Silver and stuff

Recent Silver news has Toronto brokers GMP (Griffiths McBurney Securities) predicting an average silver price of 14.25 with peaks of $20 for 2007. That is certainly news to warm the heart. Studies show that both jewellery and industrial use of silver is growing faster than new mine supplies, all of which looks good for continued strength of silver this year. Silver looked flat and steady for most of last week but Friday’s jump over the important 14 dollar mark is significant, give it a few days and if it holds or continues up I think we are on the annual spring run which I predict will take us to near $17 U.S.

It’s my belief that India will stop or greatly lower government silver sales this year. With the natural yearly deficit and no Indian sales to fill the gap supplies could shrink by 100 million ounces this year, or 80% of the NYMEX holdings. No one knows or is saying how much silver India has but they have to see eventually that they are giving it away at today’s prices. It only makes sense that at some point they will see the coming shortage and hoard the remaining silver to exploit the price at a later date. Then again who says governments make the correct decisions, and who says they are not selling it to friends so they can exploit it personally rather than have the Government profit?

What is knowable is that India is in the position the U.S. was in for decades as the supplier of silver to make up for supply deficit. The U.S. with billions of ounces of silver eventually ran out so will India! The year India gets smart or runs out will be the beginning of the parabolic rise for silver prices. I only hope I can increase my position before that moment.

In the Gold world at least 29 tonnes of bullion has been released for sale in the last couple of weeks and the markets did not even flinch. Last year this kind of selling would have caused a severe price hit but this year nothing there was nothing but salivation as someone gobbled it all up. Aggressive central bank gold selling is not going to have the desired effect in dropping the price by flooding the market, 1 they don’t have enough left to do the job , 2 other central banks are the ones buying it up. If it was only funds and retail buyers the prices might have tanked but big money is in the buying mood and a meagre 29 tonnes is not enough to satiate them.

There is danger however that the IMF will open the vault and start selling its gold to cover operating expenses. The IMF should be put down like the sick animal it is, it has very few clients beyond Turkey and the bureaucracy continues to grow and suck up profits. This gold was deposited by the U.S. as collateral to open the IMF, this is loaned gold and I don’t see how the IMF thinks it can sell someone else’s property to cover their debts. If I was the U.S. I would be demanding the IMF close and return my gold. Or perhaps they intend to turn a blind eye to the bullion sales in order to temporarily support the strength of the dollar. It seems they are so intent on continuing the charade of U.S. economic strength they will sell their future in the form of gold reserves to fool the public until the next election. As long as the sales are not huge volumes I think they will have a minimum impact, but if they manage to coordinate with central banks to make a splash, who knows?

The U.S. dollar was getting killed on tough protectionist talk last week. When you add in the debt, war, trade imbalance and the over creation of money factors, the U.S. dollar looks like it has no where to go but down, which is good for those of us holding metals. This however will not be good for export economies like Canada, Yes they will continue to buy our oil and steel etc but our meagre manufactured goods sector will be hard pressed to maintain business as the Can dollar appreciates against the Greenback. The impending recession will also hurt Canada unless we start making more effort to market ourselves and our goods in Asia.

I’ve noticed a spike in hits to my site and to the feed services. I hope all my readers are getting something out of my ranting and I would appreciate comments and discussion on these or any related topics. I’m also willing to post full articles for anyone not inclined to build their own blog.

With the renewed level of hits I will try to write more, I blog politically as well as on Silver and since the Canadian scene for the last couple of weeks has been rather interesting I’ve been torn between reading metals and economic material and posting political. I can’t seem to post on all topics and research all topics within the time I have.

I’ve added some auction links which seem a little erratic. They are supposed to show silver bullion auctions but occasionally show other things, fortunately no sex toys yet! Do people think they are distracting or acceptable?

I’m just adding this at the last moment before I post. Gold went on a run last night in overseas trading (up 7ish) and seems to be holding early, silver moved little but is also holding.

Good news, I sold my second car (an attempt at frugalizing and being Greener) so now I can go shopping today, mmmm, coin store, the bullion counter, or Ebay? Decisions, decisions!

Silver a calm happy week.

As far as I’m concerned this has been a good week for metals. Silver has been solid, no jumpy volitility and yet it managed to make a tidy little gain. I like this kind of week as it’s easy on the gut. I’m not expecting any sort of crazed parabolic climb just yet but I do expect more growth into the late spring. I doubt however we’ll have calm happy weeks like this too often. Will we see an attack on metals again by summer? Yes without doubt, the short possitions and the Central Banks all have a vested interest in seeing metals lower but with silver supplies shrinking and sellable Central bank Gold holdings also shrinking this reign of terror is nearing at the end.

