The very fact that China is hosting the Third
Annual China International Silver Conference in late October
this year should give any thinking person pause for reflection.
Go to http://www.silver-china.cn/en/
Another interesting point is what I learned
about the real Chinese silver views at the Silver and Zinc
conference early this year. It must be pointed out that China
is devoting a great deal of time money and energy to study
The Silver Institute has kept us well informed
about the real Chinese silver story, yet many investors “feel”
China is the exporter of silver at all costs. Readers of the
Silver Investor have a completely different analysis and,
sorry Internet readers these people pay us for our research
and will do not give it all away for free. I will give you
a hint however, just because a commodity lands on the dock
on a given day, it does NOT mean that the price on that day
is the price received.
Moving on to something interesting about China
I ran across in my research this past month. An article titled:
“The Chinese Silver Standard
Economy and The 1929 Great Depression”
This paper was written by Cheng-Chun Lai and
Joshua Jr-Shiang Gau, Mr. Lai from the National Tsing Hau
University and Mr. Gau Directorate-General of Budget, Accounting
and Statistics-Taiwan. I will not go into any detail about
this report other in this domain other than to paraphrase
the authors, which state the following.
It is often argued that the silver standard
insulated the Chinese economy for the Great Depression that
prevailed in the gold standard countries during the period
1929-1935. The general argument that the silver standard was
a lifeboat to the Chinese economy remains defensible.
The Silver Investor has had more questions about
how silver does during a depression than probably all other
questions combined. Therefore, we suggest that any serious
silver student look up Blackwell Publishing Asia and read
the referenced article.
Have we done our job?
This is an exact excerpt from our January
What is our view for the year 2004? As the precious
metals markets continue to gather momentum to the upside it
becomes more difficult to forecast the short term. First,
recall several months ago, many asked why is gold performing
so well and silver doing nothing. The answer was explained
in the silver investor that the futures market had congestion
(many long contracts) in the near (spot) month in gold and
not in silver. In other words the threat existed that enough
gold buyers on the Futures exchanges would stand for delivery,
and this caused a mini short squeeze. Some may remember that
the Comex indeed increased the margin requirements for gold
contracts to cool off the gold market.
This is basically what is taking place now in
both gold and silver. CPM group put out an alert early in
the month stating that there could be considerable pressure
to the upside for both gold and silver throughout the month
of December, but warned that the markets could come right
back down just a quickly. The point was emphasized that the
paper or futures markets are volatile and move quickly in
At this point in time, what we outlined last
month is basically what we think moving forward. Gold above
$400 per ounce is profitable for many mining companies. There
should be some further upside pressure into January but a
short-term top is quite possible in the first quarter of the
New Year. Once the buying pressure in gold stops the correction
could take gold under the $400 level. If gold were to consolidate
around $390 U.S. it would be very bullish.
It would not surprise us to see gold pullback
to the $375 area. The kind of pullback we perceive is one
where the moves down are subtle and plenty of up days are
involved but the short-term trend is to consolidate below
the four hundred dollar level for several weeks perhaps.
Silver has a much different dynamic and is a
much tougher to project. If there is little pressure on the
physical silver market as we move into mid January 2004, other
than Central Fund, then expect silver to pull back in sympathy
with gold. If there is strong physical demand for silver however,
look for silver to continue to climb and gold to follow silver.
Because the silver supply is so tight and Buffett may indeed
be involved in the current silver situation at some level,
we want to be cautious here. (Ed. Note-this had to do with
leasing as explained in the Silver-Investor)
End of excerpt; obviously
we missed our call by a few days; silver peaked a few days
past the first quarter of 2004. Silver did peak in early April.
Our call that silver would outperform gold from January did
hold, but we began to get cautious as early as March. We did
an update for our email subscribers see below…
Our primary advice for investors was to BUY
below 90 on the XAU. As can be seen from the above chart courtesy
of Stockcharts.com, this alert was sent in mid April.
More specifically, we cautioned our readers
even earlier because by mid March we got concerned that the
BULL from April 2003 was running out of steam, so our view
was a bit cautious. Many have stated that technical tools
cannot work in the precious metals due to so much intervention.
It has been our view, that these tools do have merit, but
must be used along with independent fundamental analysis.
This was our primary reason for being so bold as to state
gold had peaked in January but silver would carry on upward.
By technical analysis alone, this would have been very hard
Currently we are watching what has happened
following the break in the XAU and the HUI and gold and silver.
Gold being the stalwart, held much more firmly than silver.
Silver left two open gaps on the chart and it will take some
time for the market to consolidate and fill these gaps.
Our analysis remains that the fourth quarter
of the year 2004 will show significant improvement in metals
prices and the underlying shares. Additionally, we are looking
for significant upside price movement in the first quarter
of 2005. Right now, the dollar seems to be showing some strength.
The election has most of the attention focused away from investments.
Like most independent research people
only my readers receive certain material while I do occasionally
post articles for the public at large. These public essays
are both promotional and historic. In other words our ability
can be measured by our calls. Certainly not perfect, but in
this business or in any human effort, that is impossible.
Disclaimer Note: David Morgan is an independent
newsletter writer and may act on behalf of his clients on
certain recommendations in this newsletter. All information
in this newsletter is believed to be correct, but its accuracy
can not be guaranteed. The owner, publisher is not responsible
for errors, omissions or losses sustained by the reader. David
Morgan is the editor of www.silver-investor.com.
Investors are advised to obtain the advice of a qualified
financial & investment advisor before entering any financial
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