Srebro-silver

Gost

25 March 2010

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Do we have another Harry Markopolos here, describing in detail the manipulation of the silver markets by J.P. Morgan to the CFTC? How does this square with the testimony today from the CFTC Commissioners, who seem to indicate that the markets are functioning extremely well, and that investor can have full confidence in them?

I am led to understand that Mr. McGuire had offered to testify before the CFTC today, and that he was refused admittance. I do not know him, or the position he is in within the trading community. I cannot therefore assess his credibility or the validity of any evidence which he may present or possess. But I have the feeling that nothing will come of this.

Remember, there was no action on the Madoff scandal until AFTER his fraud collapsed, and the government was forced to acknowledge Markopolos' existence. He had been ignored and dismissed by the bureaucrats at the SEC for years because of Madoff's power and standing with the trading establishment. And of course by those who had an interest in hiding Madoff's scheme, if nothing else, to promote 'confidence' in the markets.

What seems particularly twisted about this is that JPM is the custodian of the largest silver ETF (SLV). Is anyone auditing that ETF, and watching any conflicts of interest and self-trading? Multiple counterparty claims on the same bullion?

If you ever wanted to see a good reason for the Volcker rule, this is it. These jokers are one of the US' largest banks, with trillions of dollars in unaudited derivatives exposure, and they seem to be engaging in trading practices like Enron did before it collapsed.

Have they lost their minds, or are they just that reckless, immature, short term, and arrogant? Morgan practically holds the keys to the US Treasury, a recent recipient of billions in taxpayer support, and still receiving signficant subsidies from the Fed. They seem to be in dire need of adult supervision. Blatantly and clumsily rigging the silver market, and then bragging about it to people outside their company. What's next, bumping off grannies for their Social Security checks? Three card monte games on the boardwalk?

I was trying to understand why this item struck me so hard this evening. It shocked me in a way that few things do anymore. I think it is because I had unconsciously come to the same conclusion earlier, on my own, in the post where I showed the repeated and obvious bear raids on gold into this option expiration, and it struck a resonant chord when I read McGuire's description of the silver manipulation. I refused to believe it, but apparently there it is. [You must be registered and logged in to see this link.] that Citigroup was caught using in the Eurobond markets.

I do not expect the detailed facts on this to ever reach the light of day in my lifetime. The implications are far too political.

Gost

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Gost

Precious Metals: Shine On!

Unlike energy and base metals, precious metals aren't so much of an organized competition as a free-for-all. Everyone wants gold and silver, but supplies are tight and will stay that way.
Gold: The yellow metal is pushing toward multi-year highs as demand rises, fueled by a number of forces, including: inflation fears, geopolitical unrest, rip-roaring demand from Asia, and more.
Remember, it wasn't too long ago that gold was in a 20-year bear market. Companies stopped looking for new resources. Now, they're playing catch-up, but the easiest way for the big boys to get new gold resources is to buy up small- and mid-cap companies.
Silver: Silver has the same drivers that gold does. Just like gold, silver has its own supply/demand squeeze.
Platinum: Platinum could go either way. On the one hand, palladium is substituted more and more often for platinum, and now silver is being substituted as well. On the other hand, platinum mines are shutting down left and right. The price of platinum dropped to parity with gold in the last quarter of 2008. This may indicate a buying opportunity.
Bottom line: The share prices of companies that deal in commodity resources have the potential for explosive price growth. The next phase of the super cycle should send buyers flush with cash, snapping up resource-rich small-caps by the armload.
The profit party in natural resources is just getting started. Phase I of the natural resource boom was driven primarily by smart institutional money that got in very early.
Now we're in Phase II. This is the phase that's being driven by massive buying from industry, from the general public, and from the forces driving countries like India and China into the 21st century.
You can see it everywhere: In gold, copper, oil, platinum, silver, aluminum, zinc, iron, coal, lead ... and uranium.
In my opinion, every one of these is in a powerful, long-term bull market, with Phase II just beginning.
Red-Hot Global Small-Caps is focused primarily on companies that are best positioned to feed the global commodity super cycle. We will also go to Canada, Australia, Latin America and Asia to find the best opportunities for you.
And no matter where we go, you can still invest through your existing broker — no option, no futures contracts — just shares, and without ever leaving the comfort of your living room.
Are profits guaranteed? Of course not. As with any investment, you can lose money. But you have five things going for you right now ...
First, all of our indicators are signaling that Phase II of the natural resource boom is just in its beginning stages. That puts you right at the starting gate.
Second, Asia's boom still has a long way to go.
Third, the downside risk which is strictly limited to the amount you invest.
Fourth, there's no expiration date. You can hold them as long as you want. Provided the company remains solvent, no one can place a time limit on your opportunity.
Fifth, these companies offer huge leverage! Their mining and processing costs are cheap, and the prices of the commodities they deal in keep climbing.

