Robert Kiyosaki Is Wrong On Silver (ETF: SLV)

Robert Kiyosaki is now promoting silver. Kiyosaki lists five factors he feels are bullish for silver. He is able make cliches appear to have meaning and insight.

His thoughts and thinking process are typical of the cliches and noise traders piling onto silver use to rationalize their purchases:

1. Kiyosaki's first claim is that silver is a consumable precious metal, which makes it different from gold. This is specious. The bottom has fallen out of the industrial market for silver. Silver is the new lead. In 1970 lead has extensive uses: leaded gasoline for cars, lead paint for houses, and non corroding lead pipes for everyone. By 1985 each of these markets were gone. For silver the single biggest market was photography, but that market is disappearing at the same 15-25% YoY rate that the lead market shrank. Silver is being replaced in consumer photography, X-ray, and movie photography. It is also being displaced in the offset printing market. The imaging market is the industrial market for silver. In ten years the industrial market for silver will be mostly gone, and the market will consist of traders passing metal back and forth.

2. Kiyosaki then claims to have had a deep thought, that silver is a monetary metal, while "standing on a mountaintop in Peru, doing my due diligence on a gold mine." I deeply doubt Robert Kiyosaki has ever been in Peru doing due diligence on a gold mine. I further doubt that "For years, I [Robert Kiyosaki] have visited gold and silver mining sites all over the world," unless you consider Amway motivational seminars to be gold and silver mines.

3. For his third claim, Kiyosaki rehashes cliches about the meltdown of the dollar. He makes the profound statement "and the way you short the [dollar] is by going long on gold and silver." Which is false because buying gold is a fiat money vs. hard asset bet -- it is not a pure dollar vs. other currencies bet. The price of gold is based on the supply/demand for gold, not on the supply/demand for dollars. The price of gold fluctuates against all currencies together. Any pricing disparity between gold prices and exchange rates will be quickly destroyed by arbitrageurs. If you specifically wanted to short the dollar, then you would buy foreign currencies directly.

4. Kiyosaki's forth assertion is that "Equities (stocks) and commodities (gold, copper, oil, and silver) are counter-cyclical." and that magical 20 year cycles are the invisible hand that is lifting commodities. Therefore "around 2016 to 2020, start getting back into stocks and out of commodities." The claim that vast deterministic market cycles exist is baloney. The economy and capital markets are dynamic and ever-changing, their movements and behavior are not guided heavenly bodies that can be charted. The psychic friends network was not able to predict their bankruptcy in 1998

5. Finally, Kiyosaki claims that the iShares silver trust ETF (SLV), has made silver accessible to the masses. Kiyosaki ends his article with the deep thought: "I could also be wrong -- but at under $20 an ounce, silver is a good buy, in my opinion. I believe it's the last great affordable investment for the masses. And when the masses find out, another bubble will inflate and, of course, at some point burst."

The current ETF-fueled gold and silver bubble will end just as badly as all previous bubbles. Gold, like tulip bulbs or internet stocks does not produce income. Precious metals are only a speculative vehicle, a short bus for greater idiots. The only way to make a profit with gold is to find a greater idiot willing to pay a higher price than you paid.

Comments

[Malcolm Raw...:]

Interesting discussion.

The market for photographic uses may be getting smaller (it was never an issue for colour photography anyway - that process uses no silver).

However the use of silver for superconducting cables (1000 ounces Ag per mile of single conductior) is set to replace that by orders of magnitude. with rights of way becoming a major issue for distribution utilities superconductor cables are a solution that has no equal.

Watch the silver sopace.

Malcolom

2006 Aug 17 12:42 PM

[Malcolm Raw...:]

A note to "The New Guy"

You must base any decisions you make on verifiable facts and numbers not opinion. When the facts are looked at in detail there is clearly an impending shortage of supply from mines and a drying up of overground stockpiles (a variety of reasons for that not the least of which is stockpiling by silver funds) and an impending increase in demand. Use of Ag in photography is diminishing (has been since about 1999) however other uses are increasing and some threaten to completely outstrip the supply (superconductors). I strongly suggest a visit to the Silver Institute website for accurate data (albeit from 2005) but it shows you what is happening to the various uses of the metal.

I don't buy all of the arguments about silver but if only some are correct there will be larger industrial demands for the metal that mines cannot supply. There is always the risk that this is wrong but in general I like the fundamental drivers behind silver that are not YET in place but soon will be. Happy investing.

Malcolm

2006 Aug 17 03:53 PM

[The Silver ...:]

Market Participant obviously is not familiar with the silver market else he would not make the strange comment about diminishing photography use.

If he knew that most silver emulsion is recovered from processed film and fed back into the market, he would not have even thought about making such a comment.

In other words, drop film demand and you drop silver scrap supply. It's almost a zero sum game.

As for the US dollar, has he not compared charts of gold versus the dollar recently? Gold is negatively correlated to the US dollar to a very good degree. Neither do you just buy foreign currencies because gold offers more leverage against the dollar than the euro or yen. Same argument applies to silver.

Are there commodity and paper cycles? That's down to your own beliefs. I like the 55 year interest rate cycle typified by the Kondratieff Wave. It ended early this decade and presages increasingly higher interests for the next two to three decades. Increasing nominal (and hence real) interest rates is bullish for silver.

Finally, we are told to avoid silver because it is not income producing. Do I care, so long as it is rising more than inflation? Return on investment trumps yield any day.

Ignore the all or nothing approach to investment and put a little bit of precious metals in your portfolio.

2006 Sep 25 09:09 AM

[FreshSuperC...:]

Another RDPD hater.
That's why he's on stage lecturing to millions of fans and you're here blogging on internet (with only 3 comments).


*badabump*

PS: Ok 4 now.

2008 Mar 03 09:50 PM

[cool-j:]

if the writer of the article truly believes the "precious metals bubble will end badly" then why doesn't he short SLV?

silver's going to $1000! buy & hold!

-c.j.

2008 Mar 26 08:18 PM

[USAlchemist:]

I found that RK first publicly bullish about silver and gold in the Yahoo column on 20 March, 2006 ( finance.yahoo.com/expe... ). Spot silver closed at 10.29 on that day. Silver has briefly run against 10.29 from 13-29 June 2006 for a period of 13 trading days, reached as low as 9.44.

Here is the weekly chart of spot silver: farm4.static.flickr.co...

2008 Sep 20 12:00 PM