(Don’t even wait a week!)
Silver Stock Report
by Jason Hommel, February 20, 2008
This afternoon, gold moved up $30/oz. to a new high of $947/oz., silver moved up $.75/oz. to hit a new high of $17.96/oz.
Palladium moved up to a new high of $501/oz., which seems to be catching up to platinum at $2143/oz, which hit its new high yesterday.
This is a fantastic breakout of all 4 precious metals! A strong breakout. Last week, we crossed a breakout in silver in the Euro.
These breakouts should attract momentum buyers, and could take precious metals prices up about another 25-50% in short order, in less than six months.
Meanwhile, silver and gold junior mining stocks languish near all time lows.
You just don’t get better buying opportunities than this. It’s as if the world does not understand that gold and silver are hitting new highs, nor do they understand why.
The world produces about 650 million ounces of silver per year. All of that, and more, is consumed by industry, silverware, jewelry. Only recycling and investor selling has made up the difference. As investor selling slows and turns into buying, silver prices will soar, and vastly outperform gold, because silver is probably more scarce that gold these days, with maybe only 1 billion oz. of silver in the world, or less.
The world produces about 80 million ounces of gold per year. Nearly all of that is for investment purposes, and accumulates, being added to the nearly 5 billion oz. of gold in the world. Gold remains cheap though, because the central banks continue to sell. But as the central banks pump out nearly $4 trillion worth of new paper money each year, as the world’s gold is worth about $5 trillion, gold is basically a “sure thing” in investment terms, and now has a strong trend upwards that must be increasingly attractive to all the world’s “trend investors”.
The world produces about 8 million ounces of platinum each year, and about 8 million oz. of palladium each year. Eighty percent of the world’s platinum, and most of the world’s palladium, is produced in South Africa, and right now, there is a developing power crisis in S. Africa that is constricting mine supply, and threatens to get worse.
South Africa seems to be headed the way of their largest trading partner, Zimbabwe, which has justly suffered terrible hyperinflation and economic collapse after the confiscation and eviction of 4000 white farmers, and the erection of trade barriers and price controls.
I sold my South African gold mining stocks in 2003, when the S. African currency was growing stronger faster than higher gold prices. But what really turned me off to S. African gold stocks was the new government mandate that a certain percentage of the companies must be owned by black people. Such reverse racism and government-mandated confiscation cannot be good.
Apparently, the newly black-owned and government-owned coal companies and power plants lacked the expertise to operate efficiently. Lower quality coal fed to coal powered power plants has hurt operating efficiency, and damaged equipment. And environmentalists had convinced the S. African government to not build any more coal powered power plants.
It will take at least 5 years to build a new coal powered power plant, so the power crisis for the S. African miners is just beginning, and the entire nation could become a basket case the more they confiscate assets from white people. Unfortunately, bad economic conditions often lead to more racism, just as they do in America, as people complain more about Chinese outsourcing and Mexican immigration when times are worse.
Most power to the mines in S. Africa goes to keep up ongoing conditions, such as pumps to dewater, or for air conditioning. Since the largest cost must continue 24/7, so should the mining, to keep things economic. If the mines have to get by on 10% less power, they produce 20% less material, and if they get shut down for any length of time and flood, they might never be able to come back online.
And if the miners get thrown out of work, at least 10 other jobs can be lost, due to the multiplier effect. Further, without gold exports, there would be much less of a reason for the S. African currency to be strong.
Ironically, the environment needs platinum and palladium to reduce auto emissions in catalytic converters. Those crazy short-sighted environmentalists! Protesting a coal power plant could actually make the air much worse without the platnum and palladium that the world needs! I wonder why I’ve never seen an environmentalist advocate increased platinum and palladium mining?
Platinum and palladium can be substituted one for the other, so I think palladium, the cheaper metal today, stands to benefit more from the current platinum crisis emerging in S. Africa. I own some palladium metal, which you can sometimes order from your local coin shops.
Correction: I wrongly wrote: “I caution you about the stock, North American Palladium (PAL), because 1/3 of the company’s supply comes from S. Africa, and the other 1/3 comes from Russia–it seems that the company has a somewhat deceptive name.” My mistake. World palladium production is 35% from Russia, and 35% from S. Africa. See the PAL corporate presentation, here, p. 18: http://napalladium.com/pdf/NAP200710.pdf
Like silver, platinum and palladium have nearly zero investment demand, with industry and jewelry consuming all of the supply. Prices could really skyrocket in all three compared to gold, as investors begin to enter those precious metals markets, and try to stockpile supply when no spare ounces for investors exist.