Gost

Main Street may know something that Wall Street’s chattering class doesn’t know. Because while Wall Street always seems to give silver short shrift, mom-and-pop investors are buying silver at a furious pace.
Here’s what I mean: The U.S. Mint sold more Silver Eagles in March and in the first quarter of the year than ever before. A total of 9,023,500 American Silver Eagles were purchased in the first quarter of this year, the highest amount since the coin made its debut in 1986.
I think that we may be seeing the start of something big in silver. And I have some ideas on how you can ride this wave, as silver goes to $20 an ounce, $25, and potentially higher.
And it’s not just the small investors tucking silver coins away at home. Take a look at the combined holdings of silver ETFs around the globe ….

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Last year, total silver ETF holdings grew by 122 million ounces. That’s nearly 1 in 5 of every ounce mined. How much do you think silver ETFs will add to their holdings this year?
I’m not going to guess, but it’s just one of upward pressures on silver now. The other forces include …
#1) Supply Squeeze. The 2009 numbers aren’t in yet, but in 2008, silver saw its demand decrease by 0.9% to 832.6 million ounces. In fact, both the price and demand for silver have been trending higher for the past 10 years. It’s also good to remember that the average bull market in commodities lasts around 17 years.
Silver miners couldn’t meet demand in 2008 — only about 657 million ounces came out of the ground — a gap of 175 million ounces. So, the world relied on recycling to fill the gap.
Now for the bullish news: Above-ground stockpiles, while off their lows, are trending lower. Considering that stockpiles include all the silver in ETFs, that trend is very interesting.

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In fact, even including the silver in ETFs, the above-ground stockpiles of silver amount to just 10 months’ worth of supply. That’s one-sixth the ready supply of a decade ago, when ETFs barely figured into the equation.
Now for some potentially bearish news on supply. Silver production will increase over the next few years when existing mines ramp up or new operations start including Coeur’s San Bartolome in Bolivia, Pan American’s Manatial Espejo in Argentina, Coeur’s Palmarejo mine in Mexico, Goldcorp’s Peñasquito in Mexico, and Barrick’s Pascua-Lama in Argentina and Chile.
So, to keep upward pressure on prices, demand will have to increase as well. I think that’s going to happen. For one thing, as I’ve showed you, investment demand is surging. For another …
#2) Industrial Demand for Silver. Silver is a precious metal, but it’s also an industrial metal — used in everything from flat-screen TVs to zinc-lithium batteries. The industrial uses for silver keep growing and growing. Silver is not only beautiful, it’s malleable, it’s the best conductor for electricity and heat of all metals, it’s reflective, and it’s even an anti-bacterial agent. It’s a chemical catalyst, and approximately 700 tons of silver are consumed every year in the production of plastics.
New industrial uses for silver come along all the time. For example, one new source of silver demand comes from the electronics industry and the use of silver in photovoltaic applications for solar energy panels.
What’s more, silver’s industrial status means that 50% of global production is consumed — used up, never to be seen again — every year.
Last week, in my column “[You must be registered and logged in to see this link.],” I gave you a long list of bullish indicators for the global economy. That list keeps growing, with U.S. gasoline demand rising, producers reporting rising orders, and confident retailers building inventories. And industry is booming in China and along the Pacific Rim, too.
Those are some happy, cheery reasons why silver could and should go higher. There are also the scary reasons. For example …
#3) Are We on a Collision Course with a Global Currency Crisis? Take a look at how silver is performing in a group of major currencies …

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This chart shows the progress of silver over the past year priced in U.S. dollars, euros, yen, Australian dollars, Canadian dollars and Swiss francs. You can see that silver is rising in all these currencies, but it is up the least in the Australian and Canadian dollars. These are what are called the “commodity currencies” — because they are backed by hard assets like gold, silver, copper and oil that those countries produce and export.
Silver is doing the best in the U.S. dollar, euro and yen. These are fiat (paper) currencies, backed up by little more than faith in a principled government and the conservative practices of bankers.
Good luck with that!
I don’t have to tell you about the serious financial woes the U.S. and other countries are in. Greece is in debt up to its eyeballs and may take the euro down with it. Japan has an aging and shrinking population that can’t keep up with its ballooning debts. As for the U.S., the short version is we are trillions of dollars in debt and can’t seem to grow our way out of it. The only way to get out from under that debt is to print money, or inflate out of it.
We aren’t seeing official inflation … yet. But as debts become insurmountable … as balance sheets sink deeper into the red … as debt payments eat up more and more of national budgets … the temptation for central bankers to print their way out of this problem will probably become irresistible.
You know what does well when central bankers turn on the printing presses? Gold and silver, and hard assets generally.
Smart traders realize this. Heck, mom and pop investors on Main Street realize this. That’s why they’re buying silver eagles with both hands. Sure, the U.S. mint set a new record in March. But records are made to be broken.
And here’s one last chart to keep your eye on …

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Silver is trying to break out now. Maybe it will head lower. But if it can break out to the upside the next stop should be its old high at $21.44. And if that overhead resistance shatters, we could see $25 silver pretty shortly after that.
This may sound like pie in the sky, especially because silver is up 21% from its low this year on February 8th, and up a whopping 103% from its low back in November 2008.
But take a longer-term view. The historical ratio of the price of gold to silver is 16 to 1. Moving closer to that would give us a silver price of around $70 an ounce! I’m not saying we’re going there. I’m saying there’s no reason we can’t.
Will You Get a Chance to Buy Cheaper?
I think you can wait for a pullback. We’re in earnings season now, and the last two market pullbacks of 5% to 10% occurred early in the earnings season. While stocks and commodities trade differently, most seem to be generally moving opposite the U.S. dollar now.
But don’t wait too long. Silver is impatiently tapping a glittering shoe, with an eye on the clock. The profit train will be leaving the station. Be on it!
What You Might Want to Buy …
For a short-term trade, consider buying one of the ETFs that holds physical silver, like the ETFS Physical Silver Shares (SIVR) or the iShares Silver Trust (SLV). There’s also a leveraged silver fund — ProShares Ultra Silver ETF (AGQ), but you can get burned if you’re holding that one at the wrong time.
If you’re a long-term buy-and-hold investor, save yourself the fees associated with an ETF and buy physical bars, silver eagles, or silver Canadian Maple Leafs. You might sleep better holding the physical silver, too.

KuciloOro Research Team, [You must be registered and logged in to see this link.]

Gost

While you’re reading this, I’m on a journey far into the hills of Mexico. There, I will venture deep into copper and silver mines, on the trail of another potential addition to [You must be registered and logged in to see this link.].
I like to check these things out in person — to get my boots dirty, get my hands on the rock, and talk to the miners. It tells you more about a company than pushing a metric tonne of paper ever will.
And it’s also important to get a feel for the big picture. Let’s look at what’s going on with both of these metals.
First, look at this monthly chart of both silver and copper. You can see they track each other pretty closely.

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The fact is silver is an industrial metal as well as being a precious metal. In 2008, the latest figures available, industrial uses of silver accounted for 54% of global fabrication demand and 50% of total silver demand, according to data from the Silver Institute. So it’s not surprising to see the metals move together.
Copper is often called “Doctor Copper,” because it tells you the health of the global economy. Well, “Nurse Silver” is right there taking the economy’s temperature as well.
Both metals are off of their recent highs. And I think they should correct further. But that’s okay — that’s just going to give us an opportunity to buy great stocks on the cheap. Because as you can also tell by looking at that chart, the long-term uptrend is intact for both metals.
Longer-term, I expect both metals to keep hammering away at overhead resistance, and finally break out to the upside.
And that breakout may come sooner rather than later, due to rip-roaring growth in China, India, and other emerging markets. Here are some developments I’m watching …

China Power Use Surges. China’s electricity consumption jumped 40.1% in January from a year earlier. It was 2.7% higher than electricity demand in December. What’s more, China’s power consumption may rise 9% this year — 2% more than in 2009 — as that country’s factories ramp up production.
China’s Economy Is Roaring Ahead. It’s not just electricity use that is ramping up in China. The country clocked 8.7% economic growth last year, and some analysts say it could grow 9.4% this year. The International Monetary Fund set its sights for China even higher — at 10%! To be sure, China is trying to keep a lid on its booming economy. The Bank of China raised reserve requirements for a second time in a bid to cool off that country’s red-hot real estate market. Good luck with that.
Good News along the Pacific Rim. The good news from China is spilling over onto its neighbors. Japan and Korea came out of recession sooner than later because of their exports to China. Korea’s economy is expected to grow 4.5% this year, according to the IMF, while Japan has finally climbed out of a steep contraction and is finally clocking positive growth.
India Also Picks Up Steam. According to the IMF, India’s economy should grow 7.7% in 2010 and 7.8% in 2011.
The Global Economy Slowly Gathers Momentum. While developing Asia should lead the global economy this year, with 8.4% growth, the developed world should see some positive traction. As a result, the IMF says that the global economy should grow by 3.9% and 4.3% this year and 2011 respectively.

This economic growth should be bullish for both copper and silver prices. After all, some Chinese steel makers have agreed to a 40% increase in the price of iron ore — another industrial metal — which shows that demand is vjekin up.
China Demand Counts in Copper
Figures on China’s copper demand for 2009 run through October. During that time, China’s use of refined copper grew by 43% to 1.8 million metric tons to account for 40% of world use. It nearly offset an 18% decline in the rest of the world. Use decreased by 21% in the European Union’s 15 countries, by 31% in Japan, and by 21% in the U.S.
In all, global demand for copper slipped by 1% to 15 million metric tonnes, according to the International Copper Study Group (ICSG). But as the global economy heated up toward the end of 2009, global demand for copper — you guessed it — increased as well.
At the same time, world mine production grew by 1.9% in the first 10 months of 2009 compared with the same period of 2008.
There is a large copper stockpile in China, but the Chinese seem to be working through that. And that opens the door to potentially much higher prices and a supply-demand gap in 2011.
I should mention that the Chinese say they may use only half as much copper in 2010 as they did in 2009. I should also mention that the Chinese routinely lie to try and manipulate the markets.
It is true that Chinese demand for copper has weakened in recent weeks. But that has been offset by growing demand elsewhere.
In sum, it’s my view that China’s buying strategy, ebbing domestic stockpiles, the constrained global copper scrap supply and continued end-user demand are all supportive of higher copper prices.
Silver Inventories Are Low … We Could See a Price Spike
The financial crisis saw many industries use up their stockpiles of silver — and now they need more. Silver is used for many industrial demands — from mirrors to photography to flat-panel TVs. The stress on global mine supply could cause prices to spike higher. Meanwhile, there are new industrial uses for silver all the time. For example, migration to long-life silver-zinc batteries will only add to demand.
I haven’t even mentioned investment demand for silver. I mean, you wouldn’t care about a chart showing how exchange-traded funds have become a major force in the market, would you?

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I thought not. Anyway, in the short-term, I still think silver prices could go lower. In the longer-term, I’m very, very bullish on silver.
And that, in brief, is why I find myself trudging deep into the hills of Central Mexico. The nearest sizeable town is the site of a famous Catholic miracle.
See, when the conquistadores arrived, they squared off against the local Aztecs. Legend has it that an agreement was reached, under which the natives would accept Spanish rule and embrace the Catholic faith if they were defeated in a weapon-free battle. The Spanish conquerors were about to lose, when suddenly the sky went dark and Saint James appeared holding a fiery Holy Cross, causing the Indians to immediately give up.
How did they know it was St. James? Why did the natives accept that this fire-wielding apparition was on the side of the conquistadores? Hey, it’s all part of the mystery, one that will never be solved. But I plan on solving some mysteries of my own, starting with whether the mines I’m going to see are good values.

Stay with US; KuciloOro Research Team

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