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 favorite stock in silver was CDE. For some reason my timing is early because I see fundamentals that have influence on the cause and effect of a company's future. Thus I liked CDE. Finally Coeur d’Alene Mines Corp. (CDE) is in the news. CDE officially approved its acquisition with Bolnisi Gold NL and Palmarejo Silver and Gold Corp. This deal makes CDE the largest silver miner in the world. As we wait for that transaction to be completed CDE has released even more good news…
The company announced the commissioning of a new 240 ton-per-day flotation mill. It’s located at the company’s high-grade Martha silver mine in Argentina. To date, the company has produced over 11.5 million ounces of silver from its Martha mine, and this addition will allow the company to process its silver more efficiently. Without a doubt, in our opinion, Coeur is the most undervalued silver play in the market today, and that’s why we are pounding the table about it.
This move will cut its already industry-low cash costs on its silver production. Before this mill, the company had to ship all of its ore from the Martha mine 270 miles to its Chilean mine outside of Cerro Bayo. Talk about increasing fuel-efficiency!
Notice the Big move up in CDE yesterday. This is just the beginning. Take every dime you have set aside for the metals and buy CDE for a 3 year play of tripling your money

Question asked on 12/21/2007 at 07:47 AM :: Comments to date: 0

Category: precious metals

I am going to reprint an article that showed up on street.com.
This is the established Wall Street promotional media center.
Remember how long I have been promoting Gold and Silver. Now they are starting to make the promotion when it is near it's all time high of $840. Enjoy and remember Gold will go to $2000 and Silver to at least the $60 level in the next few years. So this is just the beginning of the break out of the long journey for precious metals.

"How to Pick a Gold Stock", By Simon Constable (TheStreet.com from 11/19/07)
Gold recently hit a record high settlement price, and considering the run it has had this year, many investors are interested in exploring ways to make the metal part of their overall strategy.
Though gold has pulled back a bit, it's still near $800 an ounce, and the bulls certainly believe another rally is just a matter of time.
Gold itself is an insurance policy against financially catastrophic events, such as a sharp decline in the dollar, the emergence of hyperinflation or geopolitical turmoil.
"You want a hedge against ... the unknowns that come along and hit you in the face," says Peter Bernstein, author of multiple finance classics, including The Power of Gold: The History of an Obsession.
He recommends that investors devote 3% to 5% of their portfolios to gold, although others suggest a range of 5% to 15%. Bernstein says that if nothing goes wrong with the economy, then gold will be a lousy investment, but if something does happen, then having exposure to the metal should pay off.
When it comes to playing the sector, there are options -- buy gold itself, pick up shares of an exchange-traded fund or mutual fund, or go long the stock of one or more miners. Here, we'll focus on how to invest in miners.
Getting Started
Mining companies provide increased leverage to changes in the price of bullion, because a small change in spot prices is magnified greatly in earnings.
Before throwing your hard-earned cash into the shares of a miner, first find out if the company makes most of its money from mining and selling gold. Although that may sound strange, especially if a company has the word "gold" in its name, it can in fact be a bit tricky.
For instance, although Freeport-McMoRan Copper & Gold (FCX - Cramer's Take - Stockpickr - Rating) does produce gold, the overwhelming share of its revenue comes from the industrial metals copper and molybdenum.
An absolutely pure play gold company is really rare," says Shanquan Li, portfolio manager of Oppenheimer Gold & Special Minerals fund in New York. When gold is mined, byproduct metals are also produced and sold for additional revenue.
When total revenue from gold is upward of 80%, that's probably sufficient to warrant the inclusion of a stock in a gold-only allocation, Li says.
Understanding Hedging and Output
Hedging is something investors don't want to see. It means that all or a portion of a miner's future output will not fluctuate in line with the price of gold because the prices are locked in. But that works against the reason many people want to own gold stocks.
"Most investors want to participate when gold soars," says Li.
It is worth noting, however, that banks sometimes insist that development projects hedge a future portion of their production as a condition of a loan. Financially solid firms like Barrick Gold (ABX - Cramer's Take - Stockpickr - Rating) and Newmont Mining (NEM - Cramer's Take - Stockpickr - Rating) can sometimes avoid such loan covenants.
When you've found an unhedged gold miner, study its growth in reserves and production, says Joe Foster, portfolio manager at the Van Eck Intl Investors Gold fund in New York.
"Companies that can achieve growth have always commanded a premium," says Foster. "It's truer today, because it's harder to find growth."
In some sense, a miner is the value of the gold ore in the ground. So as that metal gets extracted, it needs to be replaced with new reserves. Between them, Newmont and Barrick will need to replace about 15 million ounces mined a year, or more than one-fifth of the annual output of all gold mines across the globe, just to renew depleted reserves.
Barrick's emphasis on forward-looking growth -- say, 10 to 15 years down the road -- has made it a better bet than rival Newmont, Foster says.
The other basic measure by which all gold miners are judged is cost per ounce of gold sold. Newmont recently reported third-quarter costs of $388 an ounce, up from $318 an ounce in the same period a year earlier.
A trend of declining unit costs would be ideal, but lately the opposite has been happening across the industry.

How Good Is Management?
Foster says a company's leadership should have a suitable background in mining and know how to deliver on their promises.
"Start with the next quarter and see if management's results are in line with its guidance," he says. "If they miss expectations, then that might be a stock you don't want to own." He adds that firms should theoretically always meet their guidance, but "mining is a risky business."
Vahid Fathi, a gold stock analyst at Morningstar in Chicago, says a useful way to determine whether management has created shareholder value is to look at its return on assets.
A 6% ROA should be a minimum for good miners, he explains. "It's low, but given gold's role as a diversifier and a hedge against inflation, it's enough," he says. Return on assets is calculated by dividing average assets for the year into the annual net income.
Still, he says that's a baseline case for a firm with multiple operating mines that are located in friendly countries. The rate should be increased for single-mine firms or those doing business in risky locales, so it's a good idea to brush up on your politics.
Some companies who work cooperatively with foreign states do better than others, and as with many things, experience helps.
"Having a decades-long track record is great as it means that the company is doing the right thing," says Peter Zeihan, director of global analysis for Austin-based Stratfor, a business intelligence consulting firm. "North America is certainly the safest region."
Takeover Targets
Stocks that appear likely to get gobbled up by major producers are another good way to profit, but investors need to be judicious.
For a takeover to work, the output of the acquired firm needs to be large enough to make an impact on the firm doing the buying, says Jim Vail, portfolio manager at the ING Global Natural Resources fund in New York.
In other words, buying a two-bit firm with tiny output likely isn't worth the hassle for a large player like AngloGold Ashanti (AU - Cramer's Take - Stockpickr - Rating), whereas a larger midtier target might be worthwhile.
"If you look at Meridian Gold (MDG - Cramer's Take - Stockpickr - Rating), which is being taken over by Yamana Gold (AUY - Cramer's Take - Stockpickr - Rating) then the combined entity will likely produce approximately 2 million ounces a year by 2012," Vail says. That's the reason his fund owns Yamana."