Silver stocks are still acting flakey as companies with proven resources, good development news and even growing cash flows are not nessessarily reflecting the rising bullion price. Some of this is a reflection of base metal prices but even some pure silver plays don’t match the price action. I swear I’ve seen some price actions that look like manipulation, is it? I don’t know but with what I’ve seen recently on naked short selling I’m always paranoid when I see mindless swings

I’d like to ask for some reseach help. I was wondering if people have watched the Bloomberg Video on naked short selling called Phantom Shares ? If you have not seen this and trade stocks, please watch this, it’s unbelievable yet apparently true.
Phantom Shares video

I generally avoid buying U.S. dollar valuated stocks on currency concerns so I have little exposure to the U.S. exchanges, but I’d really like to know if this kind of fraud is practiced on Canadian markets? Is there anybody in the know that can tell me if they trading and settlement mechanism on the TSX is better than or just as bad as the fraudulent practices on the U.S. markets?

My last post was on silver equities and I neglected to mention one of my other rules for investing that I think is important. I always try to find out how much insider ownership there is in these companies. While it’s not always the case, I believe insiders with substantial stakes in the mine will have better motivation to improve your share price. No doubt there are well run juniors with low insider ownership and high ownership juniors operated by loons and fools but I still feel better knowing that the people running it are sharing my risk.

I’ve had 2 people write me directly asking for either my opinion on a junior or a list of what I hold. I’m loath to do this as I’m an amateur investor not an advisor. This kind of discussion invites abuse and trolls intent on pumping stocks and I’m not ready to deal with these issues on this site at this time. I don't do primary research on my stocks but poach information from others when I can then follow it up with other sources. I can’t authenticate everything I use so I would be uncomfortable making equity recommendations. I admit I do quote and discuss other peoples silver analysis but I have done enough research to accept the silver argument as true, I cannot be so adamant on all the equities I’ve taken the plunge on.

It’s funny that I believe the silver story so much and yet my best pick in the last year was Lionore a nickel play now about to be purchased. Nickel worked down to a ½ day supply and its price when nuts, Silver will have a similar supply crunch in a couple of years and my 300% gain on Lionore will look like a joke. Shortages do happen, look to nickel or better yet uranium, for an example of what will happen to silver when the deficit eats up the last above ground supply. Buy physical, accumulate and hold. Repeat for several years, and then retire.

Precious Metals Bargain Hunting

We’ve had a rocky few weeks but I’m convinced that bottom has been hit for this year and we are on the way back up. My belief is that Silver and Gold will begin to reflect their inherent strength despite the over all market condition. Our recent drops have been caused by funds liquidating to cover other paper losses, these were weak hands and flushing them out of the market will in the long run makes the metals market more stable for the next run up. In my little circle of metal owners, nobody has panicked or seems on the verge of dumping their physical positions. Staying the course is the rational thing to do as there is no data showing the U.S. dollar is in better shape; there is however data (U.S. gov) that says Consumer inflation is rising at about 2.2% and more accurate data (Shadowstats) showing U.S. consumer inflation hovering about 10%.

Inflation is good for metals as they are a physical asset that will appreciate with inflation while dollars loose their value during inflation. The shaky stock market and housing market cannot withstand the higher interest rates required to check inflation leaving the Fed in a serious predicament. To raise rates will kill the domestic economy; to lower rates will fan inflation, weaken the carry trade and the U.S. ability to borrow, feed its gluttony all while weakening the dollar making creditors less than happy.

The supply/demand situation for silver is still the same and no big move away from deficit usage is expected as far out as the end of the decade. Gold supply from South Africa is way down; Zimbabwe’s entire mining industry has almost shut down; Central Banks sales are expected to decline in Europe while other countries are increasing gold reserves. Support from the IMF for GATA’s position on gold price manipulation and the IMF call for more honest and transparent accounting of Gold loans, leases etc will be nothing but bullish for the price of Gold.

All these factors make me more than content sitting on my physical position knowing that the reasons I bought in the first place have not changed.

In Silver: I still expect strong long term price growth with a likely shortage and mega price spike.

In Gold: I expect an honest accounting of Central Bank gold will shrink the world’s real supply and raise prices regardless of the U.S. financial situation.

In Silver and Gold There is a reasonable potential for the monetization of metals stemming from some form of U.S. fiscal crisis which would result in massive spikes for both Silver and Gold.

