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Silver-Investor.com
Financial commentary focusing on the precious metals, with emphasis on silver. Published and Edited by: David Morgan
Vol. 3- No. 12
December 2001 Quote: “I'm not saying I know what the future holds. I am saying, in studying superconductor and alternative energy for 15 years, it is not surprising my initial hunch, namely, that the best conductor of electricity, silver, would play an important role.” Ted Butler Silver Silver in 2001 has behaved as a lost and forgotten investment. Much of the bearish talk has centered upon the industrial uses of silver being substantially less during a recession. Another focus has been on the digital photographic use, meaning less demand from this sector. So what does the future hold? Has silver use peaked out and less will be required in the future? The Department of Energy with several industry teams are spending over $100 million dollars to further develop superconductivity. The Department of Energy spokesperson announced " These highly visible partnerships encourage industry to develop equipment for the U. S. electric power system." He went on to state this superconductivity supports the President's National Energy Plan. The estimates currently are 50 million ounces of silver per year will be required by the superconductivity marketplace. Superconductivity power transmission cables may eventually replace conventional transmission cables throughout the continental grid. This is huge news yet unless you are an avid student of the silver market it would be difficult to obtain this information. As far as photography, both Kodak and Fuji are building huge plants in China right now. The photographic industry will be going through changes, however the largest growing sector is the disposable camera. In this era, where most people demand high quality, nothing can match silver halide film. My forecast is for the both digital and standard photography to exist side by side, similar to how wire and wireless technology exists today. GFMS released their interim review of the silver market in November. Here are the high points: Mine production growth of about 1.7% is forecast in 2001. DM: I find this very difficult to accept but it is possible. My earlier forecast was for overall mine production to be off about 22 million ounces in 2001 due to mine closures. As all that read this newsletter know, several large copper, zinc and lead producers have cut back their respective activity. There was a note on the release of this interim report stating that the numbers might have to be adjusted in the final annual report that is normally released in May. Scrap supply will be marginally lower, due to lower international prices. DM: Scrap supply is price sensitive and thus this comment makes sense. Official sales will be lower than 2000 primarily due to fewer sales by China. DM: Again, interesting all we seem to hear is how much silver is coming from China but here is a clue that less was sold in 2001 than in 2000. Disinvestment is expected to shrink considerably and might turn out to be about zero. This would mean that "net" investment might be zero, that is the buys and sells balance out. This would be the first time in a very long time that this has occurred. DM: OK, all you silver bulls quit listening to me and others and quit buying. This is really an important point, so far the paper shorts (futures market) and a lack of physical buyers ( investors) has helped to push the price down, and down, and down. But, this comment from GFMS means that market sentiment is shifting. Investors are looking at alternatives to stocks and even fixed interest rate investments due to the fact that the yield is so low. This low yield also plays an important part in the leasing game, because why risk selling silver you do not own, to gain perhaps a percent or so on your money. The trend since 1997 has been for less and less paper silver being sold. A great quantity is still held in naked ( no silver to back the sale) positions, but it is far less than five years ago. This implies that the powers that be, know they cannot be too aggressive because the real supply keeps shrinking. Disinvestment is a polite word for selling, it is also a clue as to real physical stuff. Right now I put us 18 months away from the price explosion. I certainly see higher silver prices in 2002. In fact the CPM monthly report that I receive forecasts that silver will continue up all year in 2002 and end the year over 5. What this lack of selling really means is STRONG hands are holding silver. Warren Buffett stills has most if not all of his position. From the Berkshire annual report. "Line item 53. Miscellaneous items.
400,000,000$" Now it was widely reported that Mr. Buffett bought
129 Million ounces. However, unless you were really alert you might have
missed the fact that only 90 Million ounces were delivered. So silver at
$4.40 silver times 90 Million ounces is about equal to the 400 million
dollars reported in the annual report. I think Mr. Buffett leased
out the 40 million ounces and wouldn't it be nice if Mr. Buffett asked
for his silver to be returned in the middle of 2003, just about the time
I see this market going crazy. The point I am making is those in the know
are holding , buying, or entering positions in silver regardless of the
Press Releases.
