Category: precious metals

I can understand why investors are selling their large-cap gold stocks. They aren’t making any money — at $900 gold! And they’re trading at 20-50 times earnings. Still, while the rising cost of producing gold is trouble for gold stocks, it is also one of the most bullish factors underpinning gold values.
Effectively, $700 gold would be as catastrophic for the industry today as $300 gold was in 1999.
With jewelry demand alone, the supply side is already tighter than it is in oil.
I was looking for reasons to buy gold that have not been widely discounted. Therefore I have listed Top 10 Reasons to End Cheap Gold
• Cost inflation slows down the development pipeline, hence future production growth in mining will be curtailed.
• Political risks in frontier countries also shrinking available supplies
• Faltering global economy persuading central bankers to abandon tightening plans
• Soaring government deficits
• Saber rattling between Iran and Israel and other geopolitical tensions heating up
• Another GLD ETF just listed on Hong Kong Exchange
• Some countries already experiencing crackup and heightened gold demand
• Shrinking official gold supply
• Seasonal trends turning bullish again into the new year
• Large producer Anglo has yet to cover all its hedges.

So if you own some gold mining shares hang on they are a long term investment.

Question asked on 09/03/2008 at 05:18 AM :: Comments to date: 0

Category: precious metals

Plunges caused by forced liquidation don't usually last long, because the fundamentals simply aren't there to justify prices so low. Usually the smart investors, who have cash on hand, recognize the opportunity and pounce on it. For this reason, I expect a rebound will occur fairly quickly. Gold is a buy under $800, with little downside risk and tremendous upside potential.
The same can be said for gold stocks, many of which are now trading at near or below market multiples -- a clear sign that investors have grown out of touch with what's happening in the world today. For example, Barrick (ABX) is now trading at 15X earnings -- likely the lowest it has in history. To justify gold stocks being this cheap, the world would have to be safer than it ever has been. We would have to be sailing into incredibly calm and benign economic waters. Yet all you need to do is open a newspaper to see that the world is actually more dangerous than ever.
The only explanation I can see for gold selling off is forced liquidation and oil going down to $110. And like other bargain hunters, I am ready to take advantage of the liquidation sale within the next week or so. I doubt we'll ever find a buying opportunity this good again.
Of course, nothing in this business is ever a sure thing, but the opportunities I see in gold today look as promising as any we ever have.

Question asked on 08/21/2008 at 05:56 AM :: Comments to date: 0

Category: precious metals

Gold is in a similar funk as oil. The spot price took a nasty dip to $775 late Friday, but has since rebounded alittle.
“The present situation reminds me of August 1976,” reminisces GoldMoney’s James Turk, “just weeks before the Democratic National Convention confirmed Jimmy Carter as that party's presidential candidate. Gold slid down to $100 per ounce even as the inflation and economic outlooks were worsening. Gold looked dirt-cheap back then, even though its price had risen threefold from just a few years before.
“By the end of 1976, gold had climbed 32.3% from its August low. By the end of Carter's presidency four years later, gold climbed more than eightfold. I wonder where gold will be at the end of the next president's first term in office?”

Question asked on 08/19/2008 at 07:47 AM :: Comments to date: 0

Category: precious metals

Alot of gold and silver stocks are less today than you would like them to be. We have been loading up on the metal stocks all during the rally into June. Gold and silver have had a very good correction which plays wonderfully into the next leg of the metals bull market which will start in September.
So lets look at the ratios of gold to silver.
Many “silverbugs” out there use a common price ratio between silver and gold to predict silver’s future price. Here’s why you shouldn’t only use that…
Think about shares of a company. A single share of Company ABC could be $2 per share, but that doesn’t mean that company is only a $2 company. If Company ABC has 100 million shares outstanding, that would make it worth $200 million. That’s its market value. And that is exactly how you should look at precious metals.
We’re talking about the market’s value for all the gold and silver in the world. According to Theodore Butler, contributor to SilverSeek.com, that number is quite telling.
In 1900, there were one billion ounces of gold in the world, and gold had a $20 per ounce price tag. That made gold’s market value $20 billion. There were 12 billion ounces of silver in the world with a price tag of 65 cents. That gave silver a market value of $7.8 billion. It led to a ratio of only 2.6.
Today, gold’s market value is $3 trillion, and silver’s is only $12 billion. Here’s how Butler figured that out:
The amount of gold has gone up five-fold since 1900, yet the amount of silver decreased from 12 billion ounces to only one billion ounces, because silver has many industrial applications like electronics and batteries, while gold’s only use other than wealth storage is jewelry.
That mere fact makes this ratio so astronomical. While the price ratio has only shifted from 30 to 56 over the past 108 years, the real market value ratio has jumped from 2.6 to 281.
That means that silver’s price has been suppressed for far too long. The ratio doesn’t have to correct the whole way back to 2.6 for you to make money off of silver. Even a slight drop is big money in your pocket. You also don’t have to store a bunch of silver bars in your house to get rich off of this anomaly either.
One of the most effective ways to profit from a precious metals rally is leveraging the rise in price by investing in junior miners. We’ve talked about this before. During the last big rally in gold and silver, junior miners beat every other investment with gains of 2,464%, 3,987%, and even 13,025%. We may have a chance to see those kinds of gains this time around.

Question asked on 08/17/2008 at 06:22 AM :: Comments to date: 0

Category: precious metals

Let’s discuss the long term. Gold and oil are headed back up, for all the familiar reasons.
Really, it’s not like anyone is finding new large gold or oil deposits out in exploration land. Indeed, a whole lot of looking is leading to not very much finding in the exploration patch.
The big gold miners are pulling ore out of the ground. But generally, they are not replacing their mined reserves through reserve growth or resource expansion. To the extent that the mining companies are expanding reserves in the short term, it’s by digging deeper. And that raises the cost structure for production.
Rising production costs are eating into profitability. So in the medium to long term, the big guys will have to find new reserves by digging on Wall Street, if not on the TSX Venture Exchange. There is already some takeover activity occurring, but it has been hamstrung by the broken world banking system.
It’s the same thing with the large Western oil companies. It’s a rare oil company that replaces its annual output with new reserves.
Compounding the problem, much of the world is off-limits to the traditional exploration and production model. The large national oil companies (NOCs), such as Saudi Aramco, Sonangol, Petroleos de Venezuela, Gazprom, Rosneft, etc., control the bulk of the world’s resources. About 85% of the world’s oil and gas reserves are controlled by NOCs. About 7% of the world’s hydrocarbon reserves are controlled by the Western companies.
The Washington Post -- in an editorial, no less -- was downright sympathetic as it described the difficult operational scenario for Shell Oil Co. on a major lease in the U.S.:
“The five leases that have made up the Shell Perdido project off Galveston since 1996 are not classified as producing. Only when it starts pumping the equivalent of an estimated 130,000 barrels of oil per day at the end of the decade will it be deemed ‘active.’ Since 1996, Shell has paid rent on the leases; filed and had approved numerous reports with the MSS [Minerals Management Service], including an environmentally sensitive resource development plan and an oil spill recovery plan that is subject to unannounced practice runs by the MMS; drilled several wells to explore the area at a cost of hundreds of millions of dollars; and started constructing the necessary infrastructure to bring the oil to market.”
The Washington Post concluded, “The notion that oil companies are just sitting on oil leases is a myth.”
So it’s tough out there in the field. It’s hard work to find reserves and lift them to the surface. There are rising production costs, and now the producers are selling into a declining market price.
Let’s get specific and discuss gold. The price of gold has tumbled lately. Look at the past 60 days in the gold markets.Ugh! The price of gold was moving up until mid-July. Since then, it looks as if gold fell off a cliff. If you were trading gold, you probably took a hit. And the gold mining stocks have fallen hard, as well.
So the recent gold chart looks bad. But how bad is it, really? Let’s look at the longer term. Let’s look back five years at the price of gold.
If you bought gold five years ago, aren’t you glad you did? Even at the current price of around $770 per ounce, gold is still selling for more than twice its price back in August 2003. Do you feel better now? At least I don’t feel as bad. Because what I see is a long-term rising price for gold.
Why is gold rising over the long term? Because the U.S. dollar is falling in value. Inflation is robbing you every day, as your cash in the bank loses purchasing power. This has been going on for many years. And the U.S. government will not significantly change its ways.
Long term, gold is headed back up. Now is your chance to pick up some bargains.
My best recommendation for precious metals is Hecla Mining Co. (HL: NYSE) . Hecla mines a lot of silver, but plenty of gold, lead and zinc.

Question asked on 08/15/2008 at 11:45 AM :: Comments to date: 0

Category: precious metals

The government's measure of consumer prices, the CPI, jumped 4.1% in June (over last year), the highest official rate of inflation since 1991. As the government steals your savings and lowers your standard of living via its massive, unfunded bailouts of banks and mortgage lenders, just remember that since the resulting inflation – the real price of socialism – doesn't appear on any ledger, it doesn't really count...
Well, this is America. Our politicians are fabulous at spending our money. They're not nearly as proficient at raising the revenues they require. What happens when politicians promise a whole lot more than they can possibly deliver? More inflation is on the way, you can bet on it.
So as oil declines the commodity buble appears to be coming down. That is a temporary event. Remember gold follows inflation. Oil drives inflation. So the time lag is aboout a year and in the next month gold and silver will bottom and then start to take off.

Question asked on 08/06/2008 at 05:01 AM :: Comments to date: 0

Category: precious metals

Based on the repeating drumbeat to buy silver & gold, and the sideways movement for the first half of the summer, I finally relented, and on Thursday 7/17, I bought shares of SLV @ $18.21...
As of today, I'm down -5.35% -- in less than a week! And SLV shares appear to be continuing their downward plummet today. What a major bummer.
So what gives? Why is the market suddenly shunning silver and buying up shares in troubled financials, weak air carriers, etc?

There’s no easy answer to this question. So let’s start from the top.
First, any buyer of gold and silver today should stop looking at their position in a short time frame. Look at this as an investment you make for years. You’ll stress a lot less about the day-to-day movements.
Nothing has fundamentally changed this year from last in the gold and silver markets. If anything, the case is now stronger for owning both. So why aren’t they moving higher?
Most investors think we’re going to see a big global slowdown, which will take down the price of most commodities, which in turn would bring down the rate of inflation and make gold and silver less attractive investments. But will that happen? So far global growth continues to boom. We may see a slowdown, but it won’t be big and it probably won’t last very long.
You also wondered why people are buying up the weakest companies in this market. I think people are bottom fishing. But, last time I checked, you don’t bottom fish for companies that are losing billions upon billions. That’s a strategy for disaster. If you really hate your money that much, feel free to send it to me.
In the end investing is about sticking to what you know unless you’re proven wrong. So stick to your guns. You should do well in the next 6-12 months.

Question asked on 08/02/2008 at 04:56 AM :: Comments to date: 0

Category: precious metals

Vietnam is experiencing every problem that causes a rush into precious metals... inflation is an incredible 27%, interest rates are over 8%, the stock market was down every day in May, and unemployment has more than doubled (from 2% in '07 to 5.1% this year). Household wealth is drastically declining.
Now here's the interesting part: How are the Vietnamese people reacting to all of this? Did they buy stocks? Real estate? Maybe inflation-protected securities? Or did they just sit on cash?
None of the above.
Vietnam's economic and monetary problems have sent its people fleeing to gold. Not gold stocks... but physical gold bullion. They're hoarding it and hiding it from their government.

