As I write this at 9:15 a.m. EST on Monday, August 3 the WTI Crude Future is up $1.61 to $71.06, and the Gold Future is up $7.40 to $963.20.  At the same time the Silver Future is up $0.51 to $14.51.  So what is this telling us at a time when many politicians and central bankers are saying the recession in the U.S. is bottoming and will be in recovery by the end of 2009.  Yesterday Alan Greenspan was interviewed on National Television and actually talked about it being too early to raise interest rates as a way to curtail inflation - which for many reasons seems both premature and absurd to me.  All that said, U.S. stock futures are advancing, and all seems right with the world.  As I see it, a rise in Oil futures makes sense if traders believe U.S. economic recovery is just around the corner.  Silver, which I consider to be largely an industrial metal and very complex and hard to predict given its myriad demand/supply relationships, likewise ought to respond positively in a time of economic recovery - although those who see Silver as a monetary metal likely more simplistically link it with Gold’s behavior.  Gold to me is more simple.  I think it is about purchasing power, not price.  Hence I see the increased price of gold as an indicator that the world is anticipating erosion in the price of the U.S. $ against other currencies, and I suspect those purchasing and trading gold at root are a different crowd from those participating in the oil market - and that the ‘gold crowd’ is not so sure of economic recovery and are concerned about prospective inflation, or worse, prospective deflation.  One thing I think for sure - I think it oxymoronic that the U.S. stock indexes rise (the Dow Future is up 74 at 9:15 a.m.) and the gold price rises in concert with that.  While anything can happen going forward, at the present time I am on the end of the teeter-totter that has a box of physical gold sitting on it, not the one that has a barrel of oil sitting on it, and am certainly not on the teeter-totter that has a diversified basket of equities sitting on one or the other end of it.

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Each day we review over 400 articles drawn from over 50 websites and blogs that we have screened for what we see as ‘quality content’ and post over 25 of those articles on StockResearchPortal.com – organized topically by Economic News, Base Metal News, Gold News, Silver News, Uranium News, and Oil & Gas News. These articles are then retained in the website ‘system’ for three days. I then further screen and comment on some of those articles on this Blog.

To benefit to the greatest degree from this screening process readers should consider visiting the ‘Today’s News’ feature on StockResearchPortal.com each day and reviewing the headings of the articles we link to there. Readers can then efficiently link to to, and read, those articles they find of interest. Full access to this feature is available to anyone who visits StockResearchPortal.com – no Subscription sign-up is required.

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A Seeking Alpha article titled ‘John Embry: Gold and Silver Are the Ultimate Insurance Policy’ details a recent interview of Embry by Andrew Mickey, Editor of the Prosperity Dispatch with John Embry, described as “one of the leading gold investors in the world”.  In the interview Embry expresses the opinions and views that:

•    the recent divergence of the gold/silver ratio results from a “very strong manipulative aspect at work”;

•    silver is a smaller market than gold that can “be messed around with more easily” and likely has “a bit more upside potential (than gold) because the price is so far behind where it should be”;

•    with respect to gold supply going forward “we have most assuredly crested in terms of mine supply”;

•    at $2,000 - $3,000 no more gold could be produced than is produced now, and the lead time to produce gold that is found will increase to “maybe five to ten years”;

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An article in Seeking Alpha today discusses five companies that rely on royalties from metal producers.  Of the five, two rely on gold royalties, two on silver royalties, and one on base metal royalties.  The companies featured in the article are:

I have taken the information in the first two columns of the table from the article.  The information in the third – sixth columns I sourced on the StockResearchPortal.com website.  Given the ease of searching that website and the manner in which the information is presented it took me 8 minutes to find the information on all five companies.  Dollar values are Canadian, and are stated at the close of trading March 5.  For full disclosure Silver Wheaton is an advertiser on StockResearchPortal.com.