Total fabrication demand is forecast to fall to 8% year on year. DM: According to CPM total fabrication demand in 2000 was 845 million ounces. So an 8% decrease is 67 million ounces. This is quite a bit of silver and I have my doubts. Photographic use of silver is forecast to decline in 2000. DM: This is reasonable due to the recession and airline travel being reduced considerably for several weeks. As to the future, let's quote Mr. Philip Klajwick, "The price outlook over the next few months largely depends on whether economic recovery begins in the first half of next year or whether, conversely, the world is about to enter a synchronized recession. The former offers the promise that silver will recover some of the ground lost during the course of 2001, while the later poses a danger of still lower prices". DM: In other words, GFMS is stating that silver is just an industrial metal, plain and simple. Here I disagree, the dollar is due to peak in March of 2002. Investors worldwide are looking at the dollar and considering what they will do if the dollar loses value. Looking at silver from a purely industrial point of view is NOT looking at the whole picture. Eric Hadik Technical Picture...
For those of you that have my options report, it might be worth taking a look at April options. Remember these will expire in March. I would do what I teach take an out of the money , cheap option and be prepared to act fast. Other Metal News
October 31 (Metal Bulletin) - Asarco, Boliden, Breakwater and Hudson Bay have all announced cuts or closures this week as zinc producers finally caved in to the pressure of historically low zinc prices. Over the next few weeks Asarco will suspend its zinc mining and processing operations in Tennessee which produce around 56,000 tpy of zinc in concentrate. Boliden will temporarily halt production at its Myra Falls zinc and copper mine in British Columbia for three months beginning December 3 which will lead to the loss of around 15,000 tons of copper concentrate and 30,000 tons of zinc concentrate. Meanwhile Breakwater and Hudson said that they will close mines next year as both companies foresee the current depressed prices continuing into next year. Breakwater Resources is to close its Nanisivik mine in September 2002. During the first six months of 2001 the mine had an operating loss of $8.3m and produced 23,439 tons of zinc in concentrate. Hudson Bay Mining and Smelting Co, a wholly owned subsidiary of Anglo American is to permanently close its Ruttan zinc and copper mine in Manitoba by May 2002. Each of the companies cited historical lows in the zinc market as the reason for the closure, and analysts estimate that around 30-50% of mines are operating at a loss at today's prices. Mining News... COEUR D'ALENE, Idaho--(BUSINESS WIRE)--Nov. 28, 2001--Coeur d'Alene Mines Corporation (NYSE:CDE - news) announced today that it has signed an exploration agreement with Barrick Gold Corporation covering Coeur's Puchuldiza gold property located approximately 155 miles northeast of the port city of Iquique in northern Chile. Under the terms of the agreement, Barrick can earn a 75 percent interest in the property for exploration expenditures of $2.25 million over the next five years. Puchuldiza is considered to be geologically unique in Chile in that it appears to be a large epithermal hot spring deposit in a setting very similar to other high-grade gold deposits in the USA, New Zealand and Japan. Gold mineralization can be found throughout the property in systems of veins, veinlets and stockworks developed in breccias and silicified zones. Hecla Mining (HL) promoted CFO Phil Baker to president and COO, although Art Brown will remain as CEO and Chairman. Pan American Silver Corp. (NASDAQ: PAAS; TSE: PAA) REPORT TO SHAREHOLDERS ON RESULTS OF OPERATIONS AND FINANCIAL CONDITION THIRD QUARTER (all amounts are expressed in US dollars) - Realized net income of $0.7 million or $0.02 per share - Increased quarterly silver production to 2.1 million ounces, 138 percent higher than third quarter 2000. - Made additional production and work force cuts as a result of extremely weak silver, zinc and copper prices, which continue to negatively effect revenues. - Retired $12 million loan and established longer-term $6.5 million credit facility, secured by Huaron assets. - Generated $3.5 million gain and increased Huaron project interest to 100 percent through land swap. Silver Standard Resources ( Nov 2) is pleased to
announce a letter agreement with Pacific Rim Mining Corp. to acquire the
Diablillos silver-gold project in Argentina. Under the terms of the
agreement, Silver Standard will pay a total of US$3.4 million for
In other corporate developments, Silver Standard reports its inclusion in the planned S&P/CDNX Composite Index that will be inaugurated by the Canadian Venture Exchange on December 10, 2001. This new venture exchange index will include approximately 500 companies. The weighting of Silver Standard in the new index is among the half dozen largest by market capitalization and can be expected to assist investor decisions about CDNX-listed companies. Model Portfolio Omitted by author for protection of paid subscribers.... Some Christmas Thoughts:
There was a group of women in a Bible Study on the book of Malachi. As they were studying chapter three, they came across verse three, which says: "He will sit as a refiner and purifier of silver." This verse puzzled the women and they wondered what this statement meant about the character and nature of God. One of the women offered to find out the process of refining silver and get back to the group at their next Bible Study. That week, this woman called up a silversmith and made an appointment to watch him at work. She didn't mention anything about the reason for her interest beyond her curiosity about the process of refining silver. As she watched the silversmith, he held a piece of silver over the fire and let it heat up. He explained that in refining silver, one needed to hold the silver in the middle of the fire where the flames were hottest as to burn away all the impurities. The woman thought about God holding us in such a hot spot then she thought again about the verse, that "He sits as a refiner and purifier of silver." She asked the silversmith if it was true that he had to sit there in front of the fire the whole time the silver was being refined. The man answered that yes, he not only had to sit there holding the silver, but he had to keep his eyes on the silver the entire time it was in the fire. If the silver was left a moment too long in the flames, it would be destroyed. The woman was silent for a moment. Then she asked the silversmith, how do you know when the silver is fully refined? He smiled at her and answered, "Oh, that's easy - when I see my image in it." If today you are feeling the heat of the fire, remember that God has His eye on you and will keep watching you until He sees His image in you. Be blessed! The Economy
The Russians have now have a gold coin as currency, the Chevronet, and are building their gold reserves, not reducing them. The Muslims are beginning to run with a gold coin called the Islamic dinar, while Arabs are loading up on gold via purchases out of Turkey and Switzerland. Meanwhile, the Chinese have been quietly buying physical gold. And come January the Chinese officially open up their gold market to their public. The global risk of a Japanese financial meltdown still exists. Two factors are at work here: an economy that refuses to turn up, and an ailing financial superstructure. Not only are Japan's banks in trouble, but also its insurance companies, retailers, and other parts of the private sector are barely keeping their heads above water. As indicated many times before it will not take a great deal of money movement away from the dollar to get a big snowball rolling downhill. The Federal Reserve must feel some frustration at this point because the normal Keynesian rules are not working and the bond market is shouting this fact to anyone wise enough to pay attention. It is easier to forecast short term in this environment, than long term. The bond market is signaling noticeable inflation directly ahead. Most likely we will experience, that old term stagflation. This is where necessary items have very large price increases, food, energy, and most commodities. The unemployment rate remains high, and the overall economy is in a recession. Official statistics will blur the truth, as they do now, since food and energy are not counted in the official inflation numbers. The metals will react to this situation and protect your savings. I still favor deflation over inflation as the final outcome to the great inflation we have seen over the past thirty years. All inflation's do end, and in only one of two ways , hyperinflation or deflation. Although the money supply increase has gone parabolic ( nearly straight up) the money is being used to keep the banks from failing. The money is not hitting the general public. There is a strong possibility that once a major player such as a China, or Japan central bank decides to cash out of U.S. debt instruments and get something else Euro’s perhaps, the decline in the dollar will accelerate. The Euro will be the official currency beginning next year and with all the tension in the world the oil rich nations may find another way to put additional pressure on their number one importer U.S. I look for the Euro to be used more as a political instrument than as a currency hedge. Final Notes:
Beginning in January the radio program is scheduled to begin again under a new station manager. I will be discussing the precious metals and energy markets on a weekly basis. Also, a plan is being formed to include a very detailed page on our web site that will outline several mining company stocks. This will take some time to produce since it demands some special software. As far as the book I am writing on silver, I must admit it is going slow. Now that the snow has hit here in Washington I will be chained to my desk even more and should be able to pound the keys and make some real progress. I still recommend that anyone that wants a good book on silver buy the Silver Bonanza book from our web site. I will not be covering the history of silver in my book and the Silver Bonanza does an excellent job. Lastly, for those young people on your Christmas list consider buying them a silver coin of some type. In today's world real value seems to be shunned for the latest fad. Giving a piece of silver is not only giving something of real value it can inspire the imagination. Lastly the newsletter price will be increased in 2002. The regular mail version will remain at $88 for U. S. mailings. The email version will be raised to $ 78 per year. SUBSCRIPTION INFORMATION: 1 year $78.00 U.S. Funds for Email, $88 for regular mail. Make check payable to Stone Investment Group, 21307 Buckeye Lake Lane, Colbert, WA 99005. Please include name, address, telephone number and email address. We now accept VISA and Mastercard charges on the web site Silver-Investor.com. Payment is either by credit card, personal check, money order or e-gold transfer. Private phone consultations available. Information contained herein has been obtained from sources believed
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