Hard figures on the size of the local gold trade aren't available, but current estimates are that the public owns 16 million ounces, including 1.3 million ounces imported in the first quarter of 2008. Of this, only about 10% has been deposited into banks (which actually pay 2.5% interest on gold). The remaining 90% is likely under mattresses or hanging around the owner's neck.
The trend toward gold is spilling into other financial areas. After a long period of quoting land prices in Vietnamese dong (the nation's currency), landlords are now setting prices in gold in order to avoid the devaluation. Nguyen Trung Vu, general director of the Ky Moi Real Estate Co, said that while it is complicated, "I think that making transactions with payment in gold will become a trend."

Question asked on 07/30/2008 at 04:13 AM :: Comments to date: 0

Category: precious metals

The relative strength of precious metals to the stock market is up.
This means your stock values are going down and the value of gold and silver are going up.
The stock market does not like inflation therefore it is going down amongst other reasons.
Gold and silver go up as a result of inflation, therefore gold and silver are moving up after the fact of oil and commodities went up.
Another reason gold goes up is inflation versus Interest rates.
When inflation rises above interest rates – gold goes nuts. Right now, inflation (as measured by the Consumer Price Index, the "CPI") is at 5%. The other major measure of inflation (the Producer Price Index, the "PPI") is running at an astounding 9.2% a year.
Today, we have the same inflation figures we saw in 1981-82. I don't know if you remember 1981... It was the last time inflation (as measured by the PPI) was this high. Even the CPI is currently at October 1982 levels of 5%.
With inflation running so high in the early '80s, interest rates on even "boring" Treasury bonds were more than 10%. But today, interest rates on Treasury bonds are only around 4%.
Right now, inflation is (conservatively) running at 5%. And Ben Bernanke is flat out telling us there's more inflation to come. Last week, he said, "Inflation seems likely to move temporarily higher in the near term." Yet somehow, Treasury bonds pay just 4%. When you add it up, you're actually losing a percent a year by holding Treasuries now.
Most of the time, gold doesn't do you much good in your portfolio. Since gold pays no interest, big investors choose to park their money in high-yield bonds, where the interest more than covers the inflation rate.
But now, putting your money in bonds doesn't even cover the rate of inflation. Sure makes gold look attractive...

Question asked on 07/28/2008 at 02:00 PM :: Comments to date: 0

Category: precious metals

What makes this so bullish for silver is that there is only one good reason for anyone to naked short sell SLV shares - because the available silver needed to be purchased and put into the custodian’s vault doesn’t exist. Rather than go out and aggressively bid up the price of world silver, it is infinitely easier just to sell shares of SLV short. No one would be the wiser and it keeps the price nice and orderly. But this also confirms that real silver may be unavailable in wholesale quantities. In other words, this would be proof of a wholesale shortage of silver to go along with a retail shortage.

What is disturbing, if my numbers are as correct, is that the same fraud and manipulation of the concentrated shorting in COMEX silver futures, has now spread to the SLV. And, if so, probably by the very same entities. Think about it - why would anyone willing to be short hundreds of millions of ounces of COMEX silver futures, hesitate to sell tens of millions of ounces more in SLV to keep the scam going? In for a penny, in for a pound. In fact, the pressure that has been put on the concentrated COMEX shorts may have forced the manipulators to sell the SLV short, in order to keep the COMEX short position from growing.

But what is most disturbing of all is that, aside from the manipulation connection, the short selling in SLV shares represents something that was only expected to be realized in the future in COMEX silver - a delivery default. If there is the equivalent of 25 to 50 millions of silver sold short in SLV (maybe less, but maybe more), that is equal of 5000 to 10,000 COMEX contracts. If buyers stood for the delivery of 5000 to 10,000 contracts of COMEX silver, and the sellers failed to deliver within the required contract period of time, everyone would know that was a major default and it would result in the most serious (bullish) impact possible for the price of silver and the exchange.

I ask you to use your common sense. If buyers bought and paid for 25 to 50 million ounces of silver in the SLV, as I claim, and the sellers did not deposit the silver as required, but instead just sold shares short, is that not a clear default? Is that not the same as 10,000 contracts defaulting on the COMEX? Just because no one knew it happened, until it was explained to them, does that make it less of a default?

Finally, even if my calculation of how much naked shorting of SLV shares is wide of the mark, I have laid out a scenario that could happen easily and that, to my knowledge, has never been publicly aired. Short selling (and naked short selling) of these shares does exist and those shares do not have silver behind them. At the very least, this should all be nipped in the bud by Barclays and the SEC and any short selling of SLV shares of any type should be strictly forbidden. Keep the short sellers confined to the COMEX and derivatives cesspool. All silver (and gold) investors should be concerned because the unique nature of these ETFs, with their direct connection and convertibility into metal, renders them as potential tools of fraud, manipulation and default.

What should SLV investors do about this? I think a few things. First, don’t rush to sell your SLV shares in disgust and walk away from the silver market. That would be like cutting your nose to spite your face. Silver is close to exploding in price, in my opinion, and to sell out just before that happens would be foolish and cause you to rue the day you did so. But neither should you sit passively with your SLV shares and pretend this short selling is unimportant.

If you can, make the switch to real silver, either in your own possession or in bona fide professional storage. A switch means a simultaneous transfer of one asset to another. Make the arrangements to buy real silver before you sell your SLV shares. Don’t get cute and try to time the market. And for the umpteenth time, professional storage (of 1000 oz bars) involves getting the serial numbers, weights, hallmarks of all bars certified to be specifically owned by you, having the ability of taking actual delivery of these same bars at your demand and storing your silver apart and distinct from the dealer you bought it from. Please don’t ask me about this or that program, just make sure it conforms to these rules.

For those who can’t switch out of SLV, hold your shares, but press Barclays and the SEC to the wall on this issue. I believe this can be fixed if you force them to fix it and demand no short selling of any kind, due to the unique nature of these securities and the clear representations in the prospectus. You succeeded when you asked Barclays to list the serial numbers and you will succeed on this issue. That even such a thing could happen is an outrage and if Barclays drags their feet on this issue, you should give them holy hell. Even if you can switch, please inquire yourself and give Barclays a chance to comment on all this - isharesetfs@barclaysglobal.com

Further, here’s a suggestion for large investors in SLV, those holding quantities in basket increments (50,000 shares or 500,000 ounces). Switch your shares to direct ownership of silver, by making a few phone calls and having your broker or AP, convert your shares to allocated silver held in your name. It will be cheaper for you to pay storage directly than pay Barclays management fees, it will be safer, and it will immunize you from these naked short selling games. The funny thing is that your silver will not even have to be physically moved, it’s just a matter of changing the ownership paperwork. Just have your BS-detection meter handy to measure the idiotic excuses you will be given when you initially propose this to your representatives.

Lastly, I’d like to review some of my past thoughts on the SLV, beginning when it was first proposed. I was wrong when I doubted that the silver ETF would come at all, but I was right that it would have a good impact on price if it came. I was right that the SEC would never approved another ETF that involved the physical buying of the commodity involved. Perhaps my biggest mistake was in stating that 130 million ounces of silver could not be purchased at anywhere near the current price, then around $7. I even questioned what the people at Barclays were smoking to suggest that 130 million ounces could be bought without fireworks. While it’s true that a tripling in price (at the highs) does meet the definition of "nowhere near current prices," I admit that I expected much more price-wise. And since there are now 195 million ounces in the SLV, maybe it wasn’t Barclays who was smoking something. Maybe it was me. Then again, maybe not.

This is not intended as a way for me to weasel out of a past misstatement, as that is sure to occur, as I try to write unique and provocative stuff about silver nearly every week. When you are quick on the draw, and try to stay current and out in front, you sometimes miss the mark. It’s an occupational hazard. The trick is not to hurt anyone, even if you miss the bulls-eye. While it would appear that I was way off in my lambasting of Barclays about them securing 130 million ounces easily, I’d like to review my contention again, strictly for analytical purposes, in light of what I now know versus what I couldn’t have known then.

I had assumed back in 2005, that there were not 130 million ounces of available silver in the world to be bought near $7 an ounce. Of course, I knew that more than that amount of silver existed, as I always quote a billion ounces of silver bullion equivalent to be in existence. But there is a difference between what exists and what is available for sale. I thought it was impossible to buy 130 million ounces in the single to low double digit price range. With the benefit of hindsight, I now see where I was wrong. And where I was right.

I never imagined that Warren Buffett would willingly sell his silver (said to amount to 130 million ounces, coincidently) so cheaply. Of course he didn’t exactly sell his silver willingly, he was more snookered out of it due to him speculating and miscalculating on short-term price fluctuations. But the net effect of him losing his silver was that it ended up in the SLV.

Therefore, of the 195 million ounces in the SLV, as many as 130 million ounces may be from Buffett, leaving only 65 million as having been bought elsewhere. Am I doing this just to save face about a bad prior prediction? Absolutely not.

I am making these calculations to analyze what might be the real significance of the short selling in SLV shares. Had we all know that Barclays had somehow secured Buffett’s silver prior to the launch of the SLV, instead of calculating how much silver could be bought and at what price effect, starting from a zero base, we would have all made our calculations starting from a base of 130 million ounces. In other words, with the benefit of hindsight, removing the one-time snookering of Buffett, the actual amount of silver bought in two years by SLV was 65 million ounces, not 195 million. Taken Buffett out, the price of silver tripled because only 65 million ounces were actually purchased on the open market. That suggests a market tight beyond description.

I believe this is important because if my calculations are accurate, we may be in the eye of a world-wide silver shortage. That’s what the real motivation may be behind the shorting of SLV shares. The big shorts on the COMEX are now shorting the shares of SLV because they have no choice - there may be no silver available. If true, this is beyond profound for the price. If you are holding as much silver as you can hold, you are correctly positioned, in my opinion. If not, you are missing out on a remarkable opportunity.

Question asked on 07/11/2008 at 07:42 AM :: Comments to date: 0

Category: precious metals

So here we had evidence of delays in the delivery of both retail and wholesale silver. Many are loath to utter the word "shortage" in connection with silver. They believe that to be impossible or they think the word means no availability at any price. That definition is silly, as there will always be some quantity available at some price. A commodity shortage doesn’t mean that all the silver (or any other commodity) in the world suddenly disappears. The correct definition of a commodity shortage would revolve around delivery delays, not unavailability. In other words, a delay in delivery of both retail and wholesale forms of silver would constitute a shortage. Maybe not a severe shortage, but a shortage nevertheless. Such evidence of delivery delays, in the face of declining prices, should disturb believers in free market principles.

Although these delivery delays into the SLV well after the shares were purchased bothered me, I chose not to complain. (By the way, this pattern can be discerned by the uneven deposit pattern into the SLV compared to its trading volume). The main thing that bothered me was that the shares were being shorted at all.

