Presumes silver price is likely to appreciate about 50% per year

Stockhouse spoke with Jason Hommel, publisher of the Silver Stock Report (http://silverstockreport.com/), who for the past 10 years has been studying gold, silver, money, and the precious metals market including silver and gold stocks.

When asked what his prediction is for the price of silver, Hommel thinks it will bounce between US$13 and $20 during the next year, which he calls the most conservative prediction he says he’s ever given. The reason being is that the infrastructure that allows the public to buy silver was tested in 2008 and was found to be lacking – there’s not enough mints operating to allow enough new investment to come into the market, in terms of investment-grade bars and coins.

That is changing, however, and he thinks it’s possible in 2009 that the minting capacity might be there. In fact, he knows a couple of mints that aren’t operating at full capacity. Another factor that could drive demand would be for large investors to take delivery of 1,000 ounce bars and that, historically, has happened only on a few occasions. It might be happening on the COMEX, but not to the extent that it can be relied upon. Hommel likes to presume that the silver price is likely to appreciate about 50% per year.

Considering demand has exceeded supply for many years, what’s been holding the silver price back?  Hommel believes a big factor is the lack of information about silver in the marketplace. The vast majority of people are undereducated and they don’t know the fundamentals. People are also generally unaware of where to purchase silver and how to buy it.

Hommel’s current holding is about 90% physical precious metals and 10% in precious metals related stocks. He currently has no stocks that he would buy at this time and holds silver stocks only because it’s difficult to sell them.

He feels there is greater upside in holding the physical metal. Hommel believes a lot of the companies don’t have the prospects to earn money just because the metal price rises. He says a lot of the smaller companies are just pure “hopes and dream” explorers – there’s no production capacity there. He believes a lot of the publicly-traded silver producers are making the wrong decision because producing silver at the bottom of the market is “absolutely the wrong business plan.”

The only silver stock he would have considered buying in the past because he likes their business plan is Silver Standard Resources (TSX: T.SSO) (NASDAQ: SSRI). Hommel argues that just because the company has a good business plan doesn’t mean the stock is a “buy” – the stock could be overvalued, for example. He would have been a buyer back when the stock was at $2 a share. The reason he likes their business plan, and why he’s tries to emulate it for himself, is because they buy silver in the ground for approximately five to 10 cents an ounce and wait.

He feels there are no stocks out there right now that are worth it – because none present an opportunity for good leverage to the silver price.

What’s the most interesting thing Jason Hommel’s heard or read about silver recently: For 10 years he’s heard that the Over-The-Counter market for silver is of an unknown size and is unknowable. Someone recently provided him with a link to the Bank of International Settlements, which showed that the amount of other precious metals contracts (includes mostly silver as platinum and palladium are small in comparison) was $190 billion in size. The amount increased more than $100 billion in the past two years. Yet, the physical silver investment market is only about $1 billion to $2 billion per year in size. So where did they accumulate $100 billion is silver? The answer: they didn’t – it’s all a fraud, in his opinion.