Gold and silver are correcting now. Remember the economy is being rescued by Bernake. So that means demand for raw goods will continue and the inflation fires will start up again after the first of the year.

Question asked on 11/30/2007 at 06:02 AM :: Comments to date: 0

Category: precious metals

How high can gold go? Currency expert Chris Weber says $2,000 is his target. Sounds high, doesn't it?
Well, maybe not. According to The Wall Street Journal, the inflation-adjusted all-time high price is $2,250. That's based on the metal's 1980 spike.
The metal went up fast and now is in a consolidation range until the next event gives gold a boost.

Question asked on 11/21/2007 at 06:25 AM :: Comments to date: 0

Category: precious metals

The last time the U.S. dollar sank beneath the weight of low-yielding Treasury bonds, soaring oil prices and a looming recession, Bette Midler — the comedienne and singer — famously demanded that her $600,000 fee for a European tour in 1978 be paid in South African gold coins.
Smart move! Eighteen months later, that little mountain of Krugerrands would have been worth $2.1 million. But did Ms. Midler show more brains...if not beauty...than today's ex-dollar superstar?
Gisele Bundchen actually seems keen to quit the U.S. altogether. (Maybe The Enquirer should tell her current beau, Tom Brady of the New England Patriots...) She cut the asking price of her New York penthouse just last weekend. Now her West Village apartment, with views of the Hudson thrown in for free, is on the market for $9.2 million — down from $10.9 million previously — according to the New York Post.
“In Tribeca,” the rag goes on, “Russian supermodel Natalia Vodianova has discounted her alluring 5,000-square-foot penthouse from $11 million to $9.9 million.”
Are the beautiful people turning bearish en masse on both the greenback and U.S. real estate? They might want to show the brains of Bette Midler...instead of the tanned midriff of Gisele.

Since the dollar reached parity with the euro, for instance, exactly five years ago this week, gold priced in euros has risen by nearly 70%.
Yes, that pales next to the gold price in dollars...now more than 140% higher from this time in 2002.
And yes, “Gold is the most reliable performer as a hedge against dollar movements,” as Rhona O'Connell found in a research report for the World Gold Council last month. She compared the performance of various commodities — everything from zinc, cattle, heating oil and palladium to sugar — with the dollar's changing fortunes on the currency market.
O'Connell's yardstick for the U.S. dollar was an index of the world's next five most important currencies. Gold bullion mirrored the changes in this dollar index more closely than any other physical commodity from January 2005-July 2007.
But gold is delivering much more than simply a dollar hedge. Given the political and economic barriers to raising interest rates anywhere in the world right now, you might wonder if it's going to keep on giving, too.
Continued:

The answer to: "Gold vs the Dollar vs Currencies (11/16/07)"

Question asked on 11/16/2007 at 06:07 AM :: Comments to date: 0

Category: precious metals

The following quote is from Chris Weber a well respected and sometimes futuristic thinker in the market advisory business.
"If I felt I didn't have enough in the gold or silver area, I would put the cash there.
Only two months ago gold was under $650. This week, it touched $794. Before this bull market is over – and I see it lasting well into the next decade, the 'teens – it would not surprise me to see gold at $3,000 and silver at $187.50. For silver, this would require a 1,211% increase from today's price, versus a 277% increase for gold. "

Now, even if he is only half right where do you think the gold and silver stocks will go?
Please reread my previous postings on gold and silver and it is still not too late to own and buy gold and silver stocks.

I want to do some historical predicting here so you see why I have been so bullish on the metals for a long time.
Gold and silver are reactive safe havens for inflation. That means people will buy gold and silver after inflation has started to go up.
Inflation erodes the value of your dollar therefore gold and silver are historically the only currency that is still in existence for the past 5000 years. And it still will be for another 5000 years. You say you won't live that long, true.
Now for some comparisons.
Copper's previous historical high $1.60 per pound. Now it's high was $4.00 per lb.
Notice the ratio of 4 divided by 1.6 = 2.5
Oil's previous all time high was October 1990 at $41 per barrel during Desert Storm.
Where is oil headed as we go to the pumps paying more than $3.00 per gallon going to $4.00 eventually.
Multiply 2.5 times $41 - $102.50 per barrel. We are only 6% away from that number.
Oil will have a hard time surpassing the $100 per barrel number due to the psychological barrier of people.

Now for my prediction. Golds previos high was 873 on Jan 21 1980. Take the 2.5 ratio and multiply it to 873 = 2182.
$2182 per ounce of gold. Therefore if you read $2000 for gold they are not that far off.
Silver has always had a ratio of 32 to 1 to gold on the average. So divide 2182 by 32 = $68 per ounce.
Now silver is $15 per ounce divide that into $68 = 4.5 ratio.
Gold is at $810 per ounce divide that into 2182 = 2.7 ratio.
Gold is the first to move towards its ultimate peak in the next 2.2 years and silver will follow close behind.
But silver will appreciate twice as much as gold in the scheme of the total picture.
Happy investing.
Buy GLD, SLV, GG, SSRI, CDE, AAUK, AUY, PAAS, SIL, ABX, NEM, IAG, GRS, and any other precious metals stock that you want to own.

