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: Quote of the Day

To truly laugh, you must be able to take your pain, and play with it!

We think too much and feel too little.

Life is a beautiful magnificent thing, even to a jelly fish.

All from - Charlie Chaplin, 1889 - 1977

Question asked on 05/01/2008 at 07:41 AM :: Comments to date: 0

Category: Quote of the Day

Nothing is permanent in this wicked world - not even our troubles.

Charlie Chaplin

Question asked on 04/28/2008 at 07:40 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: Quote of the Day

Three groups spend other people's money: children, thieves, politicians. All three need supervision.
- Dick Armey

Question asked on 04/26/2008 at 06:17 AM :: Comments to date: 0