Friday, April 8, 2011

Silver Price

Since 2001 the United States has made it virtually impossible for small companies to list on it's exchanges in the wake of accounting scandals that these types of firms had nothing to do with.  The net result is that most small mining companies are listed and headquartered in Canada.  Your broker has no idea what this means and might not be able to find Canada on a map.  It is not his fault, if Canada were located next to the local Country Club or perceived socially as being popular, he would definitely know were to find it.  Be prepared to continue doing the job that you are paying him to do as you research and purchase these smaller issues.  The following should help.

Last night the spot price of silver crossed a psychologically important $40/oz mark.  $50/oz seems to be the next target and honestly there is little resistance at the moment.  The timing for this is difficult as it could be one month or not til November but this next level will be achieved during 2011.



Have you had a conversation like this recently?

Sheep         "Silver can't go up forever, you know it will go down at some point."
KB Editor   "Oh yeah........what makes you say that?"
Sheep         "It has gone up too much."
KB Editor   "Interesting.........they should write about you in Market Wizards."

The following statement is one of the most helpful tools for making money in bull markets and avoiding common pitfalls that repeatedly trap average investors.  It is a profound concept that blends physics, psychology, geopolitics and economics into one simple observation. The price of silver will not stop going up until it stops going up.

Any object in motion continues in motion until another force intervenes.  In the case of silver that force can only be 2 things, willing sellers or new supply.

Sellers do not appear to be showing up in any meaningful way to take worthless cash at $40/oz silver.

Silver is a byproduct in mining operations that focus on copper, zinc or other base metals.  Roughly 680 million ounces of silver are mined annually.  Increasing that number takes time.

Finally, many readers might not understand how to invest in silver.  This is a good way to look at proper capital placement:

  • 20% PSLV Sprott Physical Silver Trust
  • 20% Physical Silver Bullion (Storage becomes an issue)
  • 30% Mid-Large Cap Silver Producers Properly Managed
  • 30% Small Junior Silver Miners (Future post will be necessary to help explain how to pick these properly as your broker will have no idea how to help you)

The physical metal gives you insurance in the case of total breakdown.  The exchange traded metal provides liquidity.  The middle market companies that are in production but not giants give you excellent leverage to a rising silver price.  Say one of these companies was mining 10 million ounces of silver last year at $17/oz and today their operating costs have gone up by 10% due to rising oil prices, but their revenue per ounce is up a staggering 135%.  What the market fails to realize is that their earnings reports this year will absolutely shock market participants as the marginal profit on each price increase in spot silver is mind boggling.  Finally, the small juniors give you potential for excellent upside because the claim they paid $10 million for and have been slaving away to develop is literally quadrupling in value.  






Wednesday, April 6, 2011

Is Gold Expensive?

How do you know if something is expensive or cheap?  If an item is marked $999 but on sale for $499 is that a deal?  What if the retailer paid $200 for it and $499 was really a staggering markup only allowed by his clever presentation of prices?  He set the expectation for you and that was the basis for your price judgement.

At the current spot price of $1,458.50/oz gold is a screaming bargain.  Most Americans have no idea how to properly analyze the gold price much less determine a fair price, but they unanimously feel confident that the price is too high.

Gold is not a useful metal, it is money.  Gold has always been and will always be money.  A purchase of gold is an exchange of one form of money for another.  If you live and transact business in America the chart below applies to you.  This is a basic example of how the dollar has performed in comparison to gold over the past year.  PHYS is our recommended exchange based physical gold holding and UUP is an ETF that provides the equivalent of long dollar exposure against 8 major currencies.  Most readers are likely to feel nothing when viewing this chart as $1.00 is worth $1.00 in their mind.  That is what we call living in a Static state of mind and it is to be avoided at all costs.
Chart forSprott Physical Gold Trust ETV (PHYS)
The amount of goods and services that a dollar will purchase is declining rapidly.  The United States is facing a situation that when seen clearly should make any sane person determined to have only a necessary amount of dollars on hand.  Dynamic analysis is required to survive and thrive in this environment.

The US Government is a bankrupt entity.  This may be hard for some readers to comprehend but a company that spent $1.70 for every $1.00 in revenue would be labeled insolvent.  Currently there are no consequences for this behavior as the nation's central bank purchases unsold government bonds by creating the necessary new cash electronically.  This is the same currency that your investments are denominated in.

Fox News anchors can not help you feel better about this by explaining that the republicans want to cut $40bil from the budget compared to the democrats who will only part with $33bil.  Last year the deficit was over $1,600,000,000,000 so the savings are 2.1% of the DEFICIT. This is the equivalent of arguing about the logo on the front of the train that is about to hit you moving at 60mph.  There is no need to engage in this debate, save the energy and use it to get off of the train tracks.

