Recent Gains; Debt vs. Gold; & Zinc

Silver Stock Report

by Jason Hommel, June 9, 2006

Silver has gained over 10% in the last 6 months, from $10 to over $11/oz.  

Silver has gained 49% over the last 12 months, from $7.50 to $11.21/oz.

Those gains are so huge, it must inevitably draw money away from bonds, and into silver (and gold).

Silver stocks, on average, have gained 57% since January 1, 2006.

My own portfolio is up about 100% in the last 6 months–I’m glad to know and report that I’m outperforming my favorite market sector; both silver and silver stocks.

My biggest unrealized gains over the last 6 months are:
MMGG.OB, up about 400%, 
SVG.V, up about 400%,
IGMI.OB, up about 170%,
KRE.V, up about 180%,
SNR.V, up about 250%.
ABI.V, up about 220%.


To be fair, my biggest losers are:
MGN, up about 2%
CFTN.PK, down almost 40%.
NME.V, down about 10%.


We are in a bull market for silver, gold, and many other metals.  Have you ever seen those guys who try to ride bulls?  They typically last only about 10 seconds before getting bucked off.  That’s the job of a bull, to buck off those who attempt to ride it.

Bulls also gore people with their horns, and use their horns to throw those bull riders into the air.  I see a spike on the gold and silver price charts that looks like a bull’s horn.  It just gored all those who tried to use borrowed money to try to take advantage of the bull.

But the overall bullish trend is still solidly in place, and the fundamentals are all still strongly in place, or are getting better:

There is about $50 trillion in paper money in the world; and about another $50 trillion in bonds; for a total of about $100 trillion.  In contrast, all the gold in the world, about 150,000 tonnes, or (4.6 billion oz.), at $610/oz., is valued at $2.8 trillion dollars.  Clearly, since bonds & dollars are in a mortal competition with gold as money; and since paper money is losing the battle (as we are in a bull market for gold), the total value of paper money will be going down, and the value of gold will be going up.

Due to how much paper money there is, one way to think of it is that the printers of paper money have stolen each ounce of gold that exists 30 times over!  That kind of theft cannot be kept.

One explanation I’ve read that explains the current dip is that Japan is tightening money, and raising interest rates above 0%.  So, people who had been borrowing yen, to invest in gold, silver and commodities, decided to sell commodities, to buy back yen, to close out their “yen carry trades” before many others who will become increasingly compelled to do so.

But due to the small size of the gold market, gold cannot truly be sold to raise funds to pay down debt.  There is more debt than can be paid back, even if all the gold in the world were sold multiple times.

Interestingly, we can apply this principle to our own lives.

We gold and silver investors, who are sitting on gains and who are urgently telling family and friends about our recent success, undoubtedly have some family members who want us to help them by selling our silver; and meanwhile, these people are carrying debt loads; home mortgages and/or credit card bills.  Do not give them money to pay down debt, not yet.  Can you sell a $3 trillion market (gold) to raise the capital to pay back $50 trillion in debt?  No!  Therefore, let your family and friends go bankrupt, as will need to happen to wipe the debts clean.

Remember that the Bible says that all debts should be forgiven every 7 years, and every 50 years.  The rising gold price will ultimately wipe out dollar denominated debts, but not today, and not by selling gold at less than $30,000 to $100,000/oz.!

Remember also that the Bible says to not be a co-signer on a loan.  If other people have money troubles, and they are in debt; remember that their money troubles are a natural result of their own actions; they are reaping what they sowed, just as you have a right to reap what you have sown by investing in gold and silver.  (And it is not yet the time to reap in silver, it remains the time to sow, and invest in silver!)

Our Christian responsibility is charity, yes.  But there is no need for us to think that we need to pay other people’s debts.  If you must help out a person’s need; help their daily needs for daily work.  Or give them a nice meal–provide for their needs for the day.  Charity, and love, also consists in telling the other person the hard truths of economic reality that they had been avoiding through their own monetary mismanagement, debt-enabled lifestyle, and overspending.  

This week, my son is learning to drive, so rather than let him learn to drive in my car, I bought him his own car, a 1995, $4000 Nissan Pathfinder.  I was trying to convince the car dealer to take gold–which is where I have stored some “short term” cash.  I explained the market well enough, I suppose, even explaining that the trend is up.  But then he said, “If I was in gold, I’d sell, and take the money, and run!”.  I said, “Fine, but run to what?  You have to put your money somewhere, what are you going to do, put dollars in the bank?  Dollars are going down, and bonds pay less than inflation.  I said, I already have money, and I have run, I’ve run to gold and silver!”  I think that convinced him, he took the gold.

