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| Silver Here and Everywhere
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Wallace, Idaho – Even in the midst of
the summer doldrums, silver continues to be talked about
here in the Silver Valley, and around the world. Most recently,
the gold website LeMetropole Café published a fahhhhscinating
article by Adrian Douglas posing the question: “Is
A Comex Silver Default Imminent?” (reprinted with
Bill Murphy’s kind permission in the Silver Valley
Mining Journal here).
The nut of Douglas’ case is that warehouse
stocks of silver sharply declined during the recent price
run-up, even as open interest on the Comex silver contract
has fallen, too, and wonders, “Is it that investors
do not wish to hold futures contracts for silver when there
is a good chance that the silver will not be delivered?”
Couple this news with the great possibility that the metals
exchange will no longer issue its weekly commitment of traders
(COT) reports on gold and silver, and the Fed’s decision
last year to keep us in the dark about the M3 money supply,
and one really does begin to wonder what’s up.
* * *
Douglas’ 24th July article sent us scurrying
to some notes we took on a presentation by, and subsequent
interview with, Dr. Frank Lucas of the London house of Loeb,
Aaron & Co. in Zurich last month. Because 95 percent
of new silver produced every year is consumed by industry
(including photo, coins, cell phones, computers, reflective
glass, etc.) only 5 percent of all that new silver, or about
$378 million worth, is available to satisfy investor demand.
“This is very small and so the price can fluctuate
wildly with investor sentiment. The comparable value of
gold investor demand is 14 percent of 80 million oz/year,
or $7.28 billion, about 20 times as much as in silver,”
Lucas said.
Think about it: for $378 million, you could
set the price of silver just about anywhere you wanted to.
That’s a little beyond what we’ve got in petty
cash at the moment, but chump change to a Bill Gates, Warren
Buffett (should he decide to get back in, after admitting
selling too soon) or an Asian or South American government.
Some other points Dr. Lucas made about silver
bear repeating here: “Over the last 450 years, silver
has moved from being produced largely in primary mines to
being a by- or co-product from ores beneficiated through
advanced smelting, hydro-metallurgy and electro-winning.
Nowadays, 70% of silver production is considered by be a
by-product of zinc, lead, copper and gold mines, where the
financing decisions are made independently of the silver
price extant at the time of the decision or indeed the forward
price set by the financial markets.”
“Today, but the nature of the industry,
a 10% increase in primary silver supply will lead only to
a 3% increase in total newly mined silver,” he said.
Only large-scale new mine projects in lead, zinc, copper
and gold will change the supply equation, he said. “These
have been few and far between in the last 10 years and there
is an undoubted death of world-class deposits coming on
stream to pace the copper and zinc price – which says
it all.”
* * *
Gerhard Spitzer, who listens to Bunker Hill
Mine owner Robert Hopper’s daily Mining & Money
Report webcast on silverminers.com (KWAL’s twice-daily
broadcast of the program being a bit out of reception range)
from his Montego Bay home near Capetown, S.A., dropped in
on the King of Bunker Hill the other morning to meet the
man behind the microphone. A native of Austria, Spitzer
sadly reports that Capetown is going the way of Johannesburg,
which like the rest of South Africa is slowly going the
way of Rhodesia. People down there are stocking up on silver
and gold, and planning an exit strategy. Spitzer, his nephew
and niece-in-law (?) toured SRLM’s Sunshine Mine operations
and NJMC’s New Jersey concentrator. He feels better
holding North Idaho silver and gold stocks than South African
mining stocks. Go figure.
* * *
So as the Dog Days slide by, silver
and gold, only slightly punchy from the midsummer doldrums,
are building nice bases for the launch of their Fall rally.
The 50 or so silver stocks we track are all in the tank
at the moment, trading at 30 to 50 percent or so off their
recent 52-week highs. That, as much as the Comex and Fed
shenanigans, signals the bottom of this bull-market correction.
We’d start loading up already, but in this 90-degree
Wallace summer heat, there just ain’t enough energy
to pick up the phone.
By David Bond, Editor
The Silver Valley
Mining Journal
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