Question asked on 11/04/2007 at 05:57 AM :: Comments to date: 0

Category: precious metals

One special trait that distinguishes silver from all the other industrial metals is investment demand. It sets silver apart from any other industrial metal. Silver will always be considered as a true investment asset by people around the world. Investors large and small, hold silver in their own possession or in storage. They hold it in a wide variety of forms, including coins and bars. The only other metal that can be compared to silver in terms of investment holdings is gold. But gold is not considered an industrial material. The only true investment metals are gold and silver.
Any number of reasons can cause investment buying of silver. The single most compelling reason that motivates investment buying is rising prices. The masses will rush to buy investments as prices are rising. It doesn’t matter what the asset may be, stocks, real estate, collectibles, rising prices beget more buying and higher prices. This, most assuredly, includes institutional investors. Sometimes it ends badly, but only after dramatic gains.
We have yet to see the inevitable investment rush in silver. Modern communications guarantee the silver story will be spread far and wide. The investment world is eager to learn of such opportunities. The creation of institutional investment vehicles, which convert pension funds and other large institutional pools of capital into silver, are conditions that never existed before.

PANIC
Industrial commodities can enter temporary periods where physical availability is a problem. This is reflected in time delays for physical delivery and premium prices being offered for prompt delivery. This almost always occurs when industrial users attempt to build up inventory to avoid disruptions to production. No industrial concern will willingly shut down and send employees home for lack of a key ingredient or component. It is precisely the need to avoid shutdowns that cause industrial users to build inventory when availability gets tight, causing more overall tightness and shortage. It leads to panic buying.

So much silver has been consumed industrially over the past 65 years that known world inventories have declined by more than 95%. This cannot be said of any other industrial commodity. (Just for the sake of comparison, known world gold above ground has more than doubled in that time period). Because it is an industrially consumed commodity, silver is prone to panic buying in the event of industrial tightness and delays in physical availability.
Of all the industrial commodities, silver is the only investment asset. Of all investment assets, silver is the only one consumed industrially. This is a rare and potent combination. There are powerful reasons to buy silver as an industrial commodity in a world demanding more of it, or as an investment asset in a world with exploding buying power. When you put the reasons together, you create a force that is greater than its parts.
It doesn’t matter if panic buying trips off investment buying, or vice-versa, the net result will be the same – one will inflame the other. It looks inevitable, given current world conditions and human nature. There is something you can do about it if you see it as I do. Buy silver for the long run. Nothing available anywhere has the potential to change your economic circumstances like silver.

Question asked on 10/29/2007 at 06:11 AM :: Comments to date: 0

Category: precious metals

I think the case for silver is stronger today than it was five years ago. When we compare today’s circumstances with the current price, silver looks better today. Of course, a 50-cent sell-off then is the equivalent of a $1.50 sell-off now. But a tripling in price then brought us to $13 to $15, now triple brings us to $40 or $45.
I view silver as primarily an industrial commodity, strategic and vital to the modern world. Despite inevitable hiccups along the way, the juggernaut of world economic growth will continue. The primal desire to improve one’s standard of living can’t be suppressed. Throw hundreds of million of new-world citizens into the mix, and the case for world economic growth became even stronger. This requires increased consumption of all natural resources, including silver.
Looking back over the past five years, the idea that world economic growth would lead to increased consumption of natural resources seems an elementary conclusion. But it was not a universal expectation. It is easy to forget that, all along the way, many were expecting a world economic slowdown or recession. That is still the case today, particularly in light of well-publicized troubles in the housing and mortgage markets. In spite of such troubles, we are experiencing record high prices and consumption rates in a number of commodities, including the most important of them all, crude oil.
The high prices for natural resources in the past five years has been brought about, not by supply disruptions, but by unrelenting demand. This is particularly true in the developing BRIC countries (Brazil, Russia, India and China). This was something new. Previous commodity price spikes revolved around supply disruptions, wars, embargoes, weather shocks, etc. These days, industry-wide demand has propelled commodity prices, especially in metals and minerals.
I am hard-pressed to think of an industrial metal or mineral that has not established an all-time price high in the past five years. Strong and persistent demand, accompanied by declining or low inventories and restrained (but growing) consuming production are responsible. However, I can think of one glaring exception to the new record highs – silver. While nearly all industrial metals and minerals have established new record-high price levels in the past 5 years (petroleum and natural gas, uranium, copper, nickel, lead, zinc, etc.), silver is still less than a third of its price peak from thirty years ago. Even gold, not considered an industrial metal, has approached its all-time price high. What’s with silver?
Silver will be the best and last mover of them all once it gets rolling.

STILL UNDERPRICED
The doubling and tripling in the price of silver over the past few years hasn’t caused it to become over-valued, based on current fundamentals and circumstances. Although silver has appreciated as much as any precious metal, it has greatly lagged the price performance of the base metals. The GFMS base metals index is up almost 5-fold over the past five years, almost doubling silver’s price performance. This suggests silver is still undervalued.
Industrial demand for base metals is determined by the level of world economic activity. It’s impossible for there to be strong world demand for just one base metal and not for all the others. Nor could there be demand for base metals and not an industrial metal like silver. If the world is demanding more zinc and copper and lead, it is also demanding, and consuming, more silver.
The price peaks for base metals were made under shortage conditions. This included delayed deliveries and the existence of backwardization, where near term spot supplies commanded notable premiums to more deferred delivery. We’ve even experienced contract delivery defaults (in LME nickel). All this presages the coming shortage in silver. I predict that, at some point, silver will enter a true shortage condition because of strong industrial demand.

Question asked on 10/28/2007 at 06:02 AM :: Comments to date: 0

Category: precious metals

This is by Ted Butler who is very passionate about the silver situation.
This is a point of view that you need to be aware of because it could affect silver in the future.

The latest COT in silver showed little deterioration, with the market structure remaining in its best position in years, in stark contrast to gold. I get the feeling that the dealers intend to use an old trick, an engineered gold sell-off, to trigger a sympathetic sell-off in silver.

The buying by the big 4 in the latest reporting period caps a four week buying binge by the big concentrated shorts in which a record near 13,000 short contracts have been bought back. This has reduced the concentrated net short position by almost 25% since the COT report of August 14, to the lowest level of the year. At just under 40,000 contracts, or the equivalent of 200 million ounces, the COMEX silver net short position still towers over the concentrated short position of any other commodity, in terms of real world production. Still, the reduction is remarkable in its suddenness and extent.

I can’t help but view this hard COT data in terms of the recent attention I have placed on ScotiaMocatta. Clearly, there has been unusual short covering in the big 4 concentrated category. Something has motivated this short covering. It has been unique to silver and not gold. It runs contrary to the behavior of the big short(s) for almost a year. While I can’t state for sure that ScotiaMocatta has been responsible for this short covering, that conclusion is certainly consistent with my private and public campaign concerning them.

