Geordie Mark: Global Demand for Iron Ore on Rise

Source: Brian Sylvester of The Gold Report 04/27/2011

How long until the window on rising iron-ore prices closes? Global demand is driving prices higher and shipping costs are at historic lows. But only companies poised to get into production quickly will be able to capitalize. In this exclusive interview with The Gold Report, Geordie Mark, an analyst with Haywood Securities in Vancouver, picks the companies that are ready to profit and those that are likely to get picked off by competitors.

The Gold Report: BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF), one of the world’s largest suppliers of iron ore, recently submitted an environmental review for a proposed $48 billion expansion of the Port Headland Harbor in Western Australia to accommodate the doubling of iron ore production from its Pilbara operation. When a company’s willing to spend $48 billion at one operation, what does that tell us about the long-term fundamentals about the iron ore business and, ultimately, the steel business?

Geordie Mark: The thesis there is one of global growth in steel demand resulting from continued industrialization from advancing economies, particularly China. At the moment, China produces somewhere near 45% of the world’s steel.

On the back of that, India is continuing to grow its internal steel production at greater than world average rates. So, 37% of the world’s population, which includes only China and India, has significant growth in its underlying steel consumption and demand.

If you take a step back, these countries are both in the juvenile stages of their steel use. They still have a long way to go in ramping up their countrywide infrastructure requirements. This trend is expected to continue for a number of years, if not decades.

TGR: Investors commonly think of China and India as the primary drivers behind steel demand. However, I have a November 2010 report from UBS, which estimates that steel consumption this year will rise by 4.5% in Europe, 4.5% in Russia and 5% in Brazil—a little bit more than India and China. The growth forecast gets even more bullish in 2012. Are Haywood’s numbers similarly robust in countries outside of China and India?

GM: I would have to agree. China is obviously the main source of growth due to its size. For example, China’s steel consumption is roughly eight times that of the U.S. But we are seeing significant growth from other countries, too. There are significant growth projections coming out of Europe, Russia and Brazil. The World Steel Association estimates global growth this year at 5.9% and 6% for 2012.

TGR: All that competition for iron ore is driving up the cost. China’s imports of iron ore in the first quarter rose almost 15% to about 177 million tons (Mt). Meanwhile, the average import price was $156.50/ton in the first quarter, about 60% higher than in the year-early period. What are some ways to play this remarkable growth?

GM: To play the growth, investors could look to companies that are either entering into production or can enter production in this period of high prices, which we believe will be about five years. In the short term that could include companies entering into production this year in order to get near-term cash flow and strong margins. An example is Labrador Iron Mines (TSX:LIM). We expect Labrador to start production within about a month’s time from a direct-shipping style operation.

Investors could also find growth in development-stage companies that could go into production within the window of high prices. For example, Northland Resources S.A. (TSX:NAU) has a project it anticipates it will start mining in late 2012 for high-quality iron ore concentrate product.

TGR: What’s your prediction for prices a year out from now?

GM: This year we are forecasting an average price of around $139.50/tonne for 62% Fe iron ore FOB Brazil. Next year, we forecast about $124/tonne.

TGR: Why are the prices going down?

GM: We have taken a conservative approach to building our forward commodity price curve given known supply growth, as well as uncertainty surrounding seaborne transport rates. Furthermore, concordantly, the commodity has witnessed elevated pricing volatility whereby about a year ago, the industry came off an annual benchmark approach where the Big Three, that’s Vale S.A. (NYSE:VALE), Rio Tinto (NYSE:RIO; ASX:RIO) and BHP, negotiated with steel producers on an annual basis to fix prices. The rotation of the mechanics of commodity pricing within this industry was a result of the underlying demand-driven environment, which now places the iron ore producers with a lot more say in negotiations.

World iron ore pricing rotated out of an annual benchmark into quarterly indexing and a greater reliance on the spot price markets. In the last first quarter and second quarter price negotiations, we have increases in prices for the Big Three, but as stated earlier we will also see greater volatility in the spot market relating to seasonal events and any fundamental policy changes out of China and other growth steel producers. Since we do see greater potential for volatility in the market going forward, we’re resting on the conservative side for pricing.

TGR: The value of companies with iron ore assets or projects increased by an average of 400% between October 2005 and October 2010, whereas the value of metallurgical coal companies increased 34% during that same time, according to the UBS report. Steel companies were up 12% during that period. Part of that value creation is because steel companies have gone upstream and bought iron ore juniors to control the cost of supply. Do you expect that trend to continue?

GM: I would say the valuation metrics driving steel companies and companies with iron ore assets differ appreciably given that the steel companies work on operating margins and output growth, whereas companies with iron ore assets and projects have moved up because they’re increasing the underlying resource base, lowering apparent risk by moving through development or entering production in a market with elevated commodity prices.

We do see vertical integration being a very significant component going forward for the steel producers. Steel producers want to hedge away from the Big Three. These companies want to be independent and integrate their cost management into locking up some of their iron ore at cost. Such integration enables steel companies to be more competitive when selling steel. We believe that there is likely to be continued vertical integration in the sector as steel producers lockup supply and protect the underlying cost base.

TGR: One example of that was when Cliffs Natural Resources Inc. (NYSE:CLF) bought Consolidated Thompson Iron Mines Ltd. (TSX:CLM)

GM: That’s exactly right. Cliffs and Consolidated Thompson have a lot of operational synergies in the Labrador Trough. Cliffs was able to pay a good price for Consolidated Thompson. The Canadian operations had operational synergies, so that arrangement worked for Cliffs.

Another example of vertical integration would be Tata Steel Ltd. (LSE:TTST; Grey Market:TATLY) forming a joint venture with New New Millennium Capital Corp. (TSX.V:NML) on a direct-shipping ore project in the Schefferville-Labrador Trough, as well as participating in a bankable feasibility study on New Millennium’s large taconite deposits near Schefferville.

There is good vertical integration potential in the sector, particularly within areas that have existing infrastructure or reasonable assurance in terms of asset ownership. Canada is a very good home for such activity.

TGR: You recently revised your price target on Alderon Resource Corp. (TSX.V:ADV; OTCQX:ALDFF) from $3.90 to $5.80 after it published a resource estimate on its Kami iron ore project in Labrador. Was it the size of the estimate that made you revise your target?

GM: We were pleasantly surprised by the resource estimate. Alderon reported an Indicated iron ore resource of 490 (Mt), plus an inferred resource of 118 Mt. Just today, the company brought out some drill-hole results on North Rose, which is outside the defined resources, and looks as though it has potential to add resources. Alderon did surprise on the upside and we give it some more credit on that basis.

TGR: What were your thoughts after visiting the property and meeting management?

GM: My take is that the management is made up of very strong group, and this is married with a very strong board. A significant component of the current board is that many were also on the board of Consolidated Thompson during its pre-production stages.

In terms of the property, it’s all location, location, location for infrastructure. The Kami property is within 15 miles of four operating mines with four options to get to a public rail system. Those components work well together for this project.

TGR: Would those factors make it a takeover target?

GM: It has potential. The main other component is that it is independently owned. There are no steel producers involved in the company at the moment. Its largest shareholder is Altius Minerals Corporation (TSX.V:ALS) because it originally held the property. I definitely think Alderon could be a potential takeout candidate in the long term.

TGR: Are there some other promising juniors that you follow?

GM: Another independent iron ore company in that same mining area is Champion Minerals Inc. (TSX:CHM). It has a portfolio of projects with around 1.5 billion tons of NI 43-101 compliant resources. Its flagship project, Fire Lake North, is not too far away from ArcelorMittal (NYSE:MT) existing Fire Lake Mine. Champion potentially still needs a little more infrastructure to come into play, but it has a very good portfolio of assets going forward. We have a target of $4.20 for Champion stock. Recently, it was trading at about C$2.38.

TGR: Any other juniors in the Labrador Trough there?

GM: I mentioned Labrador Iron Mines, which is entering production this year. It probably will produce just less than 1.5 Mt. of 62% direct shipping iron ore style product.

TGR: Who are the major shareholders in that play?

GM: The main shareholder is Anglesey Mining Plc. (LYSE:AYM). The second major shareholder is Passport Capital.

There is also New Millennium Capital Corp., which has a joint-venture project with Tata Steel, its largest shareholder.

TGR: Given Tata’s large stake in New Millennium, it’s probably not a takeover target. But are Champion and Labrador?

GM: Alderon, Champion and Labrador all have the potential to be taken out.

We are also looking at Northland Resources being one of the next producers, although it isn’t in the Labrador Trough.

TGR: Where is that project located?

GM: It has two projects. Its flagship is the Kaunisvaara project in Sweden, which is fully permitted for production, and is in development at the moment.

Sweden has a long history of iron ore mining. This project would export out of Norway, and would probably be predominately selling to a European market. The project is expected to output a very high-quality product at around 69% Fe, and we think the company could fetch a good premium for the product.

TGR: What can investors expect in the iron ore market in the near term?

GM: Growth should continue to emanate out of China and India, and bolstered recovery is taking hold in Europe, particularly Eastern Europe, and North America. Another feature to look at is the cost of seaborne freight. There have been continuous lows in the market for seaborne freight because of surplus capacity that should continue for a number of years. Demand growth and lower transportation rates provide fantastic opportunities for pricing protection to moderate operating margins for projects entering production or at the development stage.

TGR: Thanks for your time, Geordie.

Dr. Geordie Mark, a research analyst with Haywood Securities, focuses on uranium companies involved in exploration, development and production. He joined Haywood from the junior exploration sector, where he was vice president of exploration for Cash Minerals, which concentrated on uranium and iron oxide-copper-gold targets across Canada. Prior to joining the exploration industry, Mark lectured in economic geology at Monash University, Australia, and served as an industry consultant. He completed his Ph.D. in geology in 1998 at James Cook University’s Economic Geology Research Unit in Australia, specializing in aqueous geochemistry and igneous petrology applied to ore-forming systems.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

1) Brian Sylvester of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Alderon.
3) Geordie Mark: I personally own shares of the following companies mentioned in this interview: Northland Resources. Haywood Securities, Inc. has reviewed lead projects of Alderon Resource Corp. and Champion Minerals Inc. and a portion of the expenses for this travel have been reimbursed by the issuer. Haywood Securities Inc. or an Affiliate has managed or co-managed or participated as selling group in a public offering of securities for Alderon Resource Corp. and Champion Minerals Inc. in the past 12 months.

Silver reaches within 20 cents of $50

Silver is on fire in Asian trading this evening moving to a session high of $49.82 after which is rapidly dropped a full $1.00 in price before bouncing back over $49 again. It is extremely volatile right now and I mean “VOLATILE”. The price is swinging all over the place within mere seconds.

Its strength is helping to pull Gold higher as well which has gone on to hit a new all time high at $1518.40 as I write this.

What is remarkable about this is that the Dollar is actually higher this evening in Asian trade.

Technology and Your Fourth-Amendment Rights


Vedran Vuk

Michigan State Police have launched a pilot program, having traffic cops search mobile phone data from speeders; Alex Daley comments on the new intrusion on our privacy. Also in this edition: Physical delivery of gold seems to become more and more popular… and Vedran Vuk explains why, like a fine wine, propaganda gets better with age.

Dear Reader,

Today, I wanted to touch on a few housekeeping points. Most importantly, Doug Casey will make a speaking appearance on May 14 at the Global Currency Expo in La Jolla, CA. Olivier Garret and Jeff Clark will also be in attendance. Of course, Doug’s fundamental analysis on the dollar is something you don’t want to miss. So, if you’re in the area, grab a reservation. The organizers have said that there are few seats left.

While forex isn’t our primary concern at Casey Research, we’re always keeping a close eye on the dollar and other currencies around the world. Well, actually, I take that back. We are currency investors – except unlike most, we see gold and silver as money. I’ll have to use that line the next time someone asks what our newsletters invests in. “We’re currency investors. We invest in gold and silver.”

In our opinion, all fiat currencies are in a race to the bottom. However, even with this view, a few currencies differentiate themselves. Some will cross the finish line much more quickly than others. As a result, our portfolio in The Casey Report holds two currencies other than the dollar for diversification purposes.

Before we get into the issue, I wanted to mention our new additional links and reads section. I hope that you’re enjoying it thus far. Let me know what you think, and please send in links other readers might enjoy. I can’t read every website myself. Any help would be much appreciated.

First, Alena Mikhan and Andrey Dashkov take a different view on UTIMCO’s recent gold delivery than yesterday’s article by Kevin Brekke. Then, Alex Daley informs us of technology’s new threat for your rights. Finally, I’ll share some more philosophical thoughts on propaganda.

Physical Delivery Gets Popular

by Alena Mikhan and Andrey Dashkov

Last Friday, the University of Texas Investment Management Co (UTIMCO) took delivery of 6,643 gold bars, worth slightly under one billion U.S. dollars, sending shockwaves across the gold community. We don’t disagree with Casey editor Kevin Brekke’s cautionary note yesterday, but we have to point out that this action is particularly significant because UTIMCO is the nation’s second largest university fund behind Harvard’s.

Amidst the current uncertainty surrounding U.S. sovereign debt and inflation fears, this decision looks like a good solution to lock the institution’s ownership of gold under management. But the major risk UTIMCO was trying to do away with was the possibility of surging demand for physical gold at the COMEX.

As per the Bloomberg article mentioned above, “Right now few investors take physical delivery of bullion. As of April 14, 2,860 contracts this month, about 0.5 percent of total open interest, had been converted to metal, exchange data show.”

According to hedge-fund manager J. Kyle Bass, who advised UTIMCO to take physical possession of the gold: “Open interest in gold futures and options traded on the COMEX typically exceeds supplies held in its warehouses. If the holders of just 5 percent of those contracts opted to take delivery of the metal, there wouldn’t be enough to cover the demand.”

The situation, as quoted, looks quite shaky. The five percent of deliverable metal Bass mentions could disappear rather quickly if debt and inflation-induced fears manage to build enough demand momentum and subsequent physical delivery requests. Or, more specifically, if perception of counterparty risk among once-venerable institutions (no one is going to forget Lehman Brothers anytime soon) shifts the thinking towards taking delivery.

UTIMCO’s choice may not be a shift in the cosmic firmament, but increases in demand for physical gold would definitely be a significant bullish factor for gold, which has been on a steady rise and this week surpassed US$1,500 per ounce.

But is this really happening? Let’s have a look at Asia. World Gold Council figures show that among the generally robust investment demand in 2010, there were growing volumes of physical delivery in that part of the world.

Investment activity in China remained high. Physical delivery at the Shanghai Gold Exchange totaled 836.7 tonnes in 2010, with 236.6 tonnes delivered during Q4. Moreover, physical delivery as a percentage of trading volume had increased to 33% by the fourth quarter, as Chinese investors sought to get hold of gold bullion.

Source: Gold Investment Digest Fourth quarter and full year 2010

The reasoning behind the behavior of UTIMCO and some of the Asian gold traders is rather obvious: to secure ownership of a safe-haven investment tool (physical gold) in times of uncertainty while it is still possible.

As the pace of global economic growth remains a major concern and the risk of another collapse possible, the inclination to take physical delivery should gain popularity in other parts of the world, with significant consequences to the price of gold. In the U.S., UTIMCO set a precedent; the question now may be, “Who’s next?”

Technology and Your Fourth-Amendment Rights

By Alex Daley

Officer: “Do you know why I pulled you over?”

Driver: “I think I was going a little fast coming down that hill. I was just slowing down. Sorry, but…”

Officer: “License, registration and cell phone, please.”

Next time you are pulled over, don’t be surprised if a police officer asks for your cell phone. That’s apparently what’s started in Michigan, where police are employing a new piece of technology in their war against lead-footed menaces.

According to a complaint aired by the ACLU, Michigan State Police have launched a pilot program, having traffic cops search mobile phone data from speeders using this fancy gadget:

Sold by a company called Cellebrite, the “UFED” can download pretty much anything and everything from most models of phones: texts, photos, videos, even GPS data. The devices are equipped with adapters for connecting to most major brands of phones, and can even uncover information like the physical keypad lock code and internal diagnostics that track past SIM cards in use.

The device takes a dump of any phone memory it can access (on some phones, that’s a complete dump of everything) and stores it for offline analysis using the company’s desktop software back at the police station. There, police can read your call history, play your videos, or even recover previously deleted files in some cases.

There are certainly some uses for such a device, say, in analyzing the cell phone of a suspected drug dealer after his lawful arrest. But in Michigan the police have allegedly been using the device to download information from the cell phones of drivers pulled over for speeding, even when not suspected of any other crime.

The ACLU contends (and your author for one agrees completely) that downloading the contents of a person’s cell phone without probable cause or a search warrant is a clear violation of 4th Amendment rights. The organization has requested access to the logs from devices in use by the MSP, so they can determine what if anything has been downloaded, and what rights may have been trampled on, through the Freedom of Information Act.

And Michigan police are happy to comply. For a small administrative fee, of course. Just $544,680. For five devices.

The ACLU, understandably perturbed “that Michigan State Police would rather play this stalling game than respect the public’s right to know,” have tried to narrow their requests to reduce the costs of fulfilling it, only to be given the runaround on when and where the devices have been used. After years of haggling back and forth behind the scenes, the ACLU is now bringing its case to the court of public opinion in an attempt to clear these roadblocks and continue its investigation.

We can only hope that they have some success curbing any abuses that might be occurring before these devices start winding up in the patrol cars of police around the nation.

Like a Fine Wine – Propaganda Gets Better with Age

By Vedran Vuk

Today, I wanted to step way back in time to the Civil War. In April, depending on your geographic location, this time of year brings the American Civil War back into the press with some article recounting the events. In this spirit, CNN had a very interesting poll on current perceptions of the Civil War. The original intent of this poll was rather easy to see through. Hmm… I wonder why the poll asked Tea Party supporters whether their sympathies lie more with the Confederacy or the Northern states?

Unfortunately for CNN, they didn’t get their juicy story labeling the Tea Party as a bunch of pro-Confederacy racists. In fact, the poll shows the greatest numbers of Confederate sympathizers are found among political moderates with 29%. You know those moderates and their crazy pro-Confederate ways. Nonetheless, CNN found something really interesting: 42% of the polled do not believe slavery was the main reason for the war, while 54% believe that slavery was the primary reason.

Now, I’m not here to change your mind on the subject. That’s the role of a history publication and certainly not Casey’s Daily Dispatch. But I did want to discuss these numbers. In my opinion, they do not measure sentiments toward the Civil War. Instead, this poll gauges the power of propaganda. Regardless of your opinion, the poll shows that about half the country disagrees. We’re not talking about a debate on the merits of Obama’s new healthcare. In that debate, one would expect various opinions. We’re talking about an event where 600,000 were killed, entire cities were leveled, and the country was temporarily torn apart. Yet, 146 years later, Americans can’t agree on the primary reason for the war.

I find this frightening. With enough time and propaganda, a large portion of the population can be led astray. And not only will they believe the bending of the truth, they will fiercely and angrily defend it. Where do the untruths come from? Well, largely from governments. But you can see possible propaganda angles from both sides in the Civil War. After the war, the North needed to put its actions including war crimes in a better light. Hence, ending slavery suddenly became the primary reason for the war.

But you could look at the non-slavery reasons in the same light. How many Confederate veterans do you think told their kids and grandkids that they fought for slavery? Probably not many. Furthermore, on a personal level, most clearly didn’t fight the war for this reason. And that seems self-evident. Simply put, poor white Southern farmers didn’t charge a mile of open field at Gettysburg so that rich plantation owners could outcompete them with slaves. But then again, what the individual soldier thinks rarely has much to do with the cause of a war.

In wars today, the same sort of business goes on. Is the U.S. fighting in the Middle East for security, freedom and democracy? Or is the fight a part of a long-held foreign policy mentality designed to enrich the military-industrial complex? The truth is somewhere in the middle. And just like the average Confederate soldier during the war likely didn’t see his struggle as one for the slave plantations, most average guys in Iraq don’t see themselves as pawns for Halliburton’s net income.

Propaganda goes far beyond just wars. If our country can’t agree on the reason why 600,000 were killed in the Civil War, then what other common wisdom has been propagandized? Did FDR really save us from the Great Depression? Is the Federal Reserve an agent of price stability or value destruction? Is democracy the path to prosperity? Many of these issues are simply taken for granted. However, once one starts to look at the details, the clear and unquestionable “facts” become highly debatable.

Propaganda is an extremely powerful tool. With enough effort and time, the public can be convinced of practically anything. And should we be surprised? The Democratic Party has been praising FDR for 80 years, the administrations in power always back the Fed, and democracy has been the justification for numerous U.S. conflicts. These ideas have been around so long that a large part of the population sees them as undisputed facts. The same will be true with our times today. I wouldn’t be surprised one bit to find my grandkids coming back from school one day in the distant future telling me how Obama’s Recovery Act saved the country from the Great Recession and Bush fought for freedom in Iraq.

Additional Links and Reads

Student Loan Debt Likely to Top One Trillion Dollars (

Irish Housing Market Report (Bloomberg video)

Ron Paul’s House for Sale (AOL Real Estate)

That’s it for today. Thanks for reading and subscribing to Casey’s Daily Dispatch.

Vedran Vuk
Casey’s Daily Dispatch Editor

Silver’s Bull Market Summary

Mark J. Lundeen

18 April 2011

How hot is the silver market? In the past 14 months, the Silver to Gold Ratio has been cut in half!

Looking at Silver’s 1969-2011’s Bear’s Eye View (BEV) Chart below, we see the history of silver from 1969 to present. From 1969 to 1980, the largest correction in the price of silver was just short of 40%. This is a big decline in the Dow Jones, but something to be expected in Silver. After 1980, silver crashed down 92% by 1992, and for the most part, stayed there for the next 12 years.

As this BEV Plot uses 17 January 1980 for its last all-time high, the March-October 2008 decline shows a loss of 25%. But that loss is in reference to Silver’s last all-time high from 28 years before, where investors in 2008 actually saw a seven month loss of 58% ($20.69 to $8.79 Ouch!). Silver does that occasionally to those who buy it, or so it use to. Since May 2010, when Silver’s BEV Plot broke above its 60% line, the largest correction in the price of silver (daily basis) has been less than 15% (January, 2011). Using a weekly closing basis (table below), silver has only corrected by 9.64%.

Also remarkable, silver has made a new 31-year high in 19 (61%) of its past 31 weekly closes!

The table below uses the Bear’s Eye View (BEV Plot starting in late 1980, to eliminate the January 1980 highs) for gold and silver prices, with new highs (all-time for gold, and 31-year for silver) resulting in a Zero percentage, all weekly closing prices * not * a new high returns a negative percentage * from * its latest high.

Weekly Performance for Gold & Silver


Source Barron’s
Graphic by Mark J. Lundeen

Dates are Barron’s Issues. Prices are Handy & Harman Weekly Closes.

Since the 20 September 2010 Issue of Barron’s (31 Weeks), Gold has made 12 New All-Time Weekly Highs, while Silver made 19 New 31-Year Weekly Highs. The 31 Week Gains for Gold and Silver are as follows:

Gold : 16%
Silver : 106%
The Question Everyone should be Asking is Why Doesn’t the Price of Silver Correct?

The current phase in silver’s bull market is extraordinary, driving silver up 106% in just 31 weeks. This is not happening in a vacuum! One day, we will all wake up to a new financial crisis, with the silver market getting coverage it has not seen since the Hunt Brothers crisis in January 1980.

Mark J. Lundeen
18 April 2011

Long May Gold and Silver Run
April 15, 2011
It was another great week for gold and silver. Both hit new highs and soon we could see silver break into all-time highs. The S&P 500 has been consolidating with other markets after a strong bounce off the tsunami low. The S&P 500 is building what looks to be a reverse head and shoulders pattern here which should take it much higher after the pattern completes within a week or two.

As always, I’m listening to some music while I write and as often happens some Neil Young came across the speakers so today’s title is for his great song “
Long May You Run” target=”_blank”>Long May You Run


Unfortunately my reading and wiring computer is still down, apparently the part got lost in the mail! Hard to believe I know. And it’s getting very frustrating. We should be completely back to normal by next week I think, but I thought that last weekend as well.

The charts are looking pretty good here for both gold and silver and there are some incredible news items to talk about so with no further ado…

Gold rose 0.81% for the week and hit another all-time high nominally. A month long reverse head and shoulders pattern broke in early April and funny enough targets the $1,500 area almost to the dollar. Round numbers almost always cause pause and I don’t think it will be any different this time around.

It could take us a day, or a week to hit $1,500 but it’s coming soon.
The GLD ETF saw strong volume all week with Friday seeing over 19 million shares trade hands. I’d be looking for a spike to near 25 million shares and perhaps a false break to $1,510 or $1,520 before we see another correction.
Enjoy strength, and buy weakness. This is strength.

Silver rose 5.01% for the week in what remains an amazing run. I’m not at all keen on trading this in our swing trading portfolio, but my grin grows wider almost daily when thinking about my physical silver hoard as it’s been my largest position by far for about a year now.

I sold most miners and increased the physical metals weighting last spring and whether it was dumb luck or plain old luck, it happened to be just before silver began this move.

For so long the $18.50 level seemed like an insurmountable level and we got in below there. I don’t see any reason to even think about reducing my weightings yet although many people are talking about trading the gold to silver ratio as it only takes about 35 ounces of silver to buy one ounce of gold nowadays which is in sharp contrast to the 70 or so ounces it would have taken last year, even as late as late August 2010.

I’m not trading the ratio though. First I don’t want to deal with the hassle and second I still think silver has 10 bagger potential from this level. I doubt gold has ten bagger potential from here, but it could certainly reach $10,000 quite easily.

All I know is that the trends have been higher for a decade so until that ends there is only one trade for gold and silver.

The SLV ETF saw heavy volume for the week with the strongest volume by far seen Monday and Tuesday as Silver was lower. This is a classic case of climbing the wall of worry which is typically defined as the second stage of a bull market before the third and final stage, the mania or blow off top.

I know I worry everyday that silver is going to correct hard as it’s really been due for a while, but it just doesn’t. I can’t trade it as it can move far too quickly against me for my liking so I’ll just stick with the metal until I see another good trading opportunity.

China’s Q1 GDP came in the regular high rate. This time at 9.7% growth while inflation was tagged at 5.4%. This past week John Williams reported that US inflation would be around 10% if it were calculated as it was before 1980. I don’t know why they changed their calculation….oh wait, yes I do.

Do you really believe US inflation is in the 2% to 3% range as they report? Me neither.

When I say house. What is the first thing that comes to mind? Home, investment, safety, something everyone should strive for.

We’ve all been taught that buying a home is one of the key pillars to a long-term investment portfolio. We’ve been told that on balance houses always appreciate as well as the land they are built upon.

Not so fast. Apparently the rules are being changed on us.

The CEO of one of America’s largest banks who happens to hold a massive mortgage portfolio on his books, actually they just created a good bank bad bank scheme to keep the bad assets and most mortgages off the good banks books which get all the headlines. But that is another story I’ve talked about in the past.

The CEO stated that some people shouldn’t be looking at their homes as an asset as the housing rebound may take a much longer time than expected. Now that’s a slap in the face to those having bought near the peak in 2005.

I don’t see how anyone could have been suckered into the obvious fraud at the time, but I do understand how you can get caught up in things sometimes. I just hope none of you dear readers are in a bad predicament.

This well written factual article is really all you need to read in order to scare you into buying some physical gold or silver. The US has simply dug a hole far too deep to climb out of.