I am going to make a very straight-forward statement. I don’t think short-selling of any kind should be allowed in the shares of the SLV, nor in the shares of the two publicly-traded gold ETFs, GLD and IAU. Of all the tens of thousands of different common stock and other traded securities that are regulated by the US Securities and Exchange Commission (SEC), these three metal ETFs are very unique and distinct from the rest. Out of tens of thousands of different securities, only SLV, GLD, and IAU call for a rigid metal backing, 10 ounces of silver behind each share of SLV, one-tenth of an ounce of gold behind each share of either GLD or IAU. Investors buy shares of these ETFs because they are assured that this specific metal backing exists. Investors buy shares knowing that the sponsors and custodians guarantee the metal to be there.

But what happens when someone buys shares in these ETFs and the seller is selling those shares short? Does the short seller deposit metal to back up the buyer’s purchase? No. The short seller just sells the shares short without depositing metal, perhaps borrowing other shares first, perhaps not. The buyer doesn’t know who he is buying from, he gets a confirmation of his purchase from his broker, pays for it and assumes, according the representations in the prospectus, that he is buying new shares issued by the sponsor who has deposited metal, or from an existing shareholder who has decided to liquidate his shares. It never occurs to the buyer that he is buying from a short seller who is not depositing metal. In essence, the short seller is circumventing what is promised in the prospectus. That party is short-circuiting and destroying the promise clearly laid out in the prospectus that real metal backs every share sold.

Here’s the disturbing question - which buyers’ shares are left without silver backing when short sellers are involved in the transaction? Just the hapless and unsuspecting buyer who was unlucky enough to happen to have his purchase short sold, or do all SLV shareholders get shaved proportionately, like a silver coin clipped in olden times? Don’t look to the prospectus for answers, because you won’t find any.

For those who were unaware of this and don’t understand how shares can be sold with no metal backing (or doubt my contention), there is hard proof. There is a short position list reported that proves short selling exists. Currently, the SLV shows a small published short position on the American Stock Exchange of around 250,000 shares, or the equivalent of 2.5 million ounces. On March 11, this reported short position hit almost 1 million shares, or nearly 10 million ounces. So, there can be no doubt that some short selling exists, which raises all sorts of disturbing questions. In my opinion, this aspect of the metal-only ETFs wasn‘t fully thought through before their introduction. Unfortunately, the problem may be worse than just this SLV short selling; maybe much worse.

WHAT’S GOING ON?

Around this past April 15 I began to notice a more pronounced delay of silver deliveries into the SLV. This was for much larger amounts of silver than I previously observed. In fact, the amount of short selling in SLV shares began to look extreme.

Just a short word on short-selling. Please don’t confuse this discussion on the short selling of shares of the SLV (and GLD and IAU) with the short selling I continually discuss in COMEX silver futures. I know this can be a complicated topic, but it is important for you to understand it. In futures, there must be a short for every long. Therefore, the problem in silver futures is not the presence of shorts, but the documented concentrated nature of this short position, namely, an extremely large short position held by just a few traders. Less extreme concentrations in other commodities have always been considered manipulative by the CFTC in the past; just not now in silver (and gold), for some reason.

In securities, there is no requirement that there be a short position for every share of stock. In fact, that would be absurd. But, due to relaxations in the restrictions on short selling over the past decade by the SEC, the new phenomenon of naked short selling has exploded. Naked short selling in stocks doesn’t involve first borrowing the shares in which to sell short. The naked short seller just sells short without borrowing shares. The short seller then fails to deliver the shares to the buyer on settlement date. The punishment for what is essentially a delivery default? The SEC puts out a (long) list of stocks which have fails to deliver. That’s all it does, it makes a list. No fines, no forced buy backs, no identification of who is naked short selling, no staying after school for detention. And yes, SLV is on that list from time to time. To SLV owners, that should be disturbing.

One last kick in the teeth for SLV and silver investors. All investors who purchase SLV shares must pay in full for their shares (or borrow from their brokers at sky-high margin interest rates). Not only do the naked short sellers not have to deposit a dime for their short sales, nor deposit one ounce of real silver, they receive the full cash proceeds that the buyers put up and get to earn interest and deploy that cash until they buy back their short sales. Which may be never, as no one is pressuring them. This is a Wall Street scam and fleecing of the first order.

While it is simple to prove that both short selling and naked short selling in the SLV exists, it is not easy to quantify the amount. I’m convinced much of the naked short selling is done on an unreported basis. My best current guess of the amount of cumulative short selling in SLV shares since April 15, is between 2.5 to 5 million shares. This represents an amount of silver of between 25 to 50 million ounces. Let me be clear. I believe that buyers have paid for and hold shares in SLV for more than 25 to 50 million ounces of silver than are deposited in the trust. Can I prove this? No. Do I make this statement loosely and without careful consideration? No. Could the amount of naked short sales of SLV be less than my estimate? Yes. Could the amount of naked short sales be more than my estimate? Yes.

In the interest of full disclosure, I did try to take the high road in this matter. Several weeks ago, I notified Barclays Global Investors (BGI), of my specific concerns and asked them to resolve the issue privately. Since I have seen no effort on their part to do so, nor to refute my contentions, I decided to go public with this. In addition, a colleague of mine, Carl Loeb, also wrote to Barclays, which resulted in an exchange that either confirmed or did not deny the information I am describing today.

So what does this all mean to the silver market and, especially, to SLV investors? For the silver market, nothing could be more bullish or more disturbing. If I am correct, one or more Authorized Participants (APs), perhaps even Barclays, are the most likely candidates to be the big naked shorts in SLV. And it is hard to imagine that such naked short sellers of SLV are not one and the same as the big concentrated COMEX shorts.

Continued Tomorrow -

Question asked on 07/10/2008 at 07:40 AM :: Comments to date: 0

Category: precious metals

This essay was written by silver analyst Theodore Butler, an independent consultant.

Today I am going to write on a subject that I feel is of the utmost importance to all silver investors. It’s particularly important to those holding shares of the Barclays silver ETF, traded on the American Stock Exchange under the symbol SLV. Because this may prove to be quite controversial as well, I will attempt to be thorough in my discussion, in the hopes that my words will not be misinterpreted. Although I will try to keep it short and simple, there is much to discuss.

It is just over two years that SLV has been in existence. Trading commenced at the end of April 2006. I started writing about this Silver Trust three years ago when it was first proposed, and have written many articles since then. I have always maintained that the silver ETF was big doings for silver. In just two years the amount of silver held in SLV has grown to 195 million ounces, the largest known stockpile on the face of the earth. Throw in two new silver ETFs from London and Switzerland and total silver ETF holdings jump to more than 220 million ounces. That’s a lot of silver.

It’s no secret why the silver ETFs have proven to be so popular. For the first time in history, they enabled institutional and retirement funds and other stock-only type accounts to easily buy and hold silver. Given silver’s unique dual role, as industrial commodity and investment asset, this was no small development. It is also clear that the advent of the ETF had an important impact on the price of silver. Not as much as I had expected, but still significant. After all, the price of silver tripled after the SLV was proposed. While there were other factors, it was the introduction of SLV that exerted the most influence on the price. Prior to the SLV, silver was locked in a $4 to $5 trading range.

As a silver analyst, I have always recognized the importance of the SLV in the silver supply and demand equation. Key to that issue was the matter of whether real silver backed up the assets of the trust, as Barclays claimed. While some commentators doubted that all the silver claimed to be in the trust was really there, others suggested the silver was being leased out or was being used to suppress the price of silver. However, I always believed that the silver claimed to be on deposit was actually in the custodian’s vaults. I still do. What I will be discussing today doesn’t involve the silver claimed to be on deposit. So much time and attention has been placed on the silver already deposited (or not) in the SLV, that the most important issue has been overlooked. That involves silver not claimed to be on deposit.

(A brief side note here. I’m a (very) independent silver analyst. I write what I feel should be written about concerning silver, with little or no concern for what others may think. I’ve written more than 300 articles in the past seven years that have been underwritten by Investment Rarities, Inc., and made available at no charge to all who care to read them. Not once have I written that readers should buy silver from them, although I do hold them in the highest regard. Nor have I ever taken any potshots at the SLV, perhaps much to the chagrin of the president of IRI, Jim Cook, who rightly views the SLV as a competitor to what his firm sells. I want to thank Mr. Cook for never trying to interfere or influence my analysis on the SLV or any other issue I chose to write on.)

After Barclays decided to follow my public suggestion that they openly list all the weights, serial numbers and hallmarks of the bars on deposit, my conviction that the silver said to be on deposit was reaffirmed. I publicly congratulated Barclays for doing the right thing.

However, I did mention in past articles that I noticed delays, from time to time, in the depositing of silver into the trust for new shares that were purchased. I attributed this to the logistics of physically procuring and transporting the silver to the custodian’s vaults in London. This wasn’t the way the prospectus clearly dictated, namely, that the silver had to be deposited before any new shares were issued or, allowed to be purchased. However, I wanted to save my critiques for more important issues. You learn to pick your battles, and I chose not to harp about a short delay, of a week or two, of a few million ounces of silver being deposited into the trust.

I began to notice this pattern of delay in depositing silver into the trust about six to eight months ago. In fact, the pattern became so regular that I could tell, fairly precisely, when and how much silver would be deposited. I did this by observing the price and volume patterns in the trading of SLV shares. I shared this information with close associates, and could see they were surprised with the accuracy of the pattern.

One thing became clear - in obvious conflict with what the prospectus dictated, there were regular periods when the trust did not have all the silver it should have. In other words, SLV had the silver it said it had, but, at times, there should have been more silver than that. It was also clear to me the mechanism by which this delay could be effected. Buyers of new shares could be issued those shares without new additional silver being deposited through the short selling of shares to the buyers of the new shares.

Aside from a fascination with observing the pattern, my main take from the consistent delays in depositing silver into the SLV, was that silver was not readily available in London. As an analyst, this told me that the supply of wholesale quantities of silver was much tighter than was generally known. This coincided, of course, with a well-known tightness in retail forms of silver, especially US Silver Eagles.