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David Morgan, a well-known silver commentator, recently wrote a Seeking Alpha article where he comments on how he (or as it turns out, another author) believes silver will perform in a deflationary period. He begins by stating his belief that based on history gold actually does best during deflations, rather than inflations – referencing what he calls ‘the seminal work on this topic … The Golden Constant – written by by Professor Roy W. Jastram of the University of California at Berkeley. Morgan says Jastram said that when writing The Golden Constant he found that throughout history silver was intertwined with gold – and then says Jastram asked the fundamental question “Just how does silver perform during inflations or deflations?” and that he concluded that “in most cases, the two metals, yes, both silver and gold, gained operational wealth in deflations”.

My Comments: When I researched the Post Series on this Blog I concluded that gold likely was a ‘safe-haven hedge’ in both inflationary and deflationary periods (read Gold as an Investment - Post 9 of 11 by clicking here). I find silver a far more complex metal to assess than I do gold, given in particular silver supply/demand equation influenced by the fact that much of the new silver produced each year is a by-product of mining activity aimed principally at other metals, and by the fact that approximately 70% of all silver used in the past ‘good economic time’ years has gone into industrial products. As a generalization I think that many ‘gold bugs’ are very locked into their beliefs and positions. From my discussions with ‘silver bugs’ and my reading of some of the commentary they produce, I think that if ‘gold bugs’ walk further out on a tree limb than I typically would, ‘silver bugs’ seem to me to be even more extreme in their outlook and behavior. Morgan’s article doesn’t include his own thoughts and conclusions but relies on those of Jastram. I have placed an order for Jastram’s book and will give you my views on what Jastram said after I have read it.

Read the article by clicking here.

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A recent article titled ‘India Has a Voracious Silver Appetite’ discusses the concept of backwardation, a situation where the fiat currency price of a commodity is pregnant with a premium the buyer is willing to pay for immediate delivery, such that the price of a commodity for future deliver is lower than the spot price.  Backwardation is the opposite of what is referred to as ‘contango’, where the spot price is lower than the futures price. The article says that “Backwardation seldom arises in the monetary commodity gold or the quasi-monetary commodity silver”, and goes on to say that (with price statistics provided) there has been backwardation in silver for the past twelve months, that “This is a highly unusual event”, and that “it means individuals are unwilling to take the risk of holding national currency illusions or the risk of an exchange’s failure to deliver”.  The author says “Gold and silver are both monetary commodities”, and that “At all times and in all circumstances gold and silver remain money. They are both immortal monetary instruments. Therefore, the only risk they are subject to is exchange-rate risk”.

My Comments:  The author then goes on to say:

•    “silver is an odd monetary instrument because it is also consumed”.  I agree with this, and as I have said in previous posts, for this reason I find silver much more difficult to analyze than I do gold.  I also do not think of silver as a ‘monetary metal’ to the degree most commentators seem to;

•    “Indians in India, being fairly smart, have a voracious appetite for both physical gold and silver. They are a lot smarter than most Westerners who clutch their paper instruments with such blind misplaced faith.  Indians consume/import an estimate 3,000 tons of physical silver per year”.  I am not sure why the author qualified the word ‘smart’ with the word ‘fairly’.  My experience suggests I would not have done that.

The author’s implication is that as a result of silver’s current ‘backwardness’ its price is likely to go up in the near term, or at least that is how I interpret her comments.

Read the article by clicking here.

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Bloomberg reports this morning that:

•    crude oil rose above $40 a barrel on speculation a U.S. stimulus plan will revive demand in the world’s largest energy consumer as (an analyst quote) “The market is becoming more confident that the infrastructure packages, which are probably going to be approved this week, will have some effect” - to read click here;

•    “gold fell the most in a week on expectations the U.S. Congress will pass a smaller-than-expected stimulus package to revive the economy, easing the risk of accelerating inflation. Silver also declined” – to read click here; and,

•    copper rose in London on speculation economic growth in China will spur demand for metals, and zinc $5 to $1,190 a ton. The report then says that “Both metals pared advances after the U.S. financial recovery plan was delayed, potentially extending a U.S. recession that has reduced demand for industrial metals”. A Goldman Sachs analyst is reported to have said that he believes (paraphrased) “Zinc will be higher in 12 months at $1,235 a ton as demand holds up better than other industrial metals “given its high infrastructure-related usage, and copper will be lower at $3,200 a ton” – to read click here.