PM Stocks

I’ve said before that physical silver is safer than paper products, this is still true. However, once you have attained your goal for a base physical position there is great potential for generating wealth from the leverage inherent in precious metals stocks, despite the risk. My methodology was to acquire a bare minimum physical position in my case weighted 10% gold, 10% junk silver, 10% 1oz silver rounds and maples, 70% large silver bars. Once I had acquired my target number of ounces I began splitting any new investment money 50/50 between mining stocks and a larger physical position. This allows me to grow my physical position to maintain a fixed percentage vs. my net worth for safety sake making me feel better about taking on the added stock risk as my portfolio grows.

The main point for my writing today is the apparent disconnect between bullion prices and the price of Silver and Gold mining shares. Before the big melt down two weeks ago I found the stocks of some producing mines and certainly most juniors were either not keeping up with bullion prices or sliding in the opposite direction without any news justifying the drop in share prices. Some stocks would even announce results I thought were favourable yet the stocks still headed south, I don’t get it. When the big blow off came, many of the stocks I own or at least follow took a complete nose dive way out of proportion to the price drop in bullion.

While I feel this recent run down in prices has once again made physical bullion a good buy, the unbalanced drop in many precious metals stocks has created some great buys. I picked a couple of my favourite stocks and increased my meagre little positions as much as I could. People will eventually catch on that Gold and Silver mines don’t just produce a commodity they produce real, honest money distinct from the constantly devaluing paper currencies of the world. The world wide money supply is growing at more than 10% per year debasing paper money and making metals with their 1.5 % supply increase year over year, even more valuable.

I’m not going to flog or pump any particular stock, I’m not qualified and there are already too many unqualified voices doing so. My rational in picking stocks has yet to be proven particularly good or bad but is as follows.

I don’t usually (with 2 exceptions) buy stocks in South America, Asia, or Africa. It’s not that they don’t have good resources and cheap labour but they do carry various political risks ranging from, Government seizure and Nationalization to civil war. There are enough good viable juniors in Canada, U.S, Australia, and even Mexico that I can’t follow let alone purchase all the ones that sound like possible producers and 10 bangers. Keeping up on the domestic news of dozens of countries is impossible for a part time investor, so I suggest pick your markets, learn about them then look for good choices in that region. The reverse is finding a couple of miners you like in one region and then research the political situation before buying.

Personally I try to avoid as much political risk as possible but it is impossible to avoid it entirely; you may be more willing to accept high risk than I.

I like Mexico for reasonable labour cost, good resource base, qualified experts, and a pro mining stance by government, there is some political risk however.

I like Canada for stability, huge untapped resources, a reasonable tolerance for the mining industry, and especially in Quebec with a great tax structure for exploration and the mothballing mines during periods of low prices.

The U.S. has many great untapped resources but many states are a bitch to get permits in. You have to go state by state. Mine shut downs usually invite a visit from the EPA and huge clean up costs.

Australia has great resources, lower P/Es than many stocks trading in North America but generally trade on their own exchange making it harder for part time investors to follow and trade.

Juniors have a greater potential and a greater risk than senior mining companies; while this should not dissuade you from dabbling, don’t put all your eggs or even more than 5% of your eggs in one basket. Another consideration is the kind of mines you invest in, if you are trying to play a precious metals position do not buy base metal miners with gold and silver as a by product, stick to specialists.

Bargain hunt while you can.

Are metals still the right choice?

As I understand it the recent downward pressure on gold and silver is due to the liquidation of assets by fund managers needing to cover margins after the recent stock market fall. Will this continue? I don’t know. Yes there are going to be more sell offs of stocks as the U.S. economy slumps what we don’t know is where this money will go if stocks are seen as unsafe.

Will they plough it into bonds that have a lower return than the real inflation rate?

Will they sit in cash until the dust clears hoping devaluation does not strip them of even more buying power while they wait?

Will millions of people start behaving like Chinese investors after getting burned on stocks and go back to their olds ways of storing wealth in gold and silver?

Will more countries like South Africa start adding to their gold reserves?

Will the deflationists be correct and the U.S. dollar will gain in value lowering all commodity values including metals?

Will more funds like the recently announced Artemis Hedge fund sink 300 million into silver investing?

I’ve read inflationists who believe in metals and some who do not, I’ve also read deflationists who believe in metals and those who do not, it really is a leap in faith which ever way you go. My brain hurts sometime just trying to analyse all these views and rationalize my beliefs. It comes down to several basics.

There is no free lunch; U.S. government debt is out of control and unsustainable.

The markets do not have infinite patience; at some point the markets will stop funding U.S. debt addiction.