Continued tomorrow-

Question asked on 07/09/2008 at 07:35 AM :: Comments to date: 0

Category: precious metals

Just when you thought reality was setting in at the Fed, you get reminded how silly that idea really is.
I say that because lately the Fed has been talking about how bad inflation is, and how they need to be ‘vigilant’ so that inflation expectations don’t deteriorate.
If you talk to anyone on the street, I bet they have noticed that prices are higher for just about everything. I don’t know about you, but I sure think that inflation expectations are already pretty bad.
So, you would think they’d be really hawkish about inflation at the meeting.
Maybe that’ll happen at another meeting, because it sure didn’t happen at the one on Wednesday.
Sure, they mentioned inflation expectations have increased. But here’s the line I read on Bloomberg that killed me …
“The Committee expects inflation to moderate later this year and next year”
That’s right – even though gas prices have nearly doubled in the last year… even though the price of wheat has skyrocketed… even though the price of nearly every food you can think of has gone higher… they expect inflation to moderate.
They think that when the U.S. economy slows it will reduce demand and prices will move down to stimulate demand. This makes sense, except for the fact that the world isn’t all about the U.S.
You see, the price of imports into the U.S. has gone up well over 15% in the past year. Yet for the most part, this inflation hasn’t completely hit consumers.
And the sad fact is, the prices we pay for overseas items will continue to move higher. Over in Asia, they are experiencing some wicked-nasty inflation right now. And it won’t stop in the next year, despite a slowdown in U.S. demand.
So long as emerging economies like China continue to grow as fast as they are, inflation will continue to be a threat. And the reason why is simple. Because as these emerging economies modernize, they will need more food, more gas, more wood, more metal, more of everything per capita than what they use today.
That means demand from emerging economies for all these things could double… even triple in the next ten years. That demand should more than offset any reduced demand from the U.S. or other modernized economies.
It’s no wonder that countries in Europe and other parts of the world are actually increasing their interest rates. They’re doing it because inflation is more than a threat, it’s real. It’s there, affecting everybody’s lives.
And it’s affecting everybody here too.
So I will beat the drum again for precious metals.
The metal stocks have been beaten down so far that this is the begining of the last cycle for metals. Gold and silver go higher after inflation has its affects on the economy. Therfore the rally this week is a psycholgical shift towards inflationary hedges. That is gold and silver.

Question asked on 06/28/2008 at 07:11 AM :: Comments to date: 0

Category: precious metals

Why Gold Could Reach $20,000 an Ounce.
By Tom Dyson

The amount of liquid savings I keep in gold would make the average investor choke.
In fact, on the occasions when I have told people how much of my money is in gold, they think I'm nuts. Gold represents more than 50% of my savings.
When folks hear that, they think I'm making a crazy speculation on the price of gold. Or they think I'm an eccentric.
I tell them gold is the safest place to keep your money. It's the modern equivalent of putting cash under the mattress. Gold is such a conservative investment, it doesn't even pay an interest rate.
Here is why I like gold:
To stave off the housing and credit crisis, politicians have increased the amount of paper (and electronic) money in our financial system. If you double the number of dollars in the system, then the market should make you pay double the number of dollars for an ounce of gold. If you increase the quantity of paper money by a factor of 20, the gold price should also rise by a factor of 20.
This is simple mathematics. It's the same calculation for tailored suits... loaves of bread... or rare seashells. Double the quantity of money, double the prices.
Let's add up the value of all the paper money in the world... and it comes up with $100 trillion. Then we divide this by the total amount of "above ground" gold in existence – 5 billion ounces – and we find a fair value of gold at $20,000 an ounce.

If this is a correct theory that gold and money are the same, then gold prices would need to rise about 22 times to match the rise in the quantity of paper money in the system.
For gold to get that high, people would have to lose confidence in paper money. I think this will happen eventually... just not anytime soon. And of course, this calculation is theoretical. I'm not predicting $20,000 gold. The point here is lots of paper dollars are floating around, but only so much gold.
Normally, gold is an expensive investment to own. That's because it doesn't pay interest. And you have to pay a small cost to maintain a safety deposit box. So you lose a few percent a year in opportunity cost when you put money in gold instead of in a savings account.

But right now, that penalty doesn't exist. My bank pays 1% interest in its savings accounts. Ten-year U.S. Treasury bonds pay 4% interest. The government says inflation is running at 4% a year. I think it's higher... around 5%-7% per year. Real interest rates are negative... You're losing money in your savings account.
That's why I keep my savings in gold. It's a safe investment with huge upside. And right now, I pay no interest penalty for making this bet. Other people are starting to figure this out. That's why gold has risen from $250 an ounce to $900 an ounce over the last six years.

I don't see our growing inflation disappearing anytime soon... and I see commodity prices in a long-term uptrend. That's why I'm comfortable with such a large gold position... and why gold's bull market still has a long way to go.

Question asked on 06/11/2008 at 07:35 AM :: Comments to date: 0

Category: precious metals

You’d think the only reason gold ever went up is oil.

Several big shooters put out the word on “bubble television” yesterday that they are doubtful gold will make it through the $950 handle before September. The consensus is that oil is peaking out and the dollar is bottoming out. And that the gold market will go to sleep as usual during the summer months.

That news is old. Heck, the oil and dollar conundrum has been a personal worry of mine for over a year. And it’s rare to see such a well-broadcast downturn. Since gold prices peaked in March on these as well as a few other inconsequential worries (such as the bearish roars from the IMF about selling its gold), oil prices have leapt 30%. Gold bulls were worried they would fall 30%.

A 30% correction now would leave oil right about where it was in February.

Oil has been proving the consensus wrong since 2001. Even just five quarters ago, it was hovering in the $50s. No one was talking about $200. Most were already worried then that it was a “bubble.”

All this worrying has, no doubt, checked the upside in gold and created an early seasonal low.

Given the still largely overlooked inflationary fundamentals, I have to part with the consensus.

One insight we could draw from the oil experience is that it has gone beyond the wildest predictions of anyone I read or heard eight years back. If you had called $200, or even $130, back in 2000, you would have been fired. You would have been so far out on the fringe they’d have to make a new club for you.
The point is as with the Nasdaq tech bubble, the real estate bubble that followed and now the oil bubble (relative to gold), bull markets have a way of going higher than anybody expects.

The commodity bull market is not about economic growth or the finiteness of commodity stocks.

It is about money and inflation. It is about gold.

It is about the viability of a paper currency monetary and fractional reserve banking system.

When the market realizes this, the gold market will no longer obey the consensus. That is, it won’t trade so rationally. You won’t see the healthy corrections that you are seeing now.

The oil price is telling us what an important commodity can do when it is a darling in today’s market and monetary environment. It is telling us there is something wrong. It is drawing attention to the fundamental monetary questions of the day. Consumer price inflation in Europe is at a 16-year high, even with a strong currency! I see many reasons why the consensus is going to be wrong here. So with a strong Euro why is there inflation, vs a weak dollar and inflation? Because all currencies except the Swiss Franc is not backed by anything but a government with a printing press. The law of supply and demand. The larger the supply of money the higher prices go, thus inflation. If gold is the universal currency then the price of gold will go higher
Lets take ratios. Oils peak in the 70's was $34 and today the high in May was $136. So a 4 to one ratio.
What if gold did the same thing. Gold was $800 in 1980 so 2010 it could be $3200. No one is predicting that because it is insane right. Remeber gold goes higher due to the result of inflation. Oil is causing inflation. Therefore gold lags the price of oil. So don't be discouragwed by the dip in gold and silver. Especially the stocks that have been clobbered lately. Now is the time to buy more metal stocks.

Question asked on 06/01/2008 at 06:58 AM :: Comments to date: 0

Category: precious metals

Gold stocks have had a run but the junoir gold stocks haven't budged comparably.

The third wave up is coming in gold stocks.
The reasons I gave for Silver to make a move can all be used for gold except the supply side.

Therefore the following 5 reasons to own Junior Gold stocks are as follows.

Reason #1, is that, several depressing factors have come together to produce an early seasonal low, at least for the precious metals sector.
Reason #2, as implied in the introduction, gold has lagged the commodity cycle because the market is infatuated with the growth in developing countries, and has inferred a “realness” to their demand for commodities. I’ve never disputed that the growth exists... just that there is a lot more inflation, and that inflation is what drives prices higher.
I believe the gold market is at a bullish inflection point — a point of recognition of sorts.
Reason #3, the precious metal juniors have hardly benefited from the bullish trends in these commodities to date, especially since 2006, never mind the future.
Lots of money found its way into the junior segment over recent years, to be sure, but this expansion in capitalization has been dilutive. The Canadian Venture Exchange (CDNX) has had a hard time keeping up with gold itself, and is at its lowest level relative to gold since 2002. Simply put, the juniors should be tracking gold — and right now they have a lot of catching up to do. The result is a widening gap between the values of majors and juniors. In my mind, that gap will soon contract.
With that said I think it’s the best buying opportunity in this segment since 2002.
Reason #4, the money that has poured into the junior precious metals segment over the past few years has been soundly invested. I am impressed with the value that I’ve seen many juniors create throughout this cycle — the development of assets discovered back in the nineties has been astonishing.
Finally, the best reason to own these juniors now...
Reason #5, the next takeover wave!

Many of the large-cap producers are priced for growth, and they know that if they want to sustain those multiples, they’ll have to buy or find reserves. That’s the incentive.

Meanwhile, the juniors spent lots of investment dollars proving up their assets, and the market has ignored them. So they are ripe for acquisition.

And, the majors have plenty of cash, thanks to the latest run in gold prices.

Some, such as Agnico Eagle have said they’re on the hunt, while others like Gold Fields are obviously in need of assets outside of South Africa. Corrections in the price of gold won’t discourage them.

Question asked on 05/29/2008 at 06:44 AM :: Comments to date: 0

Category: precious metals

Gold and oil, the poster children of the commodity bull market, are at odds with one another.
Because they respond similarly to inflationary pressures, gold and oil generally move in tandem. Over the last 25 years, one ounce of gold has been able to buy, on average, about 15 barrels of oil. Right now, however, one ounce of gold will buy you just seven barrels of oil, less than half its traditional purchasing power.
In 2000, 2005 and now 2008 is a time when 1 oz of gold would buy only 7 barrels of oil. After the other 2 times in 2000 and 2005 gold's value increased over 10% when this event occurred within a 3 months time period.
Also during these times, gold has outperformed oil by an average of 8% over the following three months. So if you don't own any gold, now is a good time to pick some up.

Question asked on 05/22/2008 at 06:45 AM :: Comments to date: 0

Category: precious metals

I have been campaigning for a long time for gold and particularly silver. On 4/27/08 I could feel the metals market getting ready to bottom and it did on May 1st 2008.
I wrote a campaign for silver because gold rises first then silver follows. Just like I said before copper started it all then platinum then gold and silver is the last to make it's move. This past correction is nothing but a correction in a super bull for the metals. Where it stops nobody knows.
I will make a prediction that gold will go to the 2000 level by 2011 and silver will be in the $70.00 range by then.
Therefore gold will go up 140% and silver will go up 450% from it's correction lows.
So which one do you want to get into for the next 3 years.
AUY has both gold and silver. GG has both. CDE is still the dog of the silvers and will be discovered at the last push of the silver run.
I hope you are all on board for the metals because you will make money. Hang on.

Question asked on 05/17/2008 at 05:54 AM :: Comments to date: 0

Category: precious metals

The law of supply and demand is the strongest economic force in the market place. I have listed the forces that are building to create the largest bull market in the history of commodities, silver.
Today we are starting to see the beginning of the shortage of silver. It is hard to ignore the 4000 years of history that the relationship of gold and silver have to real money. Gold used to be scarcer than silver. Gold was more stable than silver and prettier for jewelry. It was real money up until the 20th century. So historically speaking 43 years ago the US government could not afford to make its currency out of silver and in 1936 they stopped making their currency out of Gold. Now the dollar is worth 2 % of what it was 90 years ago.
The ratio of gold to silver above ground 90 years ago was 32 to 1, 32 ounces of silver for every ounce of silver. In 1980 there was 3 ounces of gold to every 4 ounces of silver. Today there is 5 ounces of gold to every ounce of silver. The highly industrialized nature of the human race is consuming 4000 years of stored up silver. So in about 3 years there will be a silver shortage where every industrial user that needs it will pay any price to get it to keep their production going. Just like platinum for cleaner air uses and jewelry. Platinum prices have far exceeded the price increases of gold due to the industrial consumption of platinum for cleaner air products. Silver has become an electronic necessity and medical necessity for industrial production which will cause the depletion of all silver inventories.
Don’t mess with Mother Nature – the law of Supply and Demand will work in the long run with Silver.

