a sale, it doesn’t hurt to keep your eyes open. If you stumble across a silver coin you’d like to buy, don’t be afraid to haggle.

4) Do a search on Google Products. I’m always surprised at the number of people who don’t know about or use Google Product Search when doing comparison shopping. The service lets you type in a keyword (like “Silver American Eagle 1 Oz. Coins”), and it’ll show you list prices for that product from vendors around the Internet. It’s a great place to find sellers you might not have otherwise discovered.

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Time to buy Silvercorp Metals (SVM)?

Despite anonymous allegations of wrongdoing, I’m more bullish than ever on Silvercorp Metals (NYSE:SVM). Here are three reasons why.

NOTE: Information released today (Sept. 13, 2011) at AlfredLittle.com negates much of the information here. It sounds like it might be time to dump SVM.

Sometimes allegations of fraud are a good thing, and that might be the case for Silvercorp Metals, Inc. (NYSE:SVM). Shares are starting to look like a bargain. The Vancouver-based silver mining company, which does most of it’s mining in China, got slammed on Friday falling more than 10 percent on four times the stock’s average trading volume.

Why did Silvercorp plunge?

On Friday, Silvercorp announced a dramatic increase in short positions in the company’s stock. Over the past two months, 23 million shares (fully 13 percent of the outstanding shares!) were sold short. On top of that, the company got its hand on an anonymous letter that was addressed to numerous governmental agencies and media sources. The letter was purportedly written by an investment firm that was shorting the stock, and the same firm said it planned to publicize wrongdoings at the company – namely a $1.3 billion accounting fraud.

Three reasons to invest in Silvercorp despite the allegations

You’ve got to make your own call on whether now’s the time to buy into Silvercorp, but I like what the company’s done. It’s fighting back aggressively against short-sellers and the anonymous firm that’s accused the company of wrongdoing. Here are three reasons why I’m still a bull:

1) They’re facing the allegations head on. First, Silvercorp proactively sent out a press release acknowledging the short sales and anonymous letter. In it, Silvercorp provides links to documents that refute the allegations against the company.

2) They’re going after the bad guys. Silvercorp’s set up an independent task force to find out who authored the anonymous letter. The task force has some heavyweights on board, too, including Canada’s former ambassador to China, Earl Drake. If they can uncover the source of the letter, Silvercorp has vowed to pursue “all legal options” in multiple jurisdictions to recover damages caused by the allegations.

3) They’re still buying back their stock. Silvercorp apparently thought the company’s shares were a bargain at roughly $8 a share when they first announced their stock buyback plans in June. On the heels of the anonymous allegations that surfaced on Friday, the stock dipped as low as $7.08 a share, and Silvercorp’s looking at the price move as another great opportunity to buy more shares.

“While we are fighting these manipulation schemes, we will continue with our ongoing share buyback program, increase our investor relations efforts, and continue to focus on growth through exploration, acquisitions, and mine development,” CEO Dr. Rui Feng said in the press release. “We are pleased with our current operations and look forward to reporting another profitable quarter.”

Of course, there’s still a lot of uncertainty surrounding accounting practices in China (just take a look at my recent story on Puda Coal), but this one has the feel of a rogue smear campaign. Once the market regains its senses, Silvercorp could soar to catch back up with the jump in silver prices we’ve seen of late. That’s good news for investors with the fortitude to stay long.

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