There are other investments covered on this site with far more upside potential than gold.  Gold should not be looked at as an investment rather as a store of wealth and an insurance policy against the corrupt behavior of power drunk politicians doling out other people's money and the crime syndicate of bankers that controls them.

Future posts will reveal the proper allocation strategy for achieving large capital gains in gold mining stocks as the price of the metal rises.

Prediction: Gold will stay below $1,600 through the early summer then gracefully ascend to briefly cross $2,000 in late October or early November before closing the year at $1,800/oz.

Gold v/s Silver

We will never know if attempts to share our view that silver offered more upside than gold were successful.  This 6 month chart comparing the two using our favored ownership vehicles says it all......
Chart forSprott Physical Gold Trust ETV (PHYS)
Please consider our opinion carefully that silver will rise another 20% to cover $50/oz and gold will close the year at $1,800/oz after briefly making headlines for crossing $2,000 in October or early November.

Monday, April 4, 2011

Rare Earth Oxide Price Update

We often use one early to market rare earth producer's weighted average price per kilogram as a proxy for what the rest of the market is doing.  In the absence of a major exchange this is currently the best way to keep track of the underlying fundamentals that will be driving our stock positions as soon as the snooze function breaks on the media's alarm clock.

The rise in price experienced in these elements is absolutely staggering.  In one year prices have risen more than 8 fold including the 22.2% advance last week alone!  Could someone please email the Wall Street Journal and bring this to their attention?  Maybe they will pick up the story once we are unable to replace smart bombs used to drive from power cooperative puppet regimes in MENA (Middle East & Northern Africa) that have allowed us to control the region for 55 years?  Every smart bomb requires Neodymium magnets to properly operate the small robotic tail fins that direct them into the bridge that is blow up in order to create a new IMF loan to pay Halliburton 3x market rates to rebuild it.  War is the most profitable business on earth.

Another possibility is that once the cooperative MENA regimes are removed and unsuccessful oil supply negotiations with the Muslim Brotherhood create $9/gallon gasoline Toyota Prius demand will be unmeetable due to the 15kg of Lanthanum required to produce only the car's battery system.

When will Phase IV of this rally begin?  When will a supply shock experienced by a sovereign government or a major producer of a product demanded by the masses make headlines?  When will actual fundamentals drive this market?

We will wait patiently holding only the best of this misunderstood sector.  Our readers have been given the metrics that should be used to pick the best names in the sector.  The divergence of oxide prices and equity prices creates a form of pressure.  This pressure can only be released by falling oxide prices or rising equity prices.  We predict the latter.
Prices as of 3/28/11

Rare Earth Oxide
Distribution
2007
2008
2009
Q3 2010
 Q4 2010
28/03/11
Lanthanum Oxide
25.50%
3.44
8.71
4.88
23.67
52.49
103.10
Cerium Oxide
46.74%
3.04
4.56
3.88
23.05
52.62
98.60
Neodymium Oxide
18.50%
30.24
31.90
19.12
55.81
81.38
180.00
Praseodymium Oxide
5.32%
29.05
29.48
18.03
54.37
78.62
160.50
Samarium Oxide
2.27%
3.60
5.20
3.40
14.40
36.58
95.60
Dysprosium Oxide
0.124%
89.10
118.49
115.67
281.54
287.85
530.00
Europium Oxide
0.443%
323.90
481.92
492.92
585.31
611.54
900.00
Terbium Oxide
0.068%
590.40
720.77
361.67
593.38
620.38 
905.00
Av. Composition

11.59
14.87
10.32
16.02
62.18
122.93

Prices as of 4/4/11


Rare Earth Oxide
Distribution
2007
2008
2009
Q3 2010
 Q4 2010
04/04/11
Lanthanum Oxide
25.50%
3.44
8.71
4.88
23.67
52.49
123.10
Cerium Oxide
46.74%
3.04
4.56
3.88
23.05
52.62
120.60
Neodymium Oxide
18.50%
30.24
31.90
19.12
55.81
81.38
220.00
Praseodymium Oxide
5.32%
29.05
29.48
18.03
54.37
78.62
215.00
Samarium Oxide
2.27%
3.60
5.20
3.40
14.40
36.58
120.60
Dysprosium Oxide
0.124%
89.10
118.49
115.67
281.54
287.85
646.00
Europium Oxide
0.443%
323.90
481.92
492.92
585.31
611.54
1000.00
Terbium Oxide
0.068%
590.40
720.77
361.67
593.38
620.38 
1085.00
Av. Composition

11.59
14.87
10.32
16.02
62.18
150.20