Silver bulls everywhere should take a moment and nod an appreciation of thanks for a great favor rendered towards Warren Buffett, the fabled investment genius, for his recent foray into the silver market. It is no small matter of historical record that his investment company, Berkshire Hathaway, purchased a significant chunk of world silver inventories (significant for the silver market, anyway), thereby focusing attention on one of the world's oldest and most recognized traded assets. The reason silver investors should be feeling a sense of gratitude to Mr. Buffett is for a number of factors, some obvious, others perhaps not so obvious. To my mind, his purchase is the defining moment in what promises to be a radical departure from the depressed pricing pattern that has characterized silver for the past fifteen years.

While some might consider this trivial at first blush, the most immediate obvious reason for silver bulls to give thanks to Mr. Buffett is for the instant relief that his Feb 3 announcement granted from the carefully orchestrated professional public relations campaign of the shorts that was raging at that time. On that date, the corrupt, but highly effective, months-long campaign (which included endless press, threatened and actual phony lawsuits and self-serving appeals to government and exchange officials for immediate investigations, all alleging some mysterious conspiracy by the longs) died an ignoble death. It is nothing short of frightening that such an obvious manipulative ploy could have even existed in our current sophisticated age. Just think of it - there was an incredibly strong undertow of belief that a commodity that hadn't even reached its viable production cost was somehow pushed artificially too high in price and that urgent action had to be taken to stop the greedy perpetrators in their tracks. Were it not for the very stature of Warren Buffett and his announcement, we'll never know what the alternative outcome might have been. I doubt the shorts' dirty tactics have been banished forever, but in the meantime, we're not subject to such nonsense on a daily basis. Thanks, Mr. Buffett.

The second, and more permanent obvious good deed that Warren Buffett has bestowed on the silver bulls was the stamp of approval that he gave to the "silver story". You know the story - years of deficit between production and consumption, the price inelasticity of both supply and demand, the resulting shocking drawdown of inventories and the ultra depressed price. It's one thing for you or I to say it, but for Warren Buffett to say it and back it up with hundreds of millions of dollars of his own and his long time shareholders is different. As the world's most successful investor, he has eschewed fads and stuck to value, and tops it off by communicating with common sense and keen business intelligence. He has simply and eloquently stated his reasons for purchasing silver and they need no modification nor interpretation. No other individual on the face of the earth could have issued a stronger validation on silver's value than Warren Buffett. For the confirmation that silver is a great buy strictly on the fundamentals, thanks again.

A less obvious, but very special benefit that Mr. Buffett has given to silver investors is the shortening of the time span until the coming certain lift-off of the silver price. By removing a significant chunk of silver that was destined for the black hole of the silver deficit, he has markedly accelerated the time it will take to get to the 'Moment of Truth". Since more silver is consumed than is produced, existing inventories must supplement production to match demand. There is absolutely no escaping this law of the physical world. Any inventory removed from the equation temporarily by a non- consuming investor, mathematically reduces the time it would take until the point at which production alone, with no assist from existing stocks, must satisfy demand. It is at this point, that all the talk and whining and tricks of the paper shorts will end, and only the truth of real physical material brought to market by higher prices will balance the supply/demand equation - just like what has happened to palladium. For bringing closer the silver moment of truth, Warren Buffett gets another salute. Not only has he exposed to all, one of the greatest investment opportunities of a lifetime, he has axiomatically hastened its resolution.

But I have saved for last the most important, albeit least obvious contribution that Warren Buffett has made to the silver bulls. By his actions and statements, Mr. Buffett has proved to all the folly of the precious metal loan experiment. He has proven, beyond any semblance of a doubt, that the silver (and by extension, other precious metals) market has been manipulated to a criminally absurd depressed price by metal loans and paper short derivatives. This is something you're going to have to think about, but not too abstractly, so please try to keep an open mind. First, just the facts. Then if you'll allow me, a conjectural look into Warren Buffett's mind.

Almost twenty years ago, an aggressive speculator, far from the inner circles of the financial elite establishment, plowed headlong into the silver market. He knew the real fundamentals and the deficit and the inelasticities in the supply/demand equation. He knew what a relatively small purchase would do to the price. The effect on the price of silver that Bunker Hunt wrought is the stuff of legend. In roughly a one year period of time, the price climbed ten fold, from 5 to 50, only to crash and burn as the rules were changed and the margin calls rolled in. While the popular historical version of the event painted Hunt with the unkind brush of unwarranted greed and brashness, serious investors everywhere took note of the amount that Hunt bought and the resultant effect on the price of silver. The formula was real simple - 100 million ounces removed from the market equaled a ten fold rise in price. The only problem was that the government regulators and institutional shorts were aware of the formula and were prepared for the next contender. The threat of becoming the next Bunker Hunt was enough to frighten off all comers for almost twenty years. It would take a contender of epic proportions to dare the wrath of the silver shorts and their government lap dogs and challenge the status quo of an artificially depressed price.
It would take a Warren Buffett.

But some things are different from twenty years ago in the silver market. For one thing the fundamentals are much more bullish. Years of persistent deficits have left existing inventories at an all time low (this for a commodity with a trading history measured in the hundreds of years). For another thing, the age old economic interplay between price and supply and demand that is the cornerstone of the capitalistic system has been replaced in the precious metals by leasing and the new substitute for price - the lease rate. But one thing has remained as it was in Bunker Hunt's silver world, the formula that taking 100 million ounces from silver inventories would increase the price ten fold. However, since the real silver market is in a much, much tighter fundamental position now than it was twenty years ago, a 100 million ounce purchase today would have a much more dramatic impact on the price of silver - say, a 50 fold increase in price, rather than the ten times increase attributed to Hunt. And that is exactly what happened to the price of silver when Warren Buffett bought his stake, it went up in price 50 fold. Let me repeat that - the price of silver jumped 50 times in value as Mr. Buffett effected his purchase.