Again, let me make the point.  Raising interest rates to 5-6% (which is still well below inflation of 10%) is not nearly enough to pull substantial, real money, out of gold and silver, that are going up by 30% to 50% per year.  Nor is there enough money in gold and silver from which to pull back into bonds! 

Another factor to explain the recent dip in metals prices is that the certain central banks decided to sell more gold, to calm down these markets.

But again, they cannot truly sell enough gold to break the back of this gold bull market.  The central banks probably only have about 15,000 tonnes or less, whereas all the gold in the world is ten times as much.  So, central banks have about $0.3 trillion worth of gold to sell to cap the price, whereas, in contrast, the world has about $100 trillion worth of bonds and paper money to spend on gold!

People buying gold have 300 times more buying power than the central banks have selling power!

In the short run now, about a month after the launch, the Silver ETF has just under 67 million ounces of silver, and now trades at a 2% discount to the price of silver.

This is down from about 74 million ounces a few weeks ago.  

I had thought that the silver ETF could cause silver prices to jump as high as $35/oz. with about 30 days of the launch.  Obviously, 30 days later, this has not happened.  But the ETF remains as a doorway to billions of dollars that can now invest in silver.  The billions, trillion, have just not moved yet.  67 million oz. at $11/oz., is still just under $1 billion.  

But for years now, I’ve said that the silver price could quickly jump up to about $20/oz, if one billion dollars went into buying silver.   By nearly hitting $15, I feel I was close, but the current dip in silver is more of a mystery to me–nevertheless, it is a normal market fluctuation.  Silver was down 34% in April 2004, from $8.40 to $5.50, whereas right now, silver is on a dip of about 25%.

In this time when many in the market are uncertain about the future prices of the metals (I and many of my readers are not uncertain, we know we are still headed way, way up, long term), I’d like to share with you two charts that are very clear; even a 3 year old can see the trends in this charts: the 6 month LME Zinc warehouse stocks, and the 6 month price chart.  Zinc stockpiles are going down, and prices are going up.  Warehouse stocks cut in half; while prices doubled.

Source of charts:

Zinc is primarily used to galvanize steel.  We are running out; due to run out this fall, about 6 months from now.  And no substantial new zinc supply will be produced in the next two years.  And there are no suitable replacements.  One is cadmium (tiny supply) and another is tin, but tin has historically cost more than copper.

MMGG may take 2 years to get to production.  First, they need to complete a feasibility study.  Then, they need permitting.  Then, they need to raise $300 million, more or less.  Then, they need to have engineers draw up plans.  Then, they need to construct the mine.  (If all goes well from A to Z.)

For more on why Zinc will continue to be depleted, and prices will continue to rise, see my article last week:
Increased Free Market Leading to Higher Zinc Prices

Key conclusion from my last week’s Zinc report:

Metalline Mining (MMGG.OB–symbol works at Yahoo! Finance) is my company of choice, as they are working on a feasibility study to show that they can produce nearly 400 million pounds of zinc per year for nearly 10 years, at a low cost of about $.25/lb.  With higher zinc prices, MMGG could earn between $400 million and over $1 billion per year.  

With about 50 million shares fully diluted, and a price of about $4.25/share, MMGG has a market cap of about $212 million.  (I own just over 1% of the company).  

MMGG also recently announced very, very good silver results, from 5 to 50 oz. silver per tonne.  (May 11th).
There is not yet a resource calculation for those drill results.

You don’t want to miss out on MMGG.  The timing right now is about perfect.  The stock is on a dip from a recent high of $5.67 earlier this month.  The overall resource market is on a dip since May 11th, since gold is off from $720/oz., and silver is off from the high of about $15.  Zinc prices have remained fairly close to recent highs of $1.70/lb., and due to declining inventories, zinc prices are ready to continue upwards towards $4/lb.  By Monday, zinc prices could hit new highs of $1.75/lb., and MMGG could open at or near $5.00/share.

Some of my past reports on MMGG and Zinc are:
60% in 60 days: that’s what zinc just did! May 9, 2006 MMGG was $3.85/share; zinc about $1.60/lb.
A comparison of two Zinc/Silver companies: WTZ & MMGG Feb 24, 2006 MMGG was $2.19/share; zinc about $1.10/lb.
MMGG: Here’s why you will make a fortune on zinc! Jan 28, 2006 MMGG was $1.77/share; zinc about $1.04/lb.
Silver Stock Picks for 2006 Jan 5, 2006 MMGG was $1/share; zinc about $.89/lb.

If MMGG rises to become a company worth $10 billion, earning $1 billion/year, (assuming MMGG raises $300 million to finance mine construction at $10/share) then that implies a fully diluted share count of about 100 million shares, and implies a share price of about $100/share.

I own MMGG, and MMGG has not paid me to send out this email.