Late April Silver Update
Jason Hommel
This week, I'm not producing an updated weekly
report, because I'm headed to Calgary, and I will not have the 5-7
hours of time to go through each company by hand and do the math.
But due to the drop in the price of silver, some
people have wanted me to issue an emergency comment. So, here it is.
I believe the lowered price is being driven by paper
futures contracts, not physical supply. There has been no significantly
bearish news for either gold or silver in the last week or so since the
price drop began. There has been no major new supply of silver coming
to market.
What I read on the internet from second hand sources
was that the open interest for silver has remained nearly the same by
the time silver dropped to $7/oz. I thought this was extremely good
news, since it means that the shorts still have not been able to close
out their positions, and that they still have yet to cover. I take that
to mean that they will likely be covering their shorts and buying back
silver at much higher prices than $8.40/oz, say, up to $15-$30/oz.
But, then again, the shorts may still believe they
can get the paper longs to turn sellers. After all, if the shorts are
trapped, and cannot buy silver that does not exist except at much
higher prices, why shouldn't they make even more paper promises? If
they are bankrupt by promising to deliver 500 million oz. of silver
that does not exist, they can surely promise to deliver up to 800
million ounces of silver, in a desperate attempt to fool the majority
of paper longs into turning sellers. This is the game these shorts have
been playing for 20 years, and they are certainly good at it.
It is like they are credit card junkies, who are
only able to pay off the interest on their credit cards by going
further into debt, but their game is to always transfer the debt to the
card with the lowest interest. But in this case, they are always
transferring their silver debt to a future contract month, as the
contracts are "rolled over".
The problem is the paper longs who continue to extend them credit!
The other problem is that the shorts are not limited
as to how many contracts they can sell, but the longs are limited as to
how many each long can buy. I believe the limit is 1500 contracts for
each long. Therefore, the shorts can overwhelm the large longs, who
cannot continue to buy to infinity. But the shorts can continue to
sell, sell, sell, without limit. Limitless selling always drives the
price down. But only so long as people believe the paper promises.
Since the paper longs are unable to overwhelm the
shorts at the paper game, due to restrictions, the best way to beat the
shorts is to not play that game, and to buy physical silver!
Now, undoubtedly, the paper shorts do have physical
silver that they can sell. Reports are that Peñoles has sold up
to 2 years worth of production, perhaps at prices under $6/oz. This may
be as much as 70 million ounces per year! And undoubtedly, other large
producers have sold silver at locked in, low prices, as well, such as
Barrick (who may have covered with paper options.)
This means that the paper shorts make money if they
sell this silver into the futures markets at prices anywhere higher
than $6/oz. This is their "limited ammunition". But in a market where
industrial demand is already out pacing mine supply, there is not
enough silver for monetary and investment demand on top of the very
small existing market dynamics. And the "limited ammunition" is
certainly not enough silver to cover the 500 million oz. of silver in
futures contracts.
The issue is that the bullion dealers who are short
may trust that the miners know what they are doing when they lock in
silver at low prices. But this trust is certainly misplaced, in my
opinion. Large miners who were heavily hedged, such as Ashanti and
Cambior nearly went under back in 1999 when gold spiked up in response
to the Washington agreement.
The smartest silver companies are the explorers, who are buying silver properties at low prices.
The paper longs must sell if they get a margin call
they cannot meet. This may be happening right now. This is also why you
must avoid debt, and have a fully paid for position of physical silver.
I have not lost a single ounce of silver. And if I think in terms of
silver, then, I have lost nothing.
True, my portfolio of stocks is down about 20%,
which may be less than most. Perhaps the reason why that damage has
been so minimal is because so many people who own the stocks that I own
are very confident in the long term market outlook for silver. And if
silver is down 28% from $8.40 to $6.00, and my portfolio is down 20%,
then in terms of silver, my silver stocks are still ahead!
I do not have the experience of trading for 20
years, but I do know this. As my portfolio of silver stocks has run
ahead by hundreds of percent, I've had to endure losses of up to 50% of
my overall portfolio, at times, along the way. And thus, if I were
trading on margin, then by now, I'd have nothing! So, you must avoid
margin, avoid debt, and avoid futures contracts.
Now is the time to buy silver and silver stocks!
I have a list of about 400 people who are interested
in Private Placement (PP) opportunities. In a PP, you can often buy a
stock at 80% under the share price on the day prior to the PP
announcement.
It is very profitable for me to tell my list about
PP opportunities, because I may earn a finder's fee. However, for the
last 6 weeks, I have not been able to present any PP opportunities to
my list, because there are not any that I know of at the present time.
It seems the companies do not want to give away stock at these low
prices!
And these prices are, indeed, low, as many stocks
are more than 50% off their highs! Several stocks are low right now
because those who participated in private placement opportunities about
4 months ago are now selling to "lock in" profits of 50% to 100% gains
or more.
Therefore, one way to look at the current situation
is that the best "PP" opportunity right now is the open market, where
stocks are 50% lower than their recent highs! