mining stocks


Major Japanese Electronics Firm Approaches First Majestic to Lock in Silver Supply

As regular readers know, we have long warned that the End Game for the banksters manipulation of the bond markets & interest rates via gold and silver manipulation will occur when industrial users of physical silver, namely the colossal electronics industry- sniff the first signs of a wholesale shortage of physical silver, and begin panic hoarding of silver to ensure continued production of their tech gadgets. 

As First Majestic CEO Keith Neumeyer reveals in this stunning Bloomberg interview, that End Game industrial supply panic may have just begun…  

Neumeyer reveals a major Japanese electronics firm has approached First Majestic to lock in physical silver, citing supply concerns: 

A major Japanese electronics maker approached First Majestic Silver Corp. for the first time last month seeking to lock in future stock, a sign of supply concerns that could boost the metal’s price ninefold, according to the best-performing producer of the metal.

“For an electronics manufacturer to come directly to us — that tells me something is changing in the market,” said Keith Neumeyer, chief executive officer of First Majestic, the top stock in Canada and among its global peers this year. “I think we’ll see three-digit silver,” he said, predicting the metal could surge to $140 an ounce by as early as 2019.

 A reminder as to how critical the industrial side of the silver equation is:

‘Strategic Metal’

While long coveted for use in jewelry, coins and utensils, silver is increasingly in demand for its industrial applications. Last year, about half of global silver consumption came from such use, including mobile phones, flat-panel TVs, solar panels and alloys and solders, according to data compiled by GFMS for the Washington-based Silver Institute.

Silver is not a precious metal, it’s a strategic metal,” Neumeyer said in an interview in Vancouver, where the company is based. “Silver is the most electrically conductive material on the planet other than gold, and gold is too expensive to use in circuit boards, solar panels, electric cars. As we electrify the planet, we require more and more silver. There’s no substitute for it.

 

Peter D. Schiff is the president of Euro Pacific Capital Inc., a brokerage firm based in Darien, Connecticut.
Schiff is an Austrian school economist and supporter of the Ludwig von Mises Institute. Schiff frequently appears as a guest on CNBC, Fox News, CNN, CNN International, and Bloomberg Television and is quoted in major financial publications…

In commentary posted today at Seeking Alpha, Daniel Gschwend, who manages a mining and metals fund, examines the manipulation of the gold price by central banks that are leasing gold as part of their scheme to rig the currency markets. Gschwend’s commentary is headlined:
“The Countdown of a Manipulated Gold Price is Running Out” and you can find it HERE
Some crystal-clear thoughts on the continuous global economic seismic shake-up from Ken Gerbino‘s latest missive: The World Gone Crazy and Your Gold Stocks

“…. The Inflation vs. Deflation debate is a debate between Knowledge and Stupidity. History and Fantasy. Understanding and Confusion. When a stock portfolio goes from $2 million to $1 million this is in fact a “deflated” value but this does not cause a deflation in the economy. Even with $10 trillion of stock market losses it has little effect on the general price level of goods and services in an economy. The crash of 1987 saw $15 trillion of stock and bond losses in the U.S. An historic loss of asset values at the time. Yet inflation in 1988 and 1989 averaged 3.2% and 4.3% respectively. There was no deflation. The same concept is true for real estate. Real Estate losses in 1990-91 were in the trillions and the inflation rates in 1990, 91, 92 averaged 4% annually. There was no deflation. There never is with paper money.”

“… There will be no deflation. If your adviser or broker or newsletter writer ever mentions this word send him this article and wise him/her up. Inflation is here to stay as prices have not gone down in this country in any year for the last 60 years despite the calls of the deflationists. During this time, despite market crashes, horrible recessions, and numerous real estate busts we have had no deflations. Paper money is inflationary and we are going to be flooded with more of it before the bailout of the global financial system is completed.”