Question asked on 05/15/2008 at 07:14 AM :: Comments to date: 0

Category: precious metals

The world money supply is growing faster than the production of the commodities such as silver and gold. This inevitably results in less purchasing power for all currencies. Today the countries are all manipulating their currencies except the Swiss Franc to help create exports and jobs. It is a vicious cycle. Eventually people of the world will turn to the true currency of the world since the beginning of time, gold and silver. Today foreign holders of dollars will come to believe that the US Government is willing to sacrifice the dollar, and then they will begin to unload dollars in earnest. There are signs of this happening already, with the Chinese and others using their considerable dollar reserves to buy up large natural resource deposits, even shares in US corporations, tangible assets.

Question asked on 05/14/2008 at 07:00 AM :: Comments to date: 0

Category: precious metals

In 1980, the major precious metals (gold, silver, platinum and palladium) made historic highs. Today, they all, but silver, have exceeded those highs. In addition, all industrial metals have made new historical high prices. The same can be said about energy and agricultural commodities. Only silver is far below its historic price highs.
In comparison silver is cheap, relative to almost every other commodity. Relative cheapness is the first analytical test for a long term value investor. If a prospective asset can’t be called cheep on a relative basis, a true investor won’t be interested in that investment. In 1980 silver wasn’t cheap but today it’s the cheapest asset around except maybe some distressed vacation properties in Florida.

Question asked on 05/13/2008 at 07:48 AM :: Comments to date: 0

Category: precious metals

The emergence and existence of numerous silver pools, unallocated and certificated accounts, didn’t exist in 1980. While there have always been cases throughout history where fraud and deception have occurred, the widespread practice of selling unbacked silver certificates or accounts is a phenomenon that developed in 1980. There are still accounts like this run by institutions that could total up to 2 billion ounces. People believe they own this silver in a bank vault somewhere and don’t want to take possession of it due to the security risks and cumbersome nature of owning physical silver. While investment in silver was virtually non-existent for the 20 years after 1980, there were still plenty of investment in paper (fake) silver in pool, unallocated and certificate accounts which don’t publish serial numbers of the 1000 oz bars held. The buying of fake paper silver since 1980 diverted important money away from the real silver market and what would have been the beneficial impact on price. That trend may be ending now with the new SLV stock. The holders and investors in such accounts are starting to get the message about the dangers that such accounts hold for their financial well being. For their sake, I hope they get the message and act promptly and accordingly. When the people that bought into these fake certificates become wiser and poorer they will start to invest in the real silver. This will cause the price to go up too.

Question asked on 05/12/2008 at 07:29 AM :: Comments to date: 0

Category: precious metals

The Main issue impacting silver is the concentration of a few large and dominating positions in the futures market. There is a concentration issue on the short side which is the opposite of the long side that happened in 1980. The Hunt brothers tried to corner the market in 1980 and the government stepped in and issued new rules to the trading system saying no new buying could occur only liquidation of positions. This dropped the price like a rock because no one could buy new silver. Today the opposite has occurred. The mining companies were forward hedging their production and it kept the price down but now even the mining companies are losing a lot of money due to that practice and are starting to sell in the spot market or not selling as far out so they can maximize their profits.
Now today there are no concentrated long positions on the COMEX silver futures only historic concentrated short positions, government actions won’t work like they did in 1980.
So what could happen if the government stepped in and tried to squelch the rise of silver as it exploded upward and people demanded that something be done. They could put price controls on it but that only leads to a black market and when that does not work they lift the ban and prices explode. The price always moves in the opposite direction of how it was manipulated. Therefore since there is a large concentration of shorts in the silver market trying to keep the price down it will someday bankrupt one of these firms and they will have to liquidate those shorts by the order of bankruptcy and the price will explode. This is purely the law of supply and demand at work. No one entity is larger than the market or can fight Mother Nature and win.
The best advice today is to be way early in laying in real silver, than to be a day late. That this prospect exists today, and it did not in 1980, is bullish beyond words.

Question asked on 05/11/2008 at 07:20 AM :: Comments to date: 0

Category: precious metals

In 1980 there was no way to own silver except by owning coins, bars or jewelry. That is called owning the physicals. Today there are 3 new ETF’s where institutions and individuals can own the silver by buying the stock. When the stock is sold to the public the ETF has to buy 10 ounces of silver such as in the case of SLV. This new demand has created a demand of 200 million ounces last year which is now the largest purchaser of silver in the world. This is inventory owned by individuals to make money. They will not sell until they make more money and that is usually to another investor who hangs on to the shares of stock.
While there has been a broad awakening as to the merits of commodity investments into the Commodity ETF’s, silver is the only industrial commodity, which allows both the smallest and the largest investor alike to buy directly in its real form. You can’t do that practically with any other consumable commodity unless you trade commodities. In today’s environment there are a lot of risky investments due to the financial crisis that hit us therefore the gold and silver ETF’s are the future of the new common denominator of risk free currency and store of value investing. As the price continues to rise the investment into ETF”s for gold and silver will increase thus causing more of a shortage.

Question asked on 05/10/2008 at 05:51 AM :: Comments to date: 0

Category: precious metals

The changes in real supply and demand favor silver today, much more than they did in 1980. With consumable commodities such as energy, industrial metals and agricultural products, there is tightness. With lean manufacturing in industry today no one carries buffer stocks and the supply chain is empty all the way back to the producer. We are consuming more silver today than we are mining and generating new silver. Computer chips use a very small non-reclaimable amount of silver which consumes more than the old photography black and white pictures did. There are 500 computer chips in a new car today with a combined use of .1 ounce of silver. Try reclaiming .1 divided by 500 times $17 per ounce. There is no way anyone can afford to do that. So lets say there are 100 million cars made in the world each year which is conservative, that is 10 million ounces consume that is not reclaimable.
One important difference between 1980 and today in commodities is the shocking rise in the cost of production. In metals, the cost of opening new mines and the overall declining ores are much different from what prevailed in 1980. The amount of energy it costs to refine and melt the silver is enormous in todays cost factor. Thus (if) as soon as the price of silver drops below $10 an ounce the mines will be losing money and they will shut down and layoff workers until there is a demand sufficient to drive the price higher.

Question asked on 05/09/2008 at 05:18 AM :: Comments to date: 0

Category: precious metals

Top Ten Reasons to Own Silver #3
In 1980, there were long lines of people selling silver objects of all kinds, in response to the high prices. There are no long lines today, even though we are revisiting those prices. There were months of refinery back-logs then, as so much silver awaited melting. There is no backlog today. In fact, even though prices are at levels last seen 28 years ago, there has been a tightness and even shortages of investment silver. In 1980 it was the opposite. Today, the retail buyers are more aggressive. Back then the sellers were more aggressive. The public viewed the price of silver as overvalued back then. As it turned out they were right. Today the public views silver as undervalued because they are buying and not selling, I think they are right again.

Question asked on 05/08/2008 at 06:32 AM :: Comments to date: 0

Category: precious metals

Top Ten Reasons to Own Silver #2
On a per capita basis, the reduction in world silver inventories is even more dramatic, because the population of the world grew by 50% over that time span of 28 years. In 1980, there was almost 1 ounce of silver inventory for every person on the face of the earth. Today, only a small fraction, .15 of an ounce remains. Stated differently, in 1980 there was six times the per capita amount of silver inventory than there is today. On that basis alone, not allowing for inflation, the price of silver should be 6 times higher than the price of silver was in 1980. How did the depletion happen? A good amount came from the great silver melt down in which people sold silver objects in response to high prices. Much more came from Central Banks who disposed of long-held silver certificate inventories in what was a long term practice of leasing. President Clinton sold off the US Government strategic metals store of inventory to help balance the budget which is why the price of silver stayed so low in the 1990’s. The US mint doesn’t us silver anymore for regular currency but does for coin collectors in minting the silver eagles. The Mint has to go out in the spot market now and buy the silver for the coins. They are having a hard time maintaining a solid supply for their coins.

Question asked on 05/07/2008 at 06:29 AM :: Comments to date: 0

Category: precious metals

Top Ten Reasons to Own Silver #1
There is a lot less silver inventory today than there was in 1980, billions of ounces less. In very broad terms, there were close to 4 billion ounces of available world silver inventories in 1980. Over the next 28 years, because of the silver deficit, roughly 3 billion ounces were removed from inventories and industrially consumed or put into a form that prevented it from coming back to the market, except at extraordinary high prices. In other words, 75% of world silver inventories were consumed over the past 28 years; leaving us with approximately one billion ounces remaining.

Question asked on 05/07/2008 at 06:23 AM :: Comments to date: 0

Category: precious metals

As you can tell I am very bullish on silver.
I am too early on alot of my investments so bear with me.
The laws of supply and demand win out over anything. Fundamentals are stronger than anything that a government can do beyond confiscation.
The siomplist and most basic fact is there is more gold on this earth than silver.
20 years ago this was not true. Silver has become more of an industrial commodity than it used to be.
In the past 20 years more silver has been consumed and not reclaimed than the sum of the previous 2000 years.
This is due to the computer age.
On a per capita basis, the comparison between gold and silver in dollar terms is that there is approximately $700 worth of gold above ground for every person on this earth. There is $2.70 worth of silver per person.
You decide for yourself how many investors are aware of this and which item has the best chance for dramatic upward revaluation.
Todays price ratio is 862/16.6 = 51.9 gold to silver ratio.
The physical per capita ratio 700/2.7 = 260 ratio.
This means that the law of supply is going to swing in favor of silver soon as industrial and 3rd world countries become more affluent and the demand for silver will drive the price up more. Inflation will drive gold up along with silver just like the gas prices. So silver on this correction is the time to be accumulating more.
Even if the silver to gold physical swings to 100 ratio and gold stays the same that puts silver at $43 4 per ounce.

Happy hunting for those silver stocks.

Question asked on 05/05/2008 at 03:49 PM :: Comments to date: 0

Category: precious metals

For some reason, the news of the US Mint being forced to ration supplies of Silver Eagles due to unprecedented demand is vastly underreported and underappreciated. So much attention has been placed, by financial news services, on isolated quotas being placed on large retail purchases of rice, yet there is no mention that the US Mint can’t keep up with national demand for an important investment product for the first time in its history. Ask yourself this - what kind of hoopla and over the top rhetoric would we hear if it was gold demand, and not silver, that the Mint couldn’t keep up with?