While I find these numbers interesting and monitor them daily, because I am not a day trader I am far more interested in what I think are likely to be the near and long-term trend prices.  I find some of the explanations given for intra-day and daily oil and metal price changes shallow, and frankly pay little attention to them.  However, if I were a day trader I would pay far closer attention to daily commodity pricing than I do.

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An article yesterday suggests that silver has taken out some significant overhead resistance, and that technically silver looks better than gold.  If you are an advocate of technical analysis you might want to read this short article.

I do not purport to understand technical analysis, and personally do not rely on it or those who comment on it. As I have said in prior posts I am unable to get comfortable with the supply/demand silver equation in current times of base metal extraction reduction (a large part of the ‘new annual silver supply’ coming from that source) and the reciprocal side of the equation, being what have to be current reduced levels of industrial demand.  Moreover, I see silver principally as an industrial metal, and do not see it as a monetary metal to anything like the degree ’silver bugs’ seem to.  That said, I do own shares in the largest Silver ETF, largely as a bet that silver commentators may prove to be right, but in circumstances where if they are wrong a loss on the amount I have invested will not cause me to lose sleep.

To read the article – click here.

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An article today titled ‘UBS: Bullish on Gold and Silver’ – click here – reports that UBS
“has increased its forecasts for gold and silver as it sees both investor and speculative interest boosting prices, even as jewelry demand falls and the U.S. dollar strengthens”.  UBS is reported to have increased its gold price targets for 2009 and 2010 from $700 per ounce to $1000 and $900 respectively, and its silver forecasts from $8.40 and $8.95 per ounce to $14.75 and $12.80 respectively.

While I think UBS’s gold forecasts are directionally correct in 2009, UBS analysts must believe the U.S. economy will recover in 2010.  I seriously question this will happen given ongoing negative economic events announced almost every day, and as a result think UBS is directionally wrong in its 2010 forecast.  I have no comment with respect the UBS silver price forecast for either 2009 or 2010, as I find silver a far more complex metal than gold to analyze from a demand/supply point of view, and currently have no opinion on the silver price.

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Following from my post yesterday titled Mexican Miners/The Peso, I think readers might find the following statistics interesting - particularly in light of currency exchange rates generally, and the obvious need to continually monitor them in the context of their mining company investments.

There are approximately 1,350 base metal, gold, silver and uranium mining companies listed for trading on the Toronto and Toronto Venture Stock Exchanges.  These companies can be distinguished between those that only explore for metals, and those that both explore for and produce metals.  Collectively, these companies conduct their principal operations in almost 90 countries around the world.  To put this number of companies in perspective, our analysis suggests that these 1,350 companies may represent as much as 60% of all mining companies listed for trading on all world stock exchanges.

Again, it is obvious that anyone owning shares in those 1,350 companies whose principal operations are in a country other than Canada need to continually monitor the currency exchange rate between Canada and the country(ies) where there investee companies principally conduct business.  They then need to continuously assess the positive or negative affect of currency fluctuations on each of those companies.  Where there is a large short-term currency fluctuation I suggest the quickest way to determine its affect is to call the company’s President or CFO and question them about its affect(s).  Again, I find these people are readily available to shareholders.  My advice – don’t hesitate to pick up the telephone.

In the StockResearchPortal.com website you can find up-to-date geopolitical and economic write-ups on most of those 90 countries, and up-to-date currency exchange statistics for nine of the major world currencies.  In both cases find this data under the Economic Research tab in the Left Navigation column under ‘Country Detail’ and ‘Currency Exchange’ respectively.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. No check of data underlying articles or comments referenced herein has been made, and no responsibility is taken for them.  See Legal Disclaimer.

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