Guest Post: "The World's Most Undervalued Asset", by Ted Butler

Mon, Apr 28, 2014 - 1:32pm

"Uncle" Ted wrote up this fantastic column for his subscribers last week. The analysis is so important that he made it a public article earlier today and he's given me permission to reprint it here.

"The World's Most Undervalued Asset"

by Ted Butler

First off, it is pretty audacious to label any investment asset as the world's cheapest when you consider the implications of that claim. Most of the world's investors are value oriented, always on the prowl to find undervaluation and if they could identify the single most undervalued investment opportunity, it would only be a matter of time before they descended upon it. Simply put, if you could identify the most undervalued investment asset in the world that would be another way of saying you had identified the world's best investment opportunity.

The next step would be to back up any such claim with straight forward reasoning and facts to substantiate any claim of extreme undervaluation. That's the purpose of this article, namely, to show why I believe silver is the cheapest investment asset to own and that it is likely destined, therefore, to be the best investment opportunity over time. The only caveat is one of time. It would be unrealistic to assume that if you were able to identify the cheapest investment asset in the world and purchased it that you would be instantly rewarded. If the whole world mispriced something, it is unlikely the undervaluation would be corrected the instant you bought it; give it time, say five to ten years.

I'm not going to speak today about silver's undervaluation in the ways unique to silver, such as it being at or below its primary cost of mine production or of how scare and rare it is, particularly in dollar terms, or how much it has dropped from its price highpoint of three years ago. Certainly, one could establish whether silver was undervalued by such measures, but that would not be the way to determine if silver was the most undervalued investment asset in the world. The only way to determine what the world's most undervalued asset might be is by comparing all assets to each other. In other words, you can only declare any asset to be the most undervalued by relative price comparison.

Fortunately, a relative comparison by price is not a difficult thing to do. Instead, trying to figure out why I didn't see this sooner is more difficult to answer. But in my defense, I discuss silver's relative valuation to gold on a non-stop basis. After all, silver and gold are as connected as love and marriage or a horse and carriage; it's hard to conceive of a better relative comparison. So let's start with gold and silver. It is said that a picture is worth a thousand words, so let me see if I can spare you some unnecessary verbiage. For the sake of uniformity, let me present silver's relative valuation as it is usually depicted, namely, by dividing silver's price into gold's price and stick to that format in the examples that follow. Remember, the higher the ratio, the more undervalued silver is to the item depicted. These charts cover the last three years or so.

Here's silver compared to platinum;

Silver compared to palladium;

Silver compared to copper;

Silver compared to crude oil (West Texas Intermediate);

Silver compared to the Dow Jones Industrial Average;

Silver compared to the US Dollar Index;

Silver compared to the 10 year US Treasury note (interest rates);

Remember, the higher the relative price ratio, the more undervalued is silver. I'm not intentionally leaving out any other comparisons and would include real estate if I knew of a chart. I believe silver would show up as generally the most undervalued if you included all other commodities. My point is simple – on a relative basis, silver is the cheapest asset of all. And to my mind that makes it the asset offering the highest prospective gains for the future.

I'm not trying to trick anyone in any way – this is as straight forward as it gets. As I indicated earlier, I'm kind of mad at myself for not writing about this before now. And just because it's as simple as pie that doesn't invalidate the approach. About the only thing I haven't addressed is how silver got to be the most undervalued investment asset in the world. I suppose, if there were some obvious and compelling legitimate explanation for why silver should be so undervalued relative to everything else, perhaps the undervaluation would be widely understood and justified. But there is no such justification.

The best thing about silver's extreme undervaluation is that the reason for it is as clear as is the undervaluation itself; not in terms of legitimacy, but certainly in terms of clarity. As I have reported recently and for years, COMEX silver has the largest concentrated short position of any traded commodity. Eight traders, led by JPMorgan, are responsible for silver being the most undervalued asset in the world. The world's largest concentrated short position should logically result in the world's most undervalued asset. I think this is good news because it would be impossible for me to show conclusively that silver was the cheapest investment asset of all without providing a definitive explanation for the unprecedented undervaluation.