When I bought palladium at the low at about $200/oz., the commission was a whopping 15%. The metal traded at about $175/oz, and I had to pay about $200.
Since the pullback in many commodities, many investors have exited the sector; thinking that the run is over, and have not yet come back. Or, they went short, and have since lost capital being so foolish.
If you didn’t catch it, I would refer you to Lawrence Raulston’s latest piece at kitco.com from last month:
The Realities of this Secular Bull Market in Commodities
It’s one of the best essays that I’ve read in the past six months; although I do take issues with a few of Raulston’s statements. The case for commodities and silver is actually better than he presents!
Raulston wrote, “The story for silver is similar to gold.” No, the case for silver is vastly superior, due to silver’s short existing above ground stockpiles, and current ongoing industrial demand that is overwhelming mine supply.
Raulston assures us, “The reality is that the American economy is still growing.” However, since the growth rate is only about 2%, and measured in dollars, and since the money-creation inflation rate is at 18%, this is actually negative growth.
Proof: Money Creation Inflation is 18-19%:
But USA’s negative growth and continuing crash in cash, bonds, stocks, and real estate is all the more reason for people to switch assets out of those losers and into silver and gold. The US economy is so bad, they are shutting down the economic indicators! But it’s probably just as well, since most of it is probably lies anyway!
The world economy, and especially China, continues to grow at a shockingly fast pace. I heard today in an online video that the president of Rio Tinto said that China’s consumption of aluminum rose, in 2007, from 1/4 of the world’s supply to 1/3 of the world’s supply!
I strongly urge you to consider some of the top ranked stocks at http://miningpedia.com/
I also encourage you to search for your favorite stocks at http://miningpedia.com/, and look over, and/or enter as much information as you can, and see how it compares to the other stocks listed.
At present, you could almost throw your money into 5-10 of any of the junior mining companies, and do OK, because prices are that cheap. I don’t recommend being quite that reckless, but almost, because the timing is just so great right now.
My extensive research and experience in gold and silver stocks has led me to study zinc and copper stocks too, since the precious metals are often found along with the base metals.
There is one particular zinc stock that I like at the moment. It has the largest mining project in the world up in Canada’s Yukon, with grades averaging about 5% zinc or higher, and a market cap of about 1/2 of what the company spent on exploration in the last 2 years, and recent exploration results have been phenomenal. So, if you buy the stock, you get the company’s recent exploration efforts for half off, the prior $100 million exploration efforts for free, and the entire project for free, too. I liked the stock at $.77/share, and it’s now 75% off from that, at $.19/share. This multi-billion dollar project is priced at about $28 million.
I think this zinc stock took a huge hit to the downside for 3 reasons. First, the zinc price got knocked back from $2/lb. to $1/lb. Second, another recent multi billion dollar gold and copper mining project, (NovaGold) was recently halted due to rising mining costs. Third, the entire sector is in a terrible slump; partly because the world does not understand silver and gold and has thus neglected the mining industry, and because the world is fearing a world-wide economic slowdown just because top US financial firms are having troubles with their frauds being exposed. I suppose a fourth reason that this stock has been hurt is that vulture capitalists will sometimes sell their stock on the hopes of buying more stock more cheaply in the next round of financing. Additionally, Canada’s odd tax code gives Canadians a perverse incentive to dump their own Canadian stocks after “flow-through” share financings (they get to avoid paying income taxes on their investments, and they will consider it a “gain” if they sell stock at a loss).
For the name of this zinc stock, and the names of what I consider to be the best silver and gold stocks in the entire industry, I urge you to buy the “look at my portfolio” for $50/month. We’ve made this offer for over 3 years now, and we can confidently say that your satisfaction is guaranteed, or we’ll give you your money back. I have about 700 satisfied, regular paying subscribers, and I offer this service to help the online community, as I spend the proceeds on advertising, which helps me get the word out to the 69,000 people on my free email list.
I currently own about 50 stocks in my $11 million portfolio, so if you buy some of each stock, it’s like a mutual fund. The last good run took my portfolio up from $5 million to $15 million from Nov. 2005 to May, 2006, and I expect we are on the edge of the beginning of a similar move up, or better, this time.
Yes, that’s right, I lost millions in the past two years, but I’m still up over 100% since Nov. 2005, and now’s the time for that next 100% to 200% move up in the junior mining stocks. I can’t emphasize enough that now is the perfect time. Get in now!