“…The Great Lie: For almost 75 years the Fed and the Treasury have promoted the following concept. Inflation is caused by a strong economy. This, of course, is a smokescreen for the truth that all inflations are caused by an increase in money supply. But with this stable datum that a strong economy causes inflation, the powers that be always had something else to blame for inflation. Money managers therefore thinking that if a strong economy causes inflation then a slow economy or a recession will cause less inflation. Therefore they reason “why own gold or the gold stocks”. These were some of the guys selling the gold shares the last 3-4 months. They are so wrong.”

“…Current gold buyers are most likely split between investors that believe a horrible deflation is coming and money will be wiped out so gold should be a good substitute and other investors who correctly understand that trillions of new dollars and foreign currencies are going to flood world economies to bail out the institutions and this will be very inflationary.

Both sides will have great conviction and this $90 move underlines those thoughts. Therefore, with the financial turmoil of this week gold and the quality mining stocks should move much higher with or without the stock market.”

To read this sobering article in its entirety, please click HERE

MineWeb’s Dorothy Kosich writes about a new report from Citigroup analysts John H. Hill and Graham Wark, who last year wrote a report acknowledging that central banks were strategically intervening in the gold market to suppress gold’s price. You can find their report from last year here:

http://www.gata.org/files/CitigroupGoldReport092107.pdf

Now, Hill and Wark write, they’re surprised that gold isn’t already at $2,000 per ounce. Of course having already conceded central bank intervention, maybe they shouldn’t be so surprised. But maybe it would be impossibly impolitic for them to write openly about intervention again now, especially since, as Kitco’s Jon Nadler and Resource Investor’s Tim Wood might assure us, the precious metals markets are the only markets in which central banks have NOT been intervening lately.

But the new report from Hill and Wark may be most satisfying to our side for another acknowledgement. As reported by Kosich, Hill and Wark write:

“It is notable that hard-core goldbugs have been proven correct in the decade-long contention that an overwhelmingly vast and complex pool of nested financial derivatives would ultimately result in cascading defaults and ruin for major portions of the banking system.”

You can find the MineWeb account of the Citigroup report HERE

“The numbers in the markets indicate that gold exchange traded funds (ETFs), along with gold royalty companies such as Franco-Nevada, have outperformed practically all listed gold – and other resources – stocks over the past two months, a time when global resources stocks have been mercilessly hammered. Gold ETFs, representing a proxy investment in gold bullion itself, have been outperformed over the period by silver ETFs, which traditionally display a higher “beta” than gold bullion prices during times of crisis or stress, currently seen in global investment markets.Specialist analysts at RBC Capital Markets have sought to look forward, and in a report out to clients this week, recommend that it’s time to buy listed gold stocks, not least on seasonal factors. RBCCM analysts argue that the macro outlook remains constructive, on a combination of a US dollar “that shows no clear leadership as a global reserve currency”, and, second, that “central banks continuing to aggressively reflate the economy will likely maintain pressure on currencies relative to gold and other hard assets. This backdrop is complemented by emerging market countries that are facing energy and agriculture inflation which is expected to be positive for gold”. RBCCM’s analysts see a positive outlook for the back half of 2008: “the seasonal slowdown for physical gold demand is nearly behind us, and we expect increased demand looking ahead to August, September, and October. With the US Federal Reserve rate cycle on hold for the time being, the US dollar drifting and inflation pressures growing around the world, particularly in the emerging market economies, we believe the timing is right for investors to be buying gold and gold equities”.

As observed over the past 12 months, the RBCCM analysts anticipate that larger capitalisation listed gold stocks “with established production bases and higher share liquidity” will continue to outperform smaller capitalisation names. From a fundamental perspective, the analysts continue to favour gold companies with improving production and cost profiles, gold reserve upside, active exploration programs and strong management teams.

RBCCM analysts identify several positive factors for gold bullion prices:

  • Non-European Central Bank announcements regarding gold purchases (Russia, UAE, Qatar)
  • Chinese foreign exchange reserves topping $1.4 trillion, dominated by holdings of US treasury securities. The Chinese central bank continues to comment on the need to diversify foreign exchange reserves
  • Firm demand for gold ETFs, near an all-time high of 29.8m ounces
  • Gold equities pricing in gold bullion at $850-$875/oz long-term
  • Expectations of a US Federal Reserve rate pause, and no rate hike expected, and
  • Mine supply flat in 2008, with a decline expected in 2010.
  • Potentially negative factors affecting gold bullion prices are identified as:
  • Jewellery demand showing strong elasticity in India and the Far East
  • Switzerland deciding to sell 200 tonnes over two years, replacing Germany in the ECB gold sales agreement, and
  • The potential for IMF gold sales as part of the ECB gold sales agreement.

RBCCM analysts point also to the ratio of the spot dollar gold price to the Philadelphia Gold & Silver Index (XAU), given that the analysts believe that the ratio is an important indicator for identifying periods when gold stocks are relatively cheap or expensive, compared to gold bullion. The current ratio is around 5.4 times, and has averaged five times over the past few months. According to the RBCCM analysts, when the ratio is above five times, the average one-year holding period return for the XAU has historically been 40%; when the ratio is between 4.5 and 4.75 times, the average return has been 27%.

The RBCCM analysts also note that the net speculative long gold futures position on COMEX has coincided with the run in the price of gold. On 19 February 2008, the net long position in futures reached an all-time high of 25.3m ounces; with the recent selloff in gold, the RBCCM analysts expect a further decline from the 25 July level of 23.7m ounces. The analysts look for the “positive correlation between gold and the speculative futures position to continue, and look for the long position to remain strong as gold consolidates and makes another run at $1,000 an ounce in September-October 2008”.

The RBCCM analysts also argue that seasonality provides a compelling argument for investment: “Over the past 28 years, gold has typically outperformed on a monthly basis in the months of April and May. This is usually followed by a seasonal slowdown in the [Northern Hemisphere] summer months, and an upsurge in the early fall. With this in mind, investors may be able to exploit near-term weakness in gold and gold equities before a positive run in the late summer, early fall period”.

Finally, the analysts note that over the past couple of years, ETF gold products “have emerged as a meaningful component of gold demand, accounting for 7% of total demand in 2007. Following a slowdown in mid-2007, the five primary ETFs have added almost nine million ounces, coincident with the gold price rally”. During the recent rally in the gold price from its low of around $850 an ounce in early May to around the $970 an ounce level in early July, ETF ounces under management bounced back from 25.9m to a record 29.8m ounces (and are currently 28.8m as of July 25). This overhauls the previous all time high set in March when gold bullion hit its record of $1,033 an ounce. “We believe”, conclude the analyst, “that investors continue to use this product not only for short-term trading opportunities but also for long-term or strategic investment purposes”.

Peter J. Cooper, a Dubai based economic journalist, has recently posted an excellent analysis of why and how to make the best of the coming (and rather overdue) junior mining shares price explosion.

Here’s some appetising excerpts.

The big gold and silver producers are preparing to unleash a round of bidding for junior exploration companies that will bid up the value of the whole sector, and stocks that are good, bad and indifferent will jump in value. You have been warned. Now is the time to buy. It is so obvious with gold and silver prices on the march…

Gold and silver equities have been disappointing performers over the past couple of years. Cost inflation has dented profit margins for the big producers, and capacity expansion has been subject to delays. But these fears may have been overdone, and rising precious metal prices will now begin to feed straight through to the bottom line.

Market anomalies are how investors make big profits. The price of silver is another example of a market anomaly, as this column argued last week. Silver has underperformed every other metal, except gold in this commodity price boom and yet its supply and demand situation is arguably the weakest of all.

So if you want to hedge your position in the junior explorers with a second opportunity to achieve leveraged performance to the rise in price of the underlying metals, then again silver stocks are to be recommended. The smaller companies might well deliver the best performance but unless you want to deeply diversify you could stick to the bigger names.

Please click HERE to read P.J. Cooper’s analysis titled “Time is running out to buy junior exploration stocks” while the junior shopping season still lasts…

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