Of course, I suppose a rejoinder to silver's compelling undervaluation leading to eventual outstanding investment performance might be if JPMorgan and the other commercial crooks on the COMEX were able to continue to manipulate the price indefinitely thru additional short contracts. While this can extend silver's undervaluation in terms of time, it cannot last forever. Additional paper short sales by JPM and the crooks will blow up in their faces at some point or the COMEX will shut down. That's because selling additional paper contracts short will not satisfy physical demand in excess of physical supply. That day must come, for no other reason than silver is the cheapest asset in the world.

That is not to say that silver can't get even more undervalued in the short term, but isn't this what investment is all about? Is it not the universal goal of all investors to seek out the most undervalued assets and try to avoid the most overvalued sectors?

As must be expected, silver didn't get to be the cheapest investment asset in the world without price pain and suffering. It is guaranteed that whatever might be the world's most undervalued asset only got to that point because it was overlooked and unappreciated or loathed or manipulated. There is no way the world's most undervalued asset could achieve that status through positive investment returns. By definition, the cheapest investment asset in the world had to have horrid price performance to get to that point. It's good news that the reason in silver's case was due to deliberate price manipulation because that manipulation must end at some point.

Also good news is the fact that silver is no stranger to being the best performing asset in the world, as was the case most recently up through the price highs of 2011. The reason silver was the very best investment asset was because it had formerly been incredibly undervalued before that price run. It is said that history doesn't repeat itself, but in the case of silver, I don't see how that can be avoided. In more ways than not, silver today reminds me of the time when it traded under $5 per ounce. As was the case back then, the thought that it might eventually climb more than ten times in value was widely disbelieved and openly scoffed at. That's because silver was the most undervalued asset in the world, both then and now. If you didn't catch the first run, you've just been given a second chance.

And it is also interesting that silver is registering as the most undervalued investment asset precisely at the same time when there is more total investment net worth and buying power in the world than ever before. The assets in hedge funds alone are now at a record $2.7 trillion; 1 percent of which ($27 billion) is more than the value of all the silver bullion in the world (if it could be bought). The 100 million oz of new silver available for investment annually would take only one-tenth of one percent ($2.7 billion) of hedge fund assets. Unless hedge funds have stopped looking for undervalued assets, I can't help but feel that's a set up akin to a lit match and a barrel of dynamite.

Don't be confused by the simplicity of this presentation. Comparing the relative price of all investment assets is the only objective way to determine which is the most undervalued. Right now, on that objective basis, silver is the cheapest investment asset in the world. I feel fortunate to have made this observation and even more fortunate that it doesn't conflict in any way with anything I've written previously. I'll probably make this article public (sometime next week) after subscribers have had a chance to digest it. To me, it's a big deal.

Ted Butler

April 23, 2014

For more information on Ted's invaluable subscription service, please go to

About the Author

turd [at] tfmetalsreport [dot] com ()


Apr 28, 2014 - 2:06pm

Tech bubble about to pop

Netflix, Amazon, Facebook, LinkedIn: the 4 stock prices are breaking support today, as mentioned by Karl Deninger. The Fed has to intervene to support these names and to avoid the mother of all margin calls in leveraged funds. I am expecting some big up moves in the coming hours in those 4 stocks, thanks to this free market.

Apr 28, 2014 - 2:15pm
Apr 28, 2014 - 2:31pm

With silver down

the dow turning green from its lows, the miners sucking wind, one should assume everything wrong has been righted.

More to the point, whats black is white, whats white is black. Whats wrong is right, whats right is wrong.

Apr 28, 2014 - 2:42pm

Ted Butler

Back when I had the extra fiat I was a regular subscriber to Ted's twice a week analysis. Over the years, during the many incursions and campaigns against the CFTC bastards, Ted always had time for email replies and strategizing, even with everyday dip shits like me. He is a class act and the real deal. I wish him and his kin long life and much happiness.