The ability of banks and governments to create money from the thin air is irrational and destructive to the value of previously existing money; this is evil and irresponsible and may well lead to a monetary crisis.

Metals have always had some value through out mankind’s history of commerce. The key is timing when to get in and out of this market with your investment money, and knowing never to leave the market with your emergency money.

Over time all fiat money loses value and eventually fail. The recorded loss of buying power of the U.S. dollar since the creation of the Federal Reserve and the quicker loss since the decoupling from gold shows us that fiat money is weak and unsustainable.

Even in the last few decades numerous fiat currencies have failed. Those who had a small portion of their net worth in metals ahead of time faired well, some simply offset their paper losses and maintained their way of life, others made out like thieves greatly increasing their wealth.

Diversification is a concept most financial advisors will talk about but they tell you stocks, bonds, t-bills, etc are diversification because they sell them. I say they are not; they are paper promises subject to default, debasement, and mismanagement. I don’t say you should not have any of these but to be fully diversified means also having real physical assets that cannot be destroyed or counterfeited such as land and metals.

If any of these points make sense to you, then you know your decision to buy metals was a reasonable move to protect yourself.

So will metals fall more? Maybe, but in the long run they represent an opportunity to safeguard you should something catastrophic happen to the dollar. Silver supply is still in a deficit situation and will be so for up to 10 years, these corrections are opportunities to buy more and take major profits when silver supply reaches a critical shortage even without a monetary crisis.

Do I get nervous on the drops? Hell yes! Do I sell? No, I go out buy another 100oz leap of faith and increase my holdings. I don’t spend money I can’t afford to, I don’t borrow, and I don’t worry. I could always take up making jewellery or anti werewolf bullets.

Small Changes Equal Huge Opportunities

I’ve had a number of responses, personal and on the blog about the affordability of silver or gold as an investment and wanted to show people the comparable value of these metals vs. the day to day purchases we make. My argument is we all live above our needs in some way and a small deviation from the norm can free up at least a little for investment.

Coffee: It’s not an original idea but if you save up your coffee money over a year it really can up to substantial savings. One coffee on the way to work or at break can run from 1.20 to 3 dollars if you like those crazy Starbucks coffees. 49 weeks of work on average X5 days would work out to anywhere between 300 to 735 dollars. Or in bug speak 18-45 oz of silver or nearly 1 oz of gold. I gave up most morning coffees and two coffee breaks during the day making my personal savings $700 even with discount coffee, all for breaking a 3 dollar ritual.

Brown bagging lunch or just grabbing a plain bagel and using the Peanut butter in my desk drawer, easily saves me $20 bucks a week even when I cheat, annual savings equals $980

Movies: 1 night out for 2 people at a theatre, $22 for tickets and at least $40 after snacks, up to $60+ with baby sitting, if you waited 4 months and rented the movie the net savings even after supplying snacks would be $50+,
I’m not a big movie guy but would likely go to see about 5 a year so a $250 or 15 oz savings.

Beer: I like my beer, I really do, but I decided some time ago that a lovely Creemore was not value for my money and switched to Lakeport Honey Brown.
At $7.50 savings per 12 pack I can sock away enough to buy one sheet of silver maple leafs, another 10 oz for the hoard for just under $200

A nice sit down meal in a mid range restaurant, drinks, appetizers, coffee, dessert, for 2, $80 dollars, with baby sitting, gas, parking etc. would total $110. Compared to putting the kids to bed early and having a quiet dinner alone after they’ve crashed; net savings at least $80, or 5 ounces per meal. Even 6 nights out a year changed to nights in would net me $480 or 30 ounces.

I had a second car, 10 years old and functional, but it received little use other than taking me to the commuter train. My decision to walk to the train station and give up the car saved me on insurance, license tag, emissions testing charge, routine maintenance, giving me a net savings of around $1200 a year. Not only that I was making an ethical decision to reduce green house gas emission and get exercise.

So just on a few things I learned I could do without I’ve managed to reduce my expenditure by $2800 or 160+ ounces of silver or 3 ounces of gold and some silver for change, without any loans and before liquidating other investments to buy silver.

I could have stopped drinking beer altogether and made other more stringent savings and would have easily made 200 ounces of silver in one year. You don’t have to sit down and pull a big cheque out of your butt, just make small changes in your lifestyle and put it aside until you can buy the product you want.

I believe in $100+ silver as inflation and shortages eventually improve the attraction of silver. That is a multiple of 7.5 over today’s price, each grand I put away in silver should in time (under 10 years) be worth $7500. I personally think it’s worth the scrimping and the sacrifice of a few luxuries now.