Assuming that my speculation is correct, and ScotiaMocatta is the big short and has decided to change its behavior, what does this mean for the future price of silver? For the long term, this would have to be considered bullish, because if the silver short side has lost a prime participant, the long-term silver manipulation will be undermined. In the short term, however, silver may face intentional volatility, as the big shorts look to buy back more contracts at prices that are advantageous to them, and decidedly disadvantageous to margin sellers under stress. This is manipulation in its purest form.

And let me be clear – either you view the silver market as manipulated or not, there’s no wishy-washy in between. It’s like being pregnant, you are or you are not. How any objective observer does not reach the conclusion that silver is a manipulated market is beyond me.

Since I am convinced that that the silver market is manipulated, I am also convinced that the manipulation is a criminal undertaking. I can’t make it any simpler than that.

It is understandable to become discouraged concerning short term price action. But it is important to understand that rarely does short term price action tell us the real story. The key is the long term and a reliance upon facts and common sense. My answer to explain the short term is the manipulation. That's not just an easy answer for everything, but a position that has developed over intense study for more than a quarter century. I sincerely believe that we are extremely close to silver breaking free to the upside, but it is entirely possible that we may get one more jarring jolt to the downside in reaction to a steep sell-off in gold. If that comes to fruition, it should be the last engineered sell-off in silver for a long time.

Question asked on 10/19/2007 at 07:49 AM :: Comments to date: 0

Category: precious metals

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

When it comes to investing, there are only a few broad asset classes from which to choose. While there are many thousands of individual choices within each category, the actual asset classes are few in number, and include stocks, bonds (and interest-bearing deposits), real estate and all others (tangibles, commodities and collectibles).
Over the years, I have tried to make the case for investing in silver, by comparing it to other commodities, gold and even raw land. I believe those comparisons (all of which favor silver) are as valid as ever. Today, I will try to convince you about the merits of silver by comparing it with common stocks. I will attempt to demonstrate why silver will be a better long-term investment than virtually all common stocks.

I believe, given the verifiable facts about silver’s supply, demand and future prospects, that it’s a better choice than any single stock. I won’t be so presumptuous to assume that there won’t be a stock that will match or better silver. However, you can’t pick one of them today with any certainty. Please envision mentally an ounce of silver as one share of common stock. One ounce equals one share. I believe if you perceive an investment in real silver as you would any well-researched common stock, you will greatly improve your chances of success with silver. And to insure we are comparing apples to apples, I am assuming a full cash investment in either, no margin or leverage whatsoever.

The ownership of common stock has been one of the great creators of long-term wealth known to modern man. Such ownership is an important cornerstone of prudent financial planning for the vast majority of mainstream investors. With very few exceptions, common stocks belong in any balanced investment portfolio. The reason why common stocks are considered an important component of just about every investment portfolio is that they promise higher returns than no-risk investments, such as insured interest-bearing deposits. Of course, the promise of higher returns with common stock ownership comes with commensurate higher risk. Therefore, the accepted prudent approach is to balance one’s portfolio with a mixture of low-risk, low return investments and higher-risk, higher return common stock investments.

One of the general requirements for long-term common stock investment is a broad sense of optimism for the future, at least for the prospects of the stock you may be investing in. It’s hard to invest for the long term if you think the world is ending. That scenario is one reason why folks invest in precious metals, namely as a hedge against things going very wrong. But that has never been a big motivation behind my interest in silver. My main attraction has always been silver’s growing, vital role as a strategic industrial commodity in an expanding world economy. It’s always been a bonus that silver may get flight-to-quality buying in the event of rough economic times.

Silver, by just about any relative objective measurement, is cheaper than almost any other industrial commodity and has far greater potential to the upside. It is relatively easy to envision the price of silver increasing ten to twenty-fold in the long term, on its merits. It’s hard for me to imagine a ten to twenty fold increase in oil or copper or nickel. Like a common stock, anyone can buy and hold silver. The average investor could not hold real copper, oil or nickel.

Common stock ownership represents a bet, not only on an individual company’s prospects, but also on broad global economic developments. Same with silver. The true success stories in stock ownership invariably revolve around long-term holding periods, and not quick in-and-out trading. So it will be with silver. You shouldn’t buy a common stock unless you anticipate dramatic long-term gains and are prepared to weather the inevitable short-term price fluctuations. Ditto with silver.

The most important investment rule is to not lose money. Let’s compare the risk profile of silver versus common stocks. The biggest risk with any common stock is that something could go wrong and cause the price of the stock to decline drastically, or even become worthless. Companies can go bankrupt for a variety of reasons. Silver can’t go bankrupt or become worthless. You don’t have to worry about an accounting surprise or bad business development.

Common stock ownership carries a higher risk than deposit accounts. Therefore, diversification of holdings is a core principle in prudent stock portfolio theory. Because silver can’t possibly become worthless, diversification into things other than silver is much less of an issue. The likelihood of continued world demand for natural resources far into the future offers a compelling specific case for investing in silver. It is also a great proxy for the natural resource sector in general. In other words, if you envision continued strong world demand for commodities of all types, silver is a great way to play them all. It is impossible for there to be broad demand for industrial commodities without there being strong demand for silver. Diversifying into silver makes sense, diversifying out does not.

Silver has a lower risk profile than a common stock. It easily satisfies the most important investment rule to not lose big. What about potential relative reward? Here, the comparison overwhelmingly favors silver. While some stocks will prove to be outstanding investments in the years to come, the trick is to identify them before hand. That’s a tall order for the average investor. There is no way I would risk my reputation by speaking with such certainty about a stock the way I speak about silver.

In order to think in a long-term mindset, imagine that you will suddenly be out of touch for the next five or ten years. You have one choice where to put your money while you are gone. If your goal is to return wealthy, silver should be that choice. One reason is dilution. It is very hard, and perhaps impossible, for additional shares (of silver as a stock) to be issued and your ownership diluted. That’s because additional silver shares can only be created by digging them out of the ground. The total mined must be in excess of what is being consumed by industry. That hasn’t happened in more than 60 years. In fact, the total amount of silver shares issued and outstanding has been reduced by more than 90% over that time.