4 oz
Apr 28, 2014 - 2:43pm

Egon von Greyerz Rocking KNW today---

....That’s a move of 47 percent in just eight months. So gold moved up more than $600 in just eight months....$10,000_Gold.html

Apr 28, 2014 - 2:47pm

The Nuclear Option?

The Nuclear Option?

Author : Bill Holter
Published: April 28th, 2014

Several things happened this past week that were easily connectable and in my opinion can be put together to understand what is happening in the big picture. I plan to interject some opinion (mine) in this piece, if you disagree then I would say that you are entitled (still), just as I am entitled to my opinion.

China announced that they plan to trade, price and create an exchange for both oil and gold …in Yuan. They also plan to set up a global payments system that settles in Yuan. A financial salvo was fired by the U.S. against Russia as their credit rating was downgraded to one notch above junk. Russia has responded by publicly making plans to abandon the dollar completely and also exiting the sovereign debt of NATO allies. We also heard that President Putin has “temporarily” shut off all communication with President Obama while John Kerry’s calls to his Russian counterpart have gone unanswered. This is really bad stuff to put it mildly.

One other strange event that occurred was that the USS Donald Cook has been seen exiting the Black Sea. Originally this ship was sent in as assurance to our allies and as a show of strength. Russia today reported that one of their jets “buzzed” the Donald Cook 12 times (and confirmed by the U.S.), they also claim that the “Aegis” defense system was shut down or jammed by the Russians and it was rendered defenseless. Some may say that since this news came from a Russian source that it is propaganda, I personally believe it. I say this because why else would the Thomas Cook exit the arena as tensions are as high now as at any point? In my opinion, Russia “tested” our Aegis system to see if they could jam it and they did. The Donald Cook has retreated because were an Aegis class warship to be hit or even sunk, “invincibility” would be disproven. Again, this is just my own opinion.

I titled this piece “The Nuclear Option” because I believe that we are very very close to being blown up financially. As I mentioned last week, James Turk has reported that gold bars from the 1960′s and prior are beginning to surface in the global markets. We also know that the U.S. exported a huge 80 tons of gold in January. I wrote a week or two back that in my opinion the elevated open interest in silver has Chinese origins but I cannot prove it. We also know that all of a sudden Belgium has become a huge buyer of U.S. Treasuries; this is surely some sort of Fed or EU central bank proxy to sop up selling without the Fed tipping their hand to outright monetization.

What I am saying is that the stage is set. I believe than an all-out attack on the dollar is about to commence…and gold/silver will be the “bullets” so to speak. I believe that the Chinese have seen a “change” in the “type” of gold that is being delivered to them and they know the math. When I say they know the “math” I mean that they know how much they have accumulated and subtracted this amount from what they believe that the West originally had…which is now being confirmed by pre 1960′s gold hitting the market. They know that we are on the ropes.

The above said any strategist worth their salt will wait until their opponent is weak or has been weakened and I believe our opponents have come to this conclusion. They know that we are low on gold, they know that there are no large stockpiles of silver, they know that we are printing dollars like crazy to stay afloat, they know that we are in debt in every way imaginable above our heads, they know that we are monetizing debt, they know that Europe will not side with us if their supply of natural gas is shut off and they now know (in my opinion) that they have cracked the Aegis defense system. They also know that our economic numbers are a total sham and that unemployment and inflation are grossly higher than we report. In short, they know that we are full of crap. “Pulling the trigger” at this point is not a huge effort and will certainly not take a lot of money. I estimated 2 years ago that the silver market could be completely cornered with as little as $5 billion (or less)…so maybe they’ll use $10 billion? Gold, (if we are out as I suspect) could be cornered in my opinion with a concentrated $20 billion order…so maybe they’ll use $100 billion? “Where” will this type of money come from you ask? The sale of U.S. Treasuries of course, killing two (or more) birds with one stone (our own) by cornering the metals and dumping Treasuries to pay for it.