The small $38 billion cut in spending is a crumb. The
US can NEVER pay of their debt” target=”_blank”>US can NEVER pay of their debt

and the chances of ever seeing a budget surplus are slim to none.
I’ve pleaded before. Please protect yourself and do not rely on government to do it for you.

We saw six banks fail and join this year’s list of biggest losers. There’s been a slowdown of failed banks lately but the surge this past week makes up for it.

It’s not long ago that Bill Gross announced he exited his position in US treasuries, now he is actually short them. Its one thing to not own something, but to short it is another animal altogether. It shows he’s lost complete faith in the US dollar being viewed as a safe harbour asset.

It wouldn’t surprise me to see Bill announce he’s bought some gold in the near future. He’s smart and knows what gold is, although he doesn’t voice this view publicly. The real issue is the enormity of his purchases would drive the price much higher. In order to bother at all he would have to buy at least $1 billion dollars worth and likely more in the range of $10 billion. He’s got $73 billion sitting in cash alone so a few billion in gold would be nothing at all for his fund.

The market would be severely disrupted with a purchase of this enormity unless he used the GLD ETF and I talked last week about the lack of premium with this instrument. I think he’d much rather own the gold that an ETF, but I’ve been wrong before and it’s his only real option likely.

The Texas University endowment fund is now storing almost $1 billion in physical gold. A very savvy hedge fund manager, who made a fortune on the sub-prime debacle, helped influence the decision. He views gold as “just another currency they can’t print more of”.

Very smart words and they couldn’t ring truer. This endowment fund will certainly need no bailing out in the times ahead. This trend will catch on and there just isn’t that much physical gold to go around.

I’m often asked if it’s too late to invest in gold. It’s not. We have multiples to go as gold has not even come close to its inflation adjusted high around $2,400.

Silver has to reach about $140 to see its inflation adjusted high.

Silver may seem a bit stretched here and it’s a dangerous one to trade as it can move quicker than you can make a sandwich for lunch, but over a longer-term investment horizon I don’t think we have anything to worry about.

I don’t like calling huge numbers out as targets as it only brings me flack and is only a guess but I would, actually I am, bet a large portion of my wealth that silver is going well over $200 an ounce. It doesn’t take me long to make a case for $500 an ounce silver either, but I won’t. Let’s just suffice it to say both physical gold and silver have near ten bagger potential from here.

There is no way to lose investing in the physical product. It is what it is and it’s going to be more valuable and always worth something in the future. It can be cashed in for any currency in the world or whatever may come in the future.
It’s a riskless trade even at these levels in my opinion.

News that a tunnel has collapsed at a silver mine in Idaho came late in the
week. This comes at a time when I have been talking to subscribers about the dangers and risks of investing in mining companies. There are so many potential hazards, and once you think you’ve got all the risks covered another one pops up.

Such as Bolivia threatening to nationalize some mines. Both the nationalization threat and the tunnel collapse has effected three of the largest silver miners just this past week.

Don’t get me wrong I do invest in miners and have done well, but if you look at the major mining indices the HUI, XAU and GDX they’ve on balance not done as well as the physical metals themselves. There have certainly been some select companies who’ve rocked, but the big miners aren’t anything I write home about and some of the smaller miners or exploration companies some days see less volume than a schoolhouse in Lost Springs!

They are sure to have their day but I feel more comfortable holding more metal than miners. But that could change once again.

The Belarus central bank has stopped selling gold for roubles as they fear a coming currency devaluation and really don’t want to get stuck with worthless paper for their gold. Makes sense to me, does it to you?

The joke of the week has to be the new US postage stamp which depicts the statue of Liberty. Or does it? Apparently it depicts the fake statue in Vegas instead. Is anything real in the US anymore?

You’ve got to check out this ridiculous video of a guy getting arrested for cracking a joke to a guy who’s getting a ticket for riding his bicycle on the sidewalk. The NYPD at their worst and a true embarrassment in my opinion. Tax dollars hard at work.

Let’s leave on a funny, slightly risqué, note. A so called “Kiss Cam” at a recent Toronto Maple Leafs game had me rolling on the floor in laughter. Enjoy.
Until next week take care and thank you for reading.

Warren Bevan
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