Saturday, December 22, 2012

The Inside Report on Silver, FG Style

I was in absolute awe this week as I watched silver prices plummet. There might have been a couple of reasons for that. Legitimate reasons.

A problem a lot of us are experiencing is becoming quite obvious- that this Frankenstein Government of ours is going to tax the shit out of everyone next year. Anyone with a sharp pencil knows that the rich can't bail us out. Not even close. That ship left the harbor circa 2008.

So people are selling gold and silver- taking profits in a lower tax environment. I get that. Taxes are going up and industrial demand is going down because the world's economies must contract. Economies always contract as governments confiscate the wealth of their citizens. And there are two other problems. I will leave out the inflation caused by central banks and counterfeiting.

The FED manufactured bull market cycle in stocks is over. Earnings are beginning to deteriorate. People are going to have to start buying Obamacare. Remember, the Supreme Court ruled that Obamacare is a tax and they were right. I think when people see the 4 digit per month price tag for a family of four with Obamacare- things are going to get a little turbulent.

Have you noticed that nobody has really published anything regarding the actual price we will have to pay for Obamacare including the government?

So all of that shit is not good news. So let's finish with the really good news.

A couple of weeks ago, I was reading a very interesting article by a writer on TF Metals stating that the price to mine, extract, smelt, and bring silver to market is somewhere around 25 bucks per oz. That seemed a little high to me and for a couple of years I have used 20 bucks as my break even point for silver. However, I am not going to split hairs.

If the cost to bring silver to market is as low as 5 bucks an ounce as some idiots say- silver miners would be experiencing 400% profit margins or greater. Earnings would be through the roof. Clearly that is not the case. In fact, silver miners are barely making money. I have looked at the balance sheets of dozens.

So what gives? The majority of the demand for silver has now become investment demand. That's it. People are buying silver to preserve wealth. Mine supply is going down. When demand is rising and supply is going down at already barely break even prices- it will not take much of a spark to light a rally like you have never seen.

The floor is in. If silver were to fall another 5 bucks, I'd simply quit mining silver. Why take a loss on your finite reserves? I'd just take a holiday. I don't want to sell something that I know is worth a hell of a lot more than a banker manipulated market is willing to pay me for it.

When and if the producers quit selling- watch out. Silver is not a crop. The earth ain't making any more of it.  Markets are already intensely tight. There is only so much to go around and in a market where the price has been suppressed for decades- a rally to 100 bucks an ounce seems reasonable. I mean that.

There is serious evidence that backs this up. I sat at my computer in absolute amazement as I read the story of silver selling in China at 32.50 yesterday- while it was selling at 29.60 here. A THREE DOLLAR per ounce difference. The arbitrage possibilities are profound.

Another really odd thought occurred to me over the past month as I watched mining stocks get hammered and sold short by bankers along with the other year end shenanigans. Why not just buy the already mined stuff knowing that it is so under priced already? Instead of dealing with the double whammy of banker suppressed prices in the futures pits and bankers selling miners short...why not just buy PSLV, have it stored for you, and watch Eric Sprott take a huge chunk out of all the supply as he buys for the trust?

Other than taxes- which you cannot escape in appreciating miners anyway- why not just buy the real stuff in the Sprott managed trust? So a two pronged approach would have you buying physical metals in small un reportable amounts. Buying silver or gold bullion in Sprott's gold and silver trusts.

Rarely do we talk about the other white metals. I have really been eyeing Stillwater Mining in Montana (SWC) which has been rising for a number of reasons including being added to the Standard and Poors index. I like this miner and it's one of the few platinum/palladium plays.

A couple more points.

If I was a legitimate silver miner in this market- I would seriously consider taking my mines and my shares private if I had operating capital. I also have to think that big miners with dwindling supplies of metal will have to go looking for promising reserves. After all of these poor years and decades, I think a giant window of opportunity is opening as world currencies begin to collapse. I don't think that is a party I would want to miss and I sure as hell wouldn't want to be paying 3% in dividends or 4% for debt when I didn't need to.  

Buying junior miners with verifiable reserves might not be the worst thing to invest in right now. In the meantime, let's just kick back and watch 2013 unfold. The bankers are losing control.


Anonymous said...

Perhaps the metals are being pounded because they tell the truth about how badly our government, and their banksters overlords, is mismanaging the economy (in other words, shoot the messenger). And perhaps those entities doing the pounding are also using the opportunity of lower prices to scoop up what they can, before it becomes evident to all how messed up things are and before prices move much higher. Perhaps.

Anonymous said...

How long do you think that this prices will be set on the "CONEX".
There is something that most are not aware of and that is, in Shanghai yesterday Silver traded at a $2.89 per ounce premium over the London price fix. After the London price fix, trading begins in N.Y. @ the "CONEX" and Shanghai adjusted to $1.45 premium over N.Y. "CONEX". The point is that other Exchanges around the world are begining to decouple from the "CONEX" & that is when Silver and Gold's true value will be discovered. I hope J.P. and Benny B. are getting ready fo a real "MOON POUNDING".

Anonymous said...

Keep in mind tha a lot of silver is produced as a by-product of mining other metals; such as, copper, lead, and zinc. Inthese cases the silver is just gravy.