Next, there was the remarkable dichotomy in the changes in the relative holdings of metal in the big gold and silver ETFs. On the sharp price decline, the gold ETF (GLD) liquidated almost 8% of its physical metal holdings by 1.6 million ounces ($1.5 billion) in just three days. This put the actual gold metal holdings in the GLD to a five month low, down some 5% since near year end

Over that same time period, the actual metal holdings in the big silver ETF (SLV) have grown substantially, up some 37 million ounces, or 25%, since just before year end. And the holdings in SLV did not decline at all over the recent sell-off, as its gold counterpart did. My sense is that more silver may be about to come into the SLV. The important question is why did gold get liquidated while silver did not?

The answer appears obvious to me - common sense may be breaking out all over. One of my consistent themes has been the relative value of silver compared to gold. While not yet reflected in price, the relative value thesis may be starting to become apparent in the recent changes in the gold and silver ETFs.

One measurement I follow is the relative difference in the dollar amount of metal holdings in the two big ETFs, GLD and SLV. Currently, there is less than 5.5 times as much gold in dollar terms in the GLD ($17 billion) as there is the dollar value of silver in SLV ($3.1 billion). This is the smallest amount by which GLD has exceeded the SLV to date. When you consider that there is more than 250 times more gold in the world, in dollar terms, than silver, the fact that the biggest gold ETF only exceeds the dollar amount of metal holdings in the largest silver ETF by 5.5 times is mind-boggling. (Especially when you consider that the gold ETF had a 1.5 year head start on the silver version.)

A visitor from another planet would surely be scratching his head about the current price discrepancy between gold and silver. The one that is the more rare and needed is selling for less than 2% of the price of the other. It would quickly occur to the alien that if just 1% of all the money represented by gold, attempted to switch into silver, that would equal an amount more than 3 times all the silver in existence. The visitor would wonder deeply how so few of the earth’s 6.5 billion inhabitants could not see such a situation on two items that dated from the birth of human history. I’d be willing to bet that such an alien, should he exist and have a desire to make some big human money, would buy silver.

The last piece of silver news was a report from Reuters in Japan that Mitsui indicated that it had developed a process that could replace platinum with silver in certain diesel-engine catalytic converters. At first blush, the news would seem to be more bearish for platinum prices, given that this is the main usage for platinum, than bullish for silver, given the potential actual ounces involved.

But the report does make you think about what a versatile and vital metal that silver has become in so many different applications. Further, it puts a new twist on the issue of substitution. Heretofore, most of the substitution stories concerning silver were always of the version of silver being substituted by some cheaper material. What the Mitsui release brings to light is the great potential of silver being the material doing the substituting for more expensive materials. And since silver is less than 1% of the price of platinum, it’s hard to imagine a more sensible substitution.

Given all these bullish news events in silver, a reasonable man would have thought that silver would have climbed dramatically in price this past week, instead of declining by about a full dollar. But such a reasonable man would have to be unaware of the most glaring feature in the current price structure of silver. Of course, I speak of the historic concentrated short position on the COMEX. This feature, alone, accounts for silver dropping sharply in the face of extraordinarily bullish news. Manipulation just doesn’t get any clearer.

While there was not much change in the most recent COT for silver (or gold), another infamous milestone was recorded. The true concentrated short position of the 8 largest traders in COMEX silver futures reached an astounding 82% of the entire real net total market. Gold remained at an equally astounding 80% for the 8 largest short traders. Never has any market witnessed such a lopsided and manipulative configuration.

I know this is somewhat of a complex concept to grasp, so please allow me to explain it more fully, as I believe that this issue may come into the forefront shortly. The issue is the true extent of concentration on the short side of COMEX silver and gold futures. (And for the life of me, I don’t quite understand why proponents of a gold price manipulation don’t use or see this issue as central to gold as well. Nothing proves a gold manipulation more than the current historic short concentration).

In order to derive the true extent of the short concentration, we must drill down to the true net open interest in silver (and gold). To do that, we must simply subtract all the intra-market spread positions from total open interest. That is not hard to do, and I‘m going to walk you through the calculations on silver. All that one must do is go to the long form futures-only COT http://www.cftc.gov/dea/futures/deacmxlf.htm and first determine the number of contracts held net short by the 4 and 8 largest traders, by multiplying the net percentages given by total open interest.

For example, in the current silver COT report for positions held as of April 22, the net percentage held by the 4 largest short traders is 38%. For the 8 largest traders the net short percentage is 46%. Multiplying those percentages by the total (gross) open interest of 153,234, the actual number of contracts held net short by the 4 largest traders is 58,229. The 8 largest traders hold 70,488 contracts net short. Those are hard numbers that we’ll set aside for a moment.

The last calculation we must make is to remove all the spreads from the total open interest and then derive the true concentration in percentage terms, using the hard number of contracts that we just set aside. We must first remove all the stated non-commercial spread positions (33,512) from total open interest. And then we must further remove a similar amount that is held by the commercial traders that is not separately stated. It certainly is not the case that the commercials always hold the same spread amounts as the non-commercials, but in this case they do, both in gold and silver. I can prove this by other calculations involving the raptors,

Therefore, the true net open interest in silver futures is around 86,000 contracts (153,000 contracts minus 67,000 spread positions). Dividing the hard number of contracts held by the largest traders that we set aside, by the true net open interest of 86,000 we can quickly determine that the percentage of concentration held by the 4 largest traders is 67.7% (58,229 divided by 86,000) and not the 38% stated in the COT. For the 8 largest short traders, the true percentage of concentration is 82% (70,488 divided by 86,000) and not the 46% stated in the COT.

In terms of concentration there is a material and significant world of difference between a 38% concentration and a 67.7% concentration (for the 4 largest traders). And an equally wide difference between a 46% concentration and a 82% concentration. Let me be clear - I think I could and do make a convincing case for manipulation using the percentages as stated in the COT. But by using the real and true percentages, I think it would be impossible for anyone to argue that these percentages were not manipulative.

Let me state it in different words. Other than the 8 largest traders, all the other short traders in the world combined only make up 18% of the all the net shorts on the COMEX. The largest and most influential silver market in the world has 8 traders controlling more than 82% of the market. There has never been a more lopsided and concentrated short position in history. Have the regulators taken leave of their senses?

Question asked on 05/02/2008 at 06:31 AM :: Comments to date: 0

Category: precious metals

The following is an interview with one of the best investors in the metals markets.
There are always corrections in the price of commodities but the fundamentals will rule in the long run.
Now is the time to be buying more of the metal stocks.

BIG GOLD: Gold has passed its 1980 nominal high. Why do you think it's breaking out now?
Doug Casey: The fact that gold has moved above its 1980 high is meaningful only in an academic way; today's dollar is worth only a fraction of a 1980 dollar. From here on, it's best to avoid thinking about anything just in terms of dollars. What's developing now is likely to be the biggest monetary crisis of the past 100 years, potentially the biggest since the U.S. Civil War. This isn't a prediction, just an appraisal of the tumultuous possibilities that are opening up. Americans are going to have to learn to think more like Argentines: if an Argentine tried to keep track of value in the local peso, he'd be bankrupt in 5 years.
BG: There are those who agree with you about a possible crisis but believe we'll see deflation instead of inflation, or at least deflation before inflation.
DC: What we're facing is a monumental monetary crisis that can take one of two forms. It can be deflationary, where billions and billions of dollars are wiped out through bankruptcies and defaults, and the remaining dollars become worth more as a result. Or it can be inflationary, where the world's central banks keep dollar assets from being wiped out by supporting the issuance of debt --- which is what they're currently doing, by propping up failing banks and homeowners who can't pay their mortgages. Those are your two alternatives. You can have either one - it's really a flip of the coin as to which you get.
It's also possible you can have both at the same time. You could have deflation in some areas of the economy, such as real estate, which is happening now, and inflation in other areas of the economy, where prices are going up, as with food and oil.
I'm of the opinion that government is so big and so powerful now, and the average person - idiotically - relies on it so heavily, that much higher inflation is inevitable. They're certainly going to do their very best to keep a deflationary collapse from happening, because they all remember what it was like in the U.S. in the 1930s. Yet not too many people think about Germany's inflationary collapse in the 1920s. It was much more unpleasant.
Inflation is the enemy of the person who works, saves and invests. But it's the friend of the speculator.
BG: Why do you think gold stocks have lagged while gold has taken off?
DC: Gold stocks are a play on gold. But they're also stocks. The best environment for them is when both gold and the general market are moving up, and lately the stock market has been problematical. People are going to panic into gold, because it's cash - money in the most basic form. Gold stocks are not money; they're speculative vehicles. And despite the strength in gold, the costs and risks of finding and building mines have gone up just as fast in the last couple of years. There's no necessity for them to move in lockstep with gold itself. That said, I think gold stocks are really going to howl as gold goes into the Mania stage.
BG: The water in the pot is definitely getting hotter. Where do you think gold is going this year?
DC: Gold has been in a bull market since 2001. It's gone up, on average, about 25% per year compounded, and there's absolutely no reason the bull market should stop now. On the contrary, there's every reason to believe that the gold bull market, having gone through its Stealth stage and still being in its Wall of Worry stage, is going to hit the Mania stage. To sell now would be to leave the big money on the table.
My best advice is, be right and sit tight. And that means staying long until you see a golden bull tearing apart the New York Stock Exchange on the front cover of Newsweek magazine, at which point it will be time to sell.
BG: What price do you think gold will hit in 2008?
DC: Strictly gazing through a crystal ball, I think it's going over $1,200, no problem.
BG: What about the long-term price for gold?
DC: Just to reach its previous high in purchasing power, gold will have to go over $2,500 - probably more like $3,000 after you discount the phoniness in the government's CPI numbers. But because this crisis is much more serious than the one in the late 1970s and early ‘80s and much more far-ranging, $3,000 is actually a fairly conservative number. I'll say it again: gold is not just going through the roof, it's going to the moon.
BG: What advice would you give to readers of Big Gold about how to invest in gold and gold stocks in the coming environment?
DC: The first thing is, you've got to have a lot of physical gold in the form of gold coins. Second, make sure a large chunk of those coins is outside the political jurisdiction where you live. If you live in the U.S., they've got to be outside the U.S. If you live in Canada, they've got to be outside Canada, and so forth. Third, gold stocks are definitely going to howl, so you definitely should have a good position in them.
As important as gold and gold stocks are, though, I suspect we're going to see foreign exchange controls of some type or description in the years to come. That means if you don't have assets outside your native country, you're going to be caught like a lobster in a trap. I think it's very important to diversify internationally. Buying foreign real estate is one prudent way to do so because, even though there's been a worldwide property mania, there are still some places where property is very cheap, leaving plenty of upside. In addition, if you pick a locale where you'd like to live, you'll have a comfortable place to wait things out - which is a serious plus, because I think things in the U.S. are going to get really ugly in the years to come. And most important, the government can't make you repatriate foreign real estate.
BG: What if I don't have the ability to buy real estate outside the country I live? I know you can have a foreign bank account and a safe deposit box, but I have to report those, so how does that help me?
DC: You have to report a bank account, but you don't have to report a safe deposit box.
BG: What if I have over $10,000 of coins in that box?
DC: It doesn't matter. It's just like having a million dollars of foreign real estate - not reportable. Of course they can change these arbitrary laws - probably to make them more restrictive and invasive - at any time.

Question asked on 04/27/2008 at 03:06 AM :: Comments to date: 0

Category: precious metals

This essay was written by silver analyst Theodore Butler, an independent consultant.