The total amount of silver bullion in world inventories (the equivalent of the total amount of shares any stock has outstanding) has shrunk dramatically because of the structural deficit over the past half-century. It’s the same as a company buying back 90% of all its outstanding shares. This automatically increases the value of the remaining shares (silver ounces). In addition, because the metal silver can’t have a management and board of directors, there is no possibility of a sudden unilateral decision to issue more shares or grant options. The only way to increase the amount of silver in existence is over time and at great expense, not with the stroke of a pen.

Only an infinitesimal percentage of the world’s investors recognize that the amount of silver in existence has been so drastically reduced. Once that understanding kicks in, it will be reflected in the price. Imagine the price impact on a stock if it was discovered that there were 90% less shares in existence than previously thought. The key to silver’s future profit potential as a common stock is based not just on the fact that its shares have been greatly reduced in quantity and increasing that quantity is difficult at best, but also the impact of future demand for those few shares remaining. That means that new investment flows must compete over the shares that do exist. This competition will drive the price sharply higher.

What I am trying to convey is the thought that silver available for purchase can only come from other existing owners of silver, and not from newly issued stock. While this can be said about many items, it is unusual in silver. In addition to the small, unrecognized amount of silver in existence, the current low price makes the value of all the silver in existence shockingly low. If silver were a company, it would be a prime target for a hostile takeover. However, the owners of real silver will never be sold out too cheap by a company management, because none exists in silver. No matter how high the price, no one can force you to sell.

Naturally, I can’t compare silver to a company that is an ongoing business. They are two different things. One is an inert material, while the other is a business operation. But there are remarkable similarities in how outside investors participate in owning a percentage of each.

When I compare silver to a common stock and suggest you buy and hold silver the same way you would buy and hold a stock on a long-term basis, I am talking, for the most part, about buying and holding real silver in your possession. US Mint-issued American Silver Eagles are one favorite form of mine. When you own the actual physical silver, you are far less likely to sell it for a short-term profit. When silver becomes a possession, you have to find a safe place to keep it. You own it, but it also owns you. Oddly enough, it’s a bother to sell it, ship it and part with it. You hang on to it and that’s what gives you the best chance for big gain.

If you are fortunate enough to be able to buy quantities greater than you can practically store yourself, you must employ professional storage. Make sure you get the specific weights and serial numbers on all 1000 oz bars. Never let the dealer you buy from hold the silver for you. Make sure an institution stores the silver in your name and not the name of the dealer you bought from.

The perfect common stock would include low risk, with a guarantee the stock could not go bankrupt or become worthless. It would also include a guarantee that new shares not be issued easily. It would preclude management mistakes and internal financial surprises. There would be no management succession problems or surprises in foreign countries. It would thrive in a growing world economy. It would be immune from financial and currency upheavals. It would be undiscovered by the great majority of investors. Its value would be misunderstood and under- appreciated. It would be a stock that wasn’t a fly-by-night, and had a long history. Most of all, it would be cheap, with the potential to multiply many times in value. It would be capable of favorably impacting your financial condition. You can dream of such a perfect stock, or you can just buy silver.

Question asked on 10/18/2007 at 07:46 AM :: Comments to date: 0

Category: precious metals

Gold loves this environment. Following the Fed decision, gold busted through its $720 high of 2006. In fact, at $733 this morning 9/20/07, gold is trading at a 27-year high.

This is a gold expert quote.
“This move in gold is very different from the spike of May 2006,” says Adrian Ash of bullionvault.com. “Back then, gold moved higher with stocks and bonds. Now stocks and bonds are slipping back while gold attracts a genuine safe-haven bid from private investors and -- more crucially -- from savers.”

Gold is rising against the euro and the pound, too, not just the dollar, stocks and bonds. “Gold is trading within a few euro cents of a 16-month high against the euro,” Adrian writes, “and it has jumped more than 10% against the pound over the last month.”

Question asked on 09/22/2007 at 03:36 AM :: Comments to date: 0

Category: precious metals

After yesterdays posting if you didn't get in it is going to be harder and harder to get in on the gold bull.
This is your last chance to get in as it is definitely the second leg of the bull taking off since 8/16/07.

Question asked on 09/20/2007 at 09:46 AM :: Comments to date: 0

Category: precious metals

The long boom we've had since the bottom of the last cycle in 1982 - a time that was characterized by high unemployment, lots of bankruptcies, high interest rates, and a low stock market - has lasted 25 years. It could have ended badly a number of times along the way, such as 1987, 1993, or 2000. Each time the government propped the house of cards up higher by injecting more currency into the system. It's analogous to someone driving a high-performance car on a mountain road with a stuck throttle. The driver can mash on the brakes, slowing it from 50 to 30. The car charges to 80, but this time the fading brakes can only bring it down to 60. After a couple of cycles, it's going 140. And Ben Bernanke is no Michael Schumacher. Perhaps he can navigate the road. But the chances are better, at this point, that the economy will go off a cliff.

So, if we're going to have a recession, what should you do about it? My advice is to own a lot of gold. That's because it's the only financial asset that's not somebody else's liability. That's important whether the recession is deflationary or inflationary in nature. Deflationary depressions are characterized by lots of bankruptcies and defaults; the only assets you can count on are those in your own possession, like cash or gold. Currency becomes more valuable because so much is wiped out in defaults. But gold is the ultimate form of cash. Inflationary depressions, however, wipe out the currency itself, which loses value rapidly, because the government creates so much more. Gold profits from this process. Beranke believes in printing money to help the economy.

Is this the start of something big and nasty? It's impossible to say. But the slap the markets have administered upside the back of everyone's head should alert them to the possibility. You want lots of gold. Limited debt. International diversification. And some situations - like my recommended gold stocks - that present some real speculative upside.

Question asked on 09/13/2007 at 08:26 PM :: Comments to date: 0

Category: precious metals

An analyst at GFT Global markets said: "Even traditional havens such as gold are deemed too risky in
this climate."

When has gold ever been deemed "too risky"? That made me stop and think.

The Old Testament recounts how, in about 600 B.C., one ounce of gold bought 350 loaves of bread. As of today, one ounce will still buy 350 loaves of bread in the United States.

Yet despite the sudden worldwide aversion to all things "risky," investors seem to prefer U.S. government promises (bonds) in place of gold.

To some, this makes little long-term sense. The dollar has consistently moved in one direction over the past 60-plus years. A 1940s dollar is worth only roughly 5 cents today.

Regardless, the global economy still depends on the fact that the dollar acts as the standard world currency. And the United States Mint, exclusive of what any other truly sovereign nation may deem prudent, has the right to print as many dollars as the United States deems fit.