I believe that the plan is to “isolate” the U.S., even without any “help” we are doing this all by ourselves. I can envision several events taking place all at the same time. Russia could push into the Ukraine, China could become aggressive with Japan, and North Korea takes their cue and attacks South Korea while Iran and Syria strike at Israel…all at once… while Saudi Arabia switches allegiance. Dollars and Treasuries are dumped with the proceeds use to “call” our paper metals markets and demanding deliveries. Interest rates may not rise as the Fed would surely become a buyer but the value of the dollar would certainly crater. Were all this to occur at once, how could we respond? Our military is too stretched and too weakened to cover 4 fronts at once. Any major defeat of our “technology” such as the sinking of an Aegis class ship would on its own sink the dollar by 25% or even more. I could envision all of this taking place, the smoke already beginning to clear and a very different looking world over a 2 week period. Please keep in mind that our markets, our system as a whole, are now more leveraged and more extended than any other time in history.

This opinion or thought process I have titled “The Nuclear Option” because our financial system would go so far up in smoke in such a short period of time there is no other name for it. This would leave us with only one option…”the nuclear option.” We would have only one retaliation available to us and that unfortunately would be the use of tactical nuclear weapons

I know that hearing this opinion is not pleasant. I am not writing this to be alarmist; I am writing it because this is how I see it. History has shown us that whenever one country “stiffs” another country financially …war usually is the result. In this case it is the U.S. that has “stiffed” the rest of the world by (over)issuing dollars that have been freely printed to pay for real goods which we have imported. We have “over” lived our means on the backs of the rest of the world for many (too many in their opinion) years and payback is what I believe the rest of the world desires.

All of this is just my opinion but I am willing to bet that it’s not too far off from what is actually heading straight for us.

Apr 28, 2014 - 2:51pm


You beat me to it. I was going to post that article from Jeff Clark.

Apr 28, 2014 - 2:57pm
Apr 28, 2014 - 2:59pm

Al Queda has Tows? C@#ksu*^ers in Charge...

Syrian rebels who received first U.S. missiles of war see shipment as ‘an important first step’

By Liz Sly, Published: April 27

KHAN AL-SUBUL, Syria — Under the leadership of a young, battle-hardened rebel commander, the men entrusted with the first American missiles to be delivered to the Syrian war are engaged in an ambitious effort to forge a new, professional army.

Abdullah Awda, 28, says he and his recently formed Harakat Hazm — or Movement of Steadfastness — were chosen to receive the weapons because of their moderate views and, just as important, their discipline. At the group’s base, sprawled across rocky, forested wilderness in the northern province of Idlib, soldiers wear uniforms, get medical checkups and sleep in bunk beds under matching blankets.

The scene is a far cry from the increasingly pervasive view of a chaotic, ragtag rebel movement that has fallen under the sway of Islamist extremists. Such concerns have long deterred the Obama administration from arming the Syrian opposition.

But the arrival at the base last month of U.S.-made TOW antitank missiles, the first advanced American weaponry to be dispatched to Syria since the conflict began, has reignited long-abandoned hopes among the rebels that the Obama administration is preparing to soften its resistance to the provision of significant military aid and, perhaps, help move the battlefield equation back in their favor.

The small number of BGM-71 missiles, about two decades old and hardly better than similar Russian and French models acquired by the rebels from allies and the black market over the past year, will not change the game in the fight against Syrian President Bashar al-Assad, the fighters say. Three years into the war, the government has pushed opposition forces out of many of their most important strongholds, deferring their hopes of victory indefinitely.

However, the shipment “is an important first step,” Awda said during the first visit to his base by a journalist since the missiles arrived.

The weapons were not directly provided by the United States. “Friends of Syria” delivered them, he said, referring to the U.S.-backed alliance of Western powers and Persian Gulf Arab states established to support the opposition Free Syrian Army. The rebels had to promise to return the canister of each missile fired, to not resell the weapons and to protect them from theft.

Awda declined to offer further details of the provenance of the missiles. But he said the donors made clear to him that the delivery had U.S. approval, and U.S. officials have confirmed that they endorsed the supply.

Apr 28, 2014 - 2:59pm

The beat down

Maureen is wearing a Turd Yellow Hat. Even back then they knew what we know.

Lets hit them!

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