As of early March there was no surprise in the silver Commitment of Traders Report. The concentrated short positions of the largest 4 and 8 traders set new records, as the big shorts sold into the recent rally. The big 4 are now net short 62,229 contracts, or over 311 million ounces. That’s the equivalent of more than 177 days of world mine production. The eight largest traders are now net short 79,042 contracts, or more than 395 million ounces, or more than 225 days equivalent production. Never has there been a greater concentrated position of any type (long or short) in silver, or in any other commodity. If Nero were a commodity regulator, he would be fiddling while danger in the silver market burns out of control.
The shorts in silver and gold are up against the wall. Their collective open losses are of a magnitude many times greater than anything they have ever experienced in the past. In fact, it is my observation that these concentrated shorts have actually lost (on paper and in meeting resultant margin calls) more than they made in total over the past five or ten years. In silver, the big four shorts are out more than $1 billion in the past two weeks, and around $2 billion in the past two months. The big four gold shorts are out close to $3 billion in the past two months. Similar losses can be found in oil, natural gas, base metals, the grains, cotton and some other markets.
Who are these shorts that are being mauled? Generally, they are banks and financial institutions and large exchange member insiders who have traditionally inhabited the short side in most markets. They are the market makers.
What has caused this sudden and profound change of fortune for the shorts? Two things. One, the relentless demand for raw materials caused by world economic growth, primarily in the BRIC nations (Brazil, Russia, India and China). Two, the influx of heavy commodity investment demand by institutions, primarily the index funds for now, but with the sovereign funds also showing interest.
The index funds, with some 200 billion dollars already invested, have bought a wide variety of commodities futures contracts, including crude oil, natural gas, wheat, soybeans, corn, cotton, sugar, coffee and base metals (mostly in London), among others. In gold and silver, the index funds buy primarily in the ETFs, instead of futures contracts. The index funds are blue-chip institutional money. These are long-term buy and hold positions and since there is no leverage, no margin call liquidation potential exists. (As contrasted to the tech funds who operate on margin.)
Last year, I first wrote about the index funds upon the initial release of the COT supplemental report which broke out the index funds’ holdings in various futures markets, "The Changing Of The Guard?"

The massive and non-leveraged buying by the index funds has leveled the playing field. Previously, the shorts dominated the markets, by financial strength and treachery, aided and abetted by the CFTC and the exchanges. The index funds have altered and evened the equation by sheer financial size and non-leveraged buying. For instance, the index funds are long one billion bushels of Chicago wheat futures, almost 50% of the net futures open interest and more than 50% of the US winter wheat crop.
It is the combination of tight supply/demand fundamentals in most commodities and institutional index fund buying that has pressed the short sellers up against the wall. Since these two factors appear to be long-term phenomena, any short-term sell-offs would offer only temporary respite to the shorts. It looks like the long-term bullish force of tight supply/demand and index buying is a paradigm shift of major significance.
Unfortunately for the shorts, the very nature of their commodity position has created a problem that may prove insurmountable for them. The positions that are going against them are very leveraged. These short positions are similar to the leveraged long positions currently being liquidated in mortgages, credit securities, derivatives and municipal bonds, by hedge funds and financial institutions. But all these securities and derivatives being marked down and liquidated are long positions, whereas the commodity positions under stress (including silver and gold) are very much short positions.
There is a world of difference between liquidating a leveraged long position in a panic and doing the same with a short position. The simple difference is this; a long position can’t go below zero, and at some price above zero, an opportunistic buyer will purchase the position. A short position being liquidated under panic conditions contains no such guarantee. Finding an entity willing to assume a massive short position if the shorts start to panic, is a world apart from dumping a long position.
There is no telling to how high a price a short liquidation (buying back) of a position might drive a price. For a commodity held short where no adequate supply exists to deliver against (think Minneapolis wheat and COMEX silver), the sky is truly the limit. Add in the fact that the COMEX silver short position is held in extremely concentrated hands (4 or less), and you have the ingredients for an historical short panic. This is precisely why the regulators have really dropped the ball in allowing this condition to persist and grow worse, in spite of my constant warnings.
I have written previously about the non-economic and illogical aspect to anyone shorting silver in great quantities at the super-depressed prices of the recent past. If you didn’t want to take advantage of the incredible opportunity that silver offered, fine. But why in the world would anyone want to short it big? At least we finally have the answer to that question. Shorting big was dumb. It was pure manipulation.
Is this the time for an epic short panic in silver? Perhaps, especially as more people recognize the problem. The combination of severe recent financial stress on the shorts, the fundamentals and index fund buying, combined with the impossibility of buying back the out-sized short position easily makes it a difficult situation for the shorts. A wounded animal is always dangerous, depending on how serious the wounds. They are up against a wall and, if not resolved soon, it is likely to fall on them.

Sam's comment: I believe the advice of Ted is early because he is looking at all the twigs instead of the forest.
His fundamentals are right but timing is everything. He promotes owning physical gold and silver so you don't have to worry about timing. Eventually the silver supply is smaller than the gold supply therefore the law of supply and demand will over rule the manipulation of the market by the big boys (the Shorts).
With this correction in the metals buy when it starts back up again and you will be rewarded.

Question asked on 04/10/2008 at 07:21 AM :: Comments to date: 0

Category: precious metals

Seymour Schulich probably saved Newmont Mining with a single stock trade.

In October 2004, Schulich came to the simple realization that even though prices had already doubled over the preceding two years, oil's cost had to rise much higher since demand continued to outstrip supply.

As the chief of Newmont's investment bank, Schulich knew this was a major problem for his company.

You see, oil prices are a big part of the cost of mining. Huge trucks and machines mostly burn diesel fuel. Even the tires are made of oil. As a gold miner, Newmont would see its earnings suffer from continued oil price hikes.
Faced with the potentially crippling rises in mining costs, Schulich hit on an elegant solution: The perfect hedge against rising oil prices was to own a stake in an oil company.

So Schulich purchased for Newmont 6 million shares of Canadian Oil Sands Trust – a producer with vast reserves of low-quality bitumen. Schulich figured as oil prices rose, oil-sands assets would go from marginal to very profitable. As a result, the shares of bitumen producers, like Canadian Oil Sands Trust, would rise faster than those of companies producing prized (and pricey) light, sweet crude.
Schulich's goal was simple: "I bought this thing to make four times my money in three years."

(Incidentally, Schulich had a little skin in the game, too... He personally bought 3 million shares, separate from Newmont's position.)
Since then, the price of oil has doubled again, rising from about $53 a barrel to more than $107. And Canadian Oil Sands shares behaved exactly as Schulich predicted. While Canadian Oil Sands Trust's share price has "only" risen 171% since then, the shares split 5:1... That's a 384% total gain, counting dividends, in a little more than three years.

Here's why the Canadian Oil Sands investment was critical to Newmont. While the price of oil doubled, Newmont's mining costs rose along with it. The company spent $697 to mine an ounce of gold in 2007, up from $412 in 2004.

Newmont sold its gold last year at $700 an ounce, barely more than breakeven with its mining costs.

Meanwhile, Schulich's investment paid dividends in 2007 worth $8 per ounce of gold Newmont produced. While that doesn't look like much, it turned out to be the difference between producing gold at a profit or at a loss.

That's how bad costs have become lately. And oil isn't the only expense miners have to worry about... Fertilizer, believe it or not, has become a problem recently. Miners use a ton of nitrogen explosives to blast out the mines, but fertilizer costs have gone through the roof with the grain boom.

Steel and concrete, same thing. Two of the industry's biggest projects have seen construction costs escalate 30%-40%. But, as I said, the real issue is diesel...

Miners have to feed a fleet of trucks... everything from the water truck that keeps the dust down at the bottom of the mine to the huge three-story-tall ore haulers.

So investors have to remember that just because a company is producing gold, it doesn't necessarily mean it will make money.
This is why I like GG better because they make money. They have the lowest cost of gold production in the world.

Question asked on 04/08/2008 at 07:00 AM :: Comments to date: 0

Category: precious metals

So you own a portfolio of gold and silver stocks and you’re worried about losing some of your gains.
You tell yourself that the fundamentals have not changed to make it bearish for gold prices. One of the fundamentals even makes it more. But you know that gold is probably in a correction, and anything is just as good an excuse to sell when you start to see some of your profits dwindle.
What do you do? You could weather the storm. You’re in for the long term, right? The trouble is gold stocks can fall a lot during even a typical correction.
Most everyone already knows that markets do not go straight up. If every dip led to higher and higher highs, nobody would ever lose sleep over it. Trouble is, the company could always screw up, or one of those dips could turn into a bear market. I have seen the conviction behind many buy/hold strategies melt at the tail end of a normal correction, just because it corrected invariably worse than expected.
In my observations, investors are more likely to get bucked off a bull market because one of the corrections discourages them and then they took some profits by selling into strength.
Goldcorp, one of the world’s largest miners today, has already seen three corrections of 40-50% on the way up to $45 from its $3 (split-adjusted) share price back in early 2001. That’s a 15-bagger! And it’s not over. Goldcorp will see a few more like corrections, and maybe one that’s even larger, on its way to $75 or even $150. Hardly anyone who bought at $3 will still be aboard, and even fewer will sell the top:
However, there are ways to improve your long-term returns and reduce the impact of market volatility on your portfolio without ever having to trade in and out of your shares and risk getting bucked off the bull too early. Options! Options allow investors to take advantage of leverage and limit their risk.
They represent a way to benefit from most of the change in the value of the underlying property or shares without ever having to buy. Due to this leverage, they can sometimes increase hundreds and thousands of percent in the space of a week, or even a day, as in the case of Bear Stearns put options when the stock halved that fateful Friday before last. Consequently, they don’t draw only speculators; they draw gamblers ready to stake the farm on getting rich quick by abusing the available leverage.
But gambling is in the method. If you don’t know what you’re doing, you’re gambling. Otherwise, you are speculating, hedging or investing.
Today, I am going to show you how to “insure” a portfolio of gold stocks emulating the Amex Gold Bugs Index (HUI) against an intermediate correction using a few basic option strategies. “Intermediate” just means like any of the other four-five corrections that are most evident in a chart of the seven-year bull market to date.
They averaged 10-15% prior to 2005, but with the accelerated rallies post-2005, they are more likely to look like the 27% correction in 2006 from now on. A correction in the primary (seven-year) sequence would be more like 40-50% or more, which I’ve judged a low-probability event from these levels.
In any case, the first thing to do is nail down a few scenarios you think are likely. That is, try to quantify the risks. Let me walk you through some scenarios.
If last week’s sell-off is the beginning of an intermediate correction in gold prices, which is possible, gold could fall back into the $700-800 range and/or remain range bound until the fall of this year.
The “tape” is telling us this IS the likely scenario. The gold stocks traded up with gold, but they lagged it, as if they were tired. And not all of them participated. Many of the juniors sat out the last $300-400 gain in gold and silver like CDE. The breadth of the advance was thus narrow and the leadership extended. And the way gold prices came off their peak is itself often a bearish marker, indicating more of the same to come.
I’m assigning this scenario a 35% likelihood and a 10% chance of something worse. The most likely (55%) scenario, in my outlook, is that the bulls will hold the line at the $800-900 level for a few weeks and then continue their unfinished business — i.e., developing a real top well above the $1,000 barrier.
If you think the likely scenario is an intermediate correction, or worse, the easiest option strategy is to “write” (or short) a call. Writing calls is effectively the same as shorting them, except that options are contracts representing but a “right,” so the short seller is technically the underwriter of the contract. If the underlying asset goes up, he will have to either buy the calls back higher or deliver the asset(s).
If you don’t own the asset, it’s a naked short, and the theoretical risk is unlimited. If you own the asset, your risk manifests in the form of reducing or limiting your profit on the underlying position. Since we are talking about insuring a portfolio of gold stocks against a correction, we are talking about the latter.
In our hypothetical scenario, with gold falling to $700-800, the HUI might fall to the 350 level, plus or minus 25 points — which is about 90 points (or 20%) below the current level of about 440.
A note of caution: In this example, I am assuming that your portfolio of gold stocks mirrors the HUI; if it does not, you are better off writing those calls on the specifically optionable stocks in your portfolio.
Otherwise, there can be no assurance that your risk will be limited.
Last week’s bid on the Amex Gold Bugs Index (HUI) 375 September 2008 call was around $8,960 per contract — or $89.60 per each hypothetical index share. This means that if the gold share index falls below 375 before the option expires in September, you can pocket that entire amount less commission and time value. You start losing money on your underlying position only if the HUI falls below about 350:
439.05 - 89.60 = 349.45 (or approximately 350)
If the index falls less than expected, say to about 400, you might make between $20-60 points per hypothetical index share, depending on days left to expiry, which would likely cover the correction.
The downside is that gold shares brush this correction off and continue to truck higher, in which case you do not participate in any of those gains until and unless you close out your short call position.
It would not be advisable to buy puts in this situation, because premiums are too high to protect you against an intermediate drop, at least in the index. The September 2008 HUI 435 put was offered at $54 on March 20, which means it would cost you about 13% to protect your portfolio from a 15% correction.
It only makes sense to buy a put to protect your portfolio from a much larger correction. If you thought the gold share averages were in for a nasty 40% or more decline, then it would make sense. Effectively, it would protect your portfolio against any losses that exceeded a 20-25% correction.
The nice thing about options is that they are flexible. There is a myriad of strategies available to suit almost any situation. You could write the September 2008 375 call and buy the September 2008 375 put, which would net about $5,900 per contract and cover most of your downside, but eat into your gains more.
Alternatively, if you’re not so bearish, you could write an out-of-the-money put… But remember the basics or fundamentals are still in place for the value of gold and silver to reach $2000 and $70 within the next 2 years because of the inflationary forces of the Fed printing and creating more money to keep us out of a credit panic due to the banks.