We print a currency backed by only the worldwide confidence in our economy, its resources and our innate ability to successfully manage the subtle intricacies of Keynesian economics.

Perhaps one day the world will call our bluff. An American lawyer, lecturer and author, Rene A. Wormser once wrote: "No government can operate with a monetary system consisting only of fiat money without sustaining gross economic turmoil and eventually facing a tragic day of reckoning. A fiat money system prompts legislative profligacy and inevitably produces inflation."

So if traditional havens such as gold are deemed "too risky" in this climate, where do we turn?

By hard money I mean gold. J.P. Morgan once said: "Gold is money, and nothing else." And he should know.

But gold has some drawbacks. Let's take a cue from Barton Biggs. As an investment, Biggs has shunned gold for some very sound reasons. He cites the negative yield associated with storing the actual metal. He also points out that gold does not enhance the purchasing power of its owners.

He deems gold to be Apocalypse insurance, not much more. I tend to agree. And I don't believe we're anywhere near an Apocalypse.

There is still a tremendous amount of liquidity chasing deployment. According to The Economist, some estimate these funds combined will control $2.5 trillion by the end of this year alone (in contrast, hedge funds are thought to have a mere $1.6 trillion). And assuming forex coffers keep growing at this remarkable pace, the amount could balloon to $12 trillion by 2015.

The era of asset appreciation, especially in the arena of international equities, will maintain a very, very bright future.

But owning just any equities won't do. Buying good businesses (with economic moats) at the right prices should see us through perfectly predictable market corrections like the one we're currently seeing in the American mortgage market.

As the subprime mortgage collapse rolls on, investors keep whistling in the dark for the Wall Street firm immune to this nasty little cold. But so far, we have no takers. No one really seems to know how far this can go.

So as the Fed eases and things get tight and a small blip down in gold prices occurs the dollar will weaken due to inflation and gold relative to the dollar will increase in value.

Question asked on 08/23/2007 at 06:49 AM :: Comments to date: 0

Category: precious metals

Gammon Lake Resources (GRS) (recently renamed Gammon Gold), continues to struggle with operational challenges as production from its world-class Ocampo mine remains hampered by temporary startup challenges.
In the second quarter, Gammon produced 58,207 gold equivalent ounces, a level that falls far short of the company’s goal of exiting 2007 at a 400,000-ounces annualized production run rate (or a 100,000-ounce quarterly run rate). Jumping from 58,000-100,000 is not feasible, so management pushed back the company’s production goals a few quarters.
It’s still very early in Ocampo’s production life, and I think Gammon’s new management team deserves more time to address production challenges, many of which were outside of its control. This team includes several seasoned mine operators with backgrounds at very successful companies like Goldcorp.

Management said that it is determined to address setbacks in areas like equipment shortages, equipment maintenance procedures, and employee retention. Management was very forthright and transparent about Gammon’s current production status and has a clear, achievable plan to meet long-term production goals. It handled several difficult questions very professionally.

Regarding future guidance, Gammon’s CFO said, “We’re operating at less than 70% of our nameplate capacity at Ocampo, where 40-45% of our cash costs are fixed…a significant portion of our costs do not change irrespective of higher or lower productive output. [This] clearly hit us hard in terms of our cash costs per ounce in the quarter…As we migrate to higher-grade ore, we’ll see an improvement in our cash costs per ounce .”

The Ocampo mine is an incredibly valuable resource and two key variables should swing in the company’s favor by mid-2008:

A renewed rally in the price of gold should boost the top line, and positive operating leverage should greatly benefit profit margins (as Ocampo operates at a gradually higher capacity -- eventually 100% of nameplate capacity -- more revenues will fall to the bottom line).
GRS now trades at an estimated $80 per ounce of gold equivalent resources, a low price for a producer with an achievable plan to extract this resource over the next 15-plus years.

It’s a good thing that the new management team has lowered expectations for the next year. Gammon’s old management team was far too promotional and raised expectations for 2007 to an unreasonably high level.This new management team will steer the company past these temporary roadblocks over the coming year. The stock has sold off so dramatically that the market now seems to be pricing in a few more quarters of ugly production figures. Now that expectations have been lowered, the risk of holding GRS is lower, as well.

With gold poised to break out in anticipation of a long Fed easing cycle, GRS remains a good long-term investment at current prices. This is a speculative junior gold stock.

Question asked on 08/16/2007 at 06:58 AM :: Comments to date: 0

Category: precious metals

Gold

Gold is trading up in EVERY major currency in the world. This comes as a flight to quality during market volatility, and if you ask the gold bugs, it is long overdue.

Around the gold watering hole, investors believe a true bull market in the yellow metal must be a GLOBAL bull market.

Now I read several gold articles and newsletters every week. I hear opinions from way opposite spectrums.

On one side, you have a gold bug that feels the yellow metal has completely decupled from its inverse relationship with the dollar. This type of gold bull believes that the only thing pushing the gold bull market forward is supply and demand fundamentals.

On the other side, you have an individual that believes gold to be the ultimate inflation hedge, and that the only thing that matters is the value of the currency going forward.

It’s a simple notion. If you lived in Zimbabwe, where inflation is running at several thousand percent, you would definitely feel like gold is in a bull market. What if, at the same time, the Yen is going through a period of deflation and the price of gold is declining?

This is why to accurately judge a TRUE local bull market, you have to look at the supply and demand fundamentals.

What the supply and demand fundamentals do is give us a judge of mine production and the supply of gold from central banks. This will affect the price of gold in every currency of the world.

According to GFMS, global mine production in 2006 was 2,471 tonnes. A decade earlier, mine production was 4,127 tonnes. During both these periods, even with the change in tonnage, mine supply made up roughly 60% of total supply. A country like South Africa, which has historically produced a very extensive amount of gold, has a mine production level at a 22-year low.

And for demand, look at the ETFs from 2004. These have greatly increased the demand for gold and in 2006 ETF gold holdings have more than doubled their holdings since 2004.

That’s it for how the global bull market is shaping up. But, what does that mean to you?

Well there are small-cap plays and gold stocks in all of this. In fact, these are the best ways to profit from a bull market like this. I still am pushing Silver too. Best gold stock is GG.