Question asked on 03/30/2008 at 06:52 AM :: Comments to date: 0

Category: precious metals

From a gold conference the following are excerpts of the conference.

Gold company CEOs are still bullish on the precious metal as it hits $1,000 an ounce. Former Goldcorp CEO Rob McEwen predicts gold to hit $2,000 by 2010. Yamana Gold CEO Peter Marrone is calling for $1,500 by year's end. And Peter Munk, CEO of Barrick, the world's largest gold producer, says we are in the midst of a "commodities supercycle."
Munk notes this rally in gold is fundamentally different from the highs hit in 1980. That high, driven by soaring inflation, the Russian invasion of Afghanistan, and the Iran hostage situation, was a mere "blip". Munk believes the current financial crisis, falling dollar, high oil prices, and increasing demand from emerging markets will all bolster gold's price. Most importantly, Munk says exploration companies face "enormous" difficulties in finding new deposits.

Question asked on 03/20/2008 at 06:35 AM :: Comments to date: 0

Category: precious metals

The following is a quoted source from Chris Weber and he says about silver:

"Silver has been one of the world's best investments since those days of last August, when the crisis in the various bank credit derivatives started to blow up... I think we're going to see the silver price advance until it meets resistance at the $25-$27 area. I'll be very interested to see how it handles this battle.
If it can clearly better it, then the next target would be the old 1980 highs of roughly $50. But $50 in 1980 would not be the same as $50 in 2008, or in 2010, or whenever this finally happens. In 2007 dollars, what cost $50 in 1980 would have to cost $141 just to adjust to inflation. And the way prices have been rising since 2007, it is a fair bet that they'd have to be over $150 in terms of a 2008 dollar, or over $165 for a 2009 dollar, or $180 circa 2010.
If you'd told people three or four years ago that gold would break through its previous high of $850 without hardly a pause and then bust through $1,000, they would have looked at you like you were stark raving mad. But it's a bull market in commodities. The Fed has no choice but to run the printing presses night and day, and more and more of our nation's creditors will see this as a virtual default and will begin to flee into sounder money – gold and silver. I have no doubt silver will reach its previous high of $50... and sooner than most people think.

It's ironic that the financial newsltters are finally printing what I have been saying for a long time. Maybe a temporary top will start soon because once the press starts to talk aboout silver, this maybe near a top.
Re-read my earlier blog in this week on 3/16/08.

Question asked on 03/19/2008 at 06:14 AM :: Comments to date: 0

Category: precious metals

The US Mint sold 2,170,00 silver eagles and only 26,000 gold eagles in the month of January 2008.
That is 83 times more ounces of silver than Gold.
Silver used to be more plentiful than gold. There were more above ground supplies in silveer than gold.
Today gold is still the demanded currency of the very rich, because look at what the dollar has done lately.
Silver has been used up through modern technology (circuuit boards and computer chips).
Gold jewelry and silver jewelry are still being made and that is still considered above ground supplies as scrap.
Now why do I keep promoting silver over the long term.
Today in round numbers of world inventories of the two metals.
Gold has 5 billion oz of inventory above ground and there is a net increase of 100 million oz a year due to mining and consumption.
Silver has 2 billion oz of inventory above ground and there is a net decrease of 50 million oz a year due to mining and consumption over the last 50 years average.
Now the most industrial metal of the two is silver. There are physical properties to silver that industry can not find a substitute for.
The law of supply and demand will win out eventually and some day the ratiio of gold to silver pricing will continue to narrow. (48 to 1 now)
Back in the old days gold/silver ratio was 32 to one. Therfore if gold stays at 960 per oz then silver will be $30 per oz. But if the silver consumers in industry need to buy the metal to keep printing computer chips and circuuit boards then they don't care what price they pay because they will pass it on to you the consumer.
This is why I am and have been bullish on silver and silver stocks.
Buy CDE, AUY, PAAS, AXU, SLV, SIL. Pick one or all they will go up in time.

Question asked on 03/10/2008 at 07:33 AM :: Comments to date: 0

Category: precious metals

Platinum prices shot through the roof between January 23 and 29, with the April contract rocketing 15% as a result of power blackouts in South Africa. The world’s 3 largest platinum producing companies, Anglo Platinum Ltd, Impala Platinum Holdings Ltd and Lonmin PLC, were all forced to at least partially shut down production, along with most of the nation’s gold miners.
That prompted Lonmin CEO Brad Mills to proclaim, “2006 may have been the peak year of platinum production for a while.”
The current bull market leg in platinum is up 43% in 5 months and 12 days through January 28. This bull market is on the young side by historical standards. Bull market legs in platinum average 58% in 6 months and 11 days. An average advance from the nearest-futures bottom of 1226.50 last August 16, not coincidentally on the eve of
the Fed’s first discount-rate cut, would project to a price of 1938. What once appeared far-fetched is now here. Before the conclusion of this record shattering move in platinum, we’d like to see some genuine panic by the shorts. It would help if gold confirmed platinum’s new all-time highs.
After a sharp 9% decline in November,gold finally broke out above its January 21, 1980 record before surpassing the $900 milestone. Recently, the yellow metal pushed yet higher on steep interest-rate cuts, a weak dollar and rebounding crude oil and stock prices.
Historically, the average leg up in cash gold has registered 41% in 6 months and 4 days. Our market has
now rallied as much as 46% in 7 months and 3 days since the June 27, 2007 low, making this a mature leg. Normally, when a market takes out a decades old high, it has the potential to enter a price vacuum and move up
very quickly. Platinum, for example, has surged as much as 68% since exceeding its March 1980 record of $1045/oz. in early 2006. But gold has been in a bull market since early 2001 – almost 3 years longer than platinum
when that metal initially broke to all-time highs. That greatly diminishes the value of this indicator, as well as the likelihood that gold could move nearly as far above its former record as platinum.
Since platinum is the strongest of the metals and the 3 largest pltinum miners in South Africa are having problems, that makes our SWC Stillwater mining a very explosive stock.
This is just the beginning of the break out for SWC, jump on board.

Question asked on 02/11/2008 at 06:53 AM :: Comments to date: 0

Category: precious metals

"At one time when I was a bit younger I thought I could trade myself to riches. It didn't work out quite that way. I had to resort to compounding or taking a very occasional big position. Over recent years I've taken a very big position in gold, and even that hasn't been easy. But I've had faith in gold. I had faith in gold back in the '70s, and I'll let you in on a secret – I have even more faith in gold today."

– Richard Russell's Dow Theory Letters

Question asked on 01/21/2008 at 07:36 AM :: Comments to date: 0

Category: precious metals

How about that GG. All new highs. I hope you bought some this summer and fall. The market money is flowing to the metals. Hang on for the ride of your life.
Happy investing.

Question asked on 01/14/2008 at 08:17 PM :: Comments to date: 0

Category: precious metals

Fantastic!
Read the 12/21/07 blog on CDE. Need I say anymore. Pat yourself on your back if you bought this stock before and held on or even if you bought it on the 21st.
Next is AXU. I hope you bought some on 12/24/07 where you could have averaged in at $4.40. Reread the 12/22/07 article. Pat yourself on the back again.
Both of these stocks are still good long term buys. They have moved so quick you may be scared to buy in so on any pullbacks buy some more. The second wave of the long term bull in metals has started so jump on the train and go for a ride.
Please give me feed back. I would like to know how many of you actually bought some AXU or CDE due to my recomendations.
I will take some time off over the long weekend so please enjoy the New Year and may you all double your investments this next year.

Question asked on 12/29/2007 at 07:37 AM :: Comments to date: 0

Category: precious metals

On 11/14/07 I wrote the following:

AXU is a small silver mining and remediation company in Canada.
They have a great potential that is being developed.
It will take 4 to 6 years for this company to get a profit revenue stream from it's latest findings.
People will start to buy this ahead of the great anticapation of growth.
Scale in buy on this specuative buy at 5.60 then at 6,10 then at 6.50 then at $7.00 In 5 years you could see a $50.00 stock.

For now:
So the stock proceeded to go down so now you see why I said to buy in on a scale in basis upwards.
Now that the stock has hit in the 3.80 level I would start to buy some. Then on a closing basis buy more on a scale in basis every $.40 cent basis. To not be exposed to anymore downward pressures.

Question asked on 12/22/2007 at 06:47 AM :: Comments to date: 0

Category: Stocks

As faithful readers will recall my favo