Question asked on 08/15/2007 at 06:54 AM :: Comments to date: 0

Category: precious metals

I have built a case for silver fundamentally over and over again in these pages.
Now I will look technically at the silver charts.
Silver and gold will run in tandem as the precious metals market continues to digest the inflationary undertones of oil and raw material demands by the expanding new consumer countries.
India is the largest consumer of gold and silver for jewelry in the world and as they become more affluent with income they will buy more for their future generations doweries. China also loves to buy gold because it is flush with US dollars. Before they revalue their currency they will use their US dollars to buy gold. Then they will revalue their currency and the $ will go down more thus causing the price of gold to go up. Then the general public of China will be able to buy gold cheaper with their currency and the public will buy a value.
So as gold goes so does silver.
Ratios of silver historically was 32 to one. Gold at $640 means silver should be at $20.
During the hunt brothers cornering attempt it was 16 to 1. Then it went to 100 to 1. Since the 100 to 1 it has been trending back towards the 32 to 1 slowly. Right now it is 51 to 1. If gold hits $1000 and silver gets tight industrially then the ratio goes to 32 to 1 silver will run to $34 an oz.
We have to visualize the scenario and alter ouor game plan as events unfold but if you aren't prepared for it you can't profit from it.
Now back to the technicals.
There was a 277% advance in 4 year and 5 months followed by a 38% collapse last May.
Just like gold the silver market between 6/14/06 and 2/26/07 rallied 56% in 8 months and 12 days. Since 1860 there has been 58 bear market rallies in silver. As of today this marks the longest time frame that could happen in a bear market rally. Therefore we must assume we are still in a long term bull in silver.
Buy silver, buy slv, buy silver stocks.

Question asked on 08/11/2007 at 06:12 AM :: Comments to date: 0

Category: precious metals

Gold is the most liquid of the precious metals. Gold has rebounded Nicely since 6/27/07 from the 650 area to the 700
natural resistance. It then corrected and is about to work its way higher. when it breaks out of the 700 lid the next stop is 750. They work the 50 point ranges. There seems to be a trend of rally then a 2 month correction. I like to look at historical data for rallies in bull and bear markets. If this were a rally in a bear market the top was at 730 on the week of 5/8/06. The quick correction was to 555 on 6/12/06 which has been the bottom up to today.
So if we are still in a bear market rally that puts us over one year and 2 months long and historically the longest bear rally on record was 6 months 5 days. Therfore we are in a consolidation in a bull market.
So buy gold GLD and hold on for a long run. First stopping point is $1000 gold in the next 3 years.

Question asked on 08/10/2007 at 06:54 AM :: Comments to date: 0

Category: precious metals

Platinum is the strongest of the prcious metals on a relative strength basis.
From last years highs Platinum corrected only 21%, gold corrected 38% and silver 26%.
Platinum is near its all time high. When it breaks through there will be no limit to how high it will go.
On May 7, 2007 the nearest futures iin platinum exceeded their May 17, 2006 previous record high by $6.80, only to abruptly reverse lower to the extreme disappointment of the bulls. I think that if platinum can take out its contract high of $1358 there is a very high probability it will follow through this time, placing the market in a price vacuum.
An example of a price vacuum is copper. Its prvevious all time high was around $1.60 and when it broke through there last year it went up 250% to $4.00. That is a vacuum. It just sucks it right up.
Now copper is in a consolidation period and may have made its high for a long time but each metal will have its turn.
Platinum is next and then gold and silver.

Question asked on 08/09/2007 at 06:40 AM :: Comments to date: 0

Category: precious metals

In our modern manufacturing world, the supply and distribution lines are thin. Most goods today are produced and distributed in a just in time manner or lean manufacturing. as to opposed to holding big inventories, which protect a company in an event of an unforseen emergency. Since capital is tied up in those inventories, it's advantageous to the bottom line to hold minimal inventories. The downside to this kind of distribution is that it can be overwhelmed by distruptions and sudden surges in demand. Then just-in-time breaks down and fails miserably.

While silver may not be needed by the average peson to sustain daily life, it is certainly needed by thousands of industrial consumers, whose corporate life suffer and die without a continuous supply. It is industrial consumers, who will panic at the first sign of supply disruption. Perhaps not all of them, but certainly some of them will panic.
Then the spiral will begin.
Nothing comes close to silver, as both a vital industrial commodity and a precious metal recognized by the masses. As the price escalates in an inventory panic, people will be attracted by the price action to participate in the price rally. This will add fuel to the fire.
The coming buying panic may take 1-2-3 years to develope and will be worldwide.
A commodity in a deficit must become unavailable at some point, unless the price rises enough to slow demand and increase supply. That is the great allure and certainty in silver. That buying panic will occur whether you buy or not.
You can only maximize your profit if you are positioned before that buying panic occurs.

Question asked on 08/04/2007 at 06:51 AM :: Comments to date: 0

Category: precious metals

Exchange Preps for Launch of Derivatives and Gold Bonds to Draw Retail Business

There is talk that the Shanghai Futures Exchange is also going to introduce trading in gold and silver futures, and that the two exchanges will work together on that objective. Moreover, the chairman of the SGE said on June 7 that it was studying several additional products for the exchange, such as gold bonds, gold ETFs, and precious metals index futures — a few weeks later, the local newspapers reported that the exchange was working with gold producers, securities firms and banks in preparation for the launch of the “gold bonds,” a derivative product “issued by gold mining firms and guaranteed by a certain amount of gold they produce within a certain period of time in the future. The interest rate of gold bonds is made up of a basic rate and a floating one. The latter is linked with the gold price of the date of maturity. The maturation of the bonds can be three years, five years, or 10 years” (China Daily).

There is little more information at this time, but the securities seem to contain elements of the niche business that is done by merchant bankers like Investec, Nedbank, and Macquarie, which offer project loan facilities to precious metal miners, which are covered by future gold production (sold forward).

If so, it is a cutting-edge financial innovation. It effectively securitizes a highly profitable business — at least during bull markets — making it widely accessible to the investing public…it is a coup that the newest gold exchange on the beat will be the first to have standardized and listed such a product.

Kudos!

Initiatives like this will draw liquidity to the exchange, whose membership recently added its first broker to the roster (which happens to be the one that co-developed this product), and which has increasingly enhanced its retail trading logistics to make it more inviting for the public to trade in gold. Indeed, until recently, the minimum transaction size was still too big for the retail public. But now, with the launch of the aforementioned products, the largest retail population in the world is about to have access to free trading in precious metals for the first time in centuries. Maybe it will go on a buying spree. At its current rate of growth, the SGE could rival Tokyo in less than five years, and the Comex in 10.
Although it may be another generation before it rivals the LBMA in size and scope, given the size of its prospective retail population and the progress of China’s gold market initiatives, the gold market could be on the verge of an enormous bullish shift in investment demand…possibly even official demand.

Will China start to buy more gold with it's enormous stockpile of US Dollars. Will the people start to buy gold to hoard for their future generations (which is in their longterm thinking process.
All of this is why I recomend gold and silver stocks now for accumulation.
GG - Goldcorp is my favorite.
CDE - has been a laggard but is still a buy.
AUY - is an up and coming company that has copper also.
SSRI - is a good one too.
PAAS - is good too.

Question asked on 07/24/2007 at 06:07 AM :: Comments to date: 0

Category: precious metals

“The beginning of gold trading by individual investors on the Shanghai Gold Exchange (SGE) later this month is expected to provide a welcome alternative at a time of high stock market volatility.” — China Daily July 4, 2007 (Happy birthday, America; bad news for the redcoats!)

After launching the Shanghai Gold Exchange in October 2002, the exchange’s principals announced a three-part plan to liberalize trading: 1) establish a deferred delivery service (as physical transactions are settled pretty much the same day); 2) create gold-related investment products in order to promote domestic investment demand and create liquidity; 3) integrate the exchange into international markets — which includes expanding import/export licenses and allowing foreign entities to become members.

All 3 Steps Nearly Complete

Since then, the exchange has flourished in the spot and forward markets, with volumes surpassing the Hong Kong Gold and Silver Exchange and the Istanbul Gold Exchange in its first year (2003). Since 2003, transaction volumes on the Shanghai Gold Exchange have grown fivefold, to over 1,000 tons in 2006 (cumulative volume through the end of May 2007 was 3,910 tons) — and are on track for 1,500 tons in 2007. That is one-tenth of the annual transaction volume of the Tokyo Commodity Exchange, just 3% of Comex trading volumes, and but one-hundredth of the London Bullion Market’s annual OTC clearing volumes . However, the growth of China’s only gold bourse in just five years has been nothing short of spectacular, given that participation by the retail public has scarcely been tapped. Last month, the central bank, which founded the SGE, approved two landmark changes for the gold exchange: 1)The trading of gold and silver futures on the SGE and 2)Foreign banks operating in China could be enrolled as members of the SGE (in principle).

Local newspapers cited HSBC, Standard Chartered, UBS, Societe Generale and the Bank of Nova Scotia as front-runners for membership. Thus, the exchange has step three of its plan to liberalize trading on the SGE within sight and is in the mature phases of step two — mobilizing the launch of the kinds of products that will attract domestic investment demand. While the central bank will continue to regulate trade in physical gold, the country’s securities regulator, CSRC (China Securities Regulatory Commission), regulates futures and derivatives trading and must still approve the exchange’s trading in gold and silver futures. However, no one anticipates any roadblocks.

Continued Tomorrow

Question asked on 07/23/2007 at 06:44 AM :: Comments to date: 0

Category: precious metals

Silver has come to be used so much by industry over the past 50 to 60 years that most of the inventories in silver have been used up. Now we have more gold above ground than we have silver above ground. Silver is more rare than gold. There are 5 billion oz. of gold above ground and only 1 billiion oz. of known inventories. There were approximately 16 million oz withdrawn and 22 million oz recieved for a net 6 million oz in the NY warehouse for the Comex. This was a manipulation by large traders to push the silver prices down.
We have 62 years of gold production above ground. In silver, we have less than 2 years of mining productiion.
The rarer and more industrially needed item should be $650 and the more plentiful and less used item should be $13.00. This is of course an mind bending historically opposite view of the price action.
The law of economics - Supply vs Demand though will come into play. The governments will always try to disassociate gold from money as they print their currencies into oblivion like the Germans did in the early 1900's.
Silver though has been completly disassociated from the currency game and has become a iindustrial metal with all of the new high tech electrical computers and circuit boards and computer chips.
Silver when it becomes too scarce will see industry bid it up to the $100 range just like they did with uranium and zinc, and copper - increase of 250%, platinum, nickle etc.
The last industrial metal to go is silver and of course gold will lead the way with inflationary issues.
Gold will not have as large a increase as silver though due to the reasons stated above.
So few believe that silver can go up to such high numbers that it creates an opportunity for those who buy silver to become rich. In my opinion, that's without taking big chances. Do you think there would be such an opportunity if everyone knew of it? All you need is a good silver position and to allow enough time for the fundamentals to work and for enough people to learn about silver. So spread the word to help your friends. Is this the bigger fool theory?
No this is the fundamental approach of the law of supply and demand.
To make money you must have real silver or equivalent that does not erode with time due to carrying charges.
SLV nhas a small carrying charge but is the only way to own paper silver long term in your IRA or Pension.
Put 10% of your investments into silver and you will double your money every 2 years for the next 4 years.
This is my opinion.
Good luck.

Question asked on 07/18/2007 at 07:50 AM :: Comments to date: 0

Category: precious metals

I hope you all understand what a long term investment precios metals will be.
Yes there will be a time to sell them but now is the time to accumulate the metals.
Even if you are window shopping and see some old silver coins for sale and they are less than $12.00 per one dollar face value buy it. You just made some money. Buy SLV in your IRA or 401k or your stock account.
If enough people do that and hang on they will make money. Spread the word.

Question asked on 07/17/2007 at 06:36 AM :: Comments to date: 0

Category: precious metals

Nemont Mining the largest mining company in the world last week announced it will take a one time charge of over $571,000,000.00. Now how can they do that? They said that they unwounnd their hedged positions to stop the losses.
It took five years of sustained increases in the price of gold, but Newmont Mining Corp. (NEM) has finally decided to call a halt to its bets that gold prices won't continue to rise.

After the close of trading on July 5, Newmont said it had eliminated its entire 1.85 million ounce hedge position on its gold production and that it was discontinuing its merchant banking business as a separate unit.

The Denver company spent $578 million in June to buy back all of its price-capped forward sales contracts, for which it will take a pre-tax loss of roughly $531 million, after reversing $47 million in deferred revenue that was recognized previously.

Newmont is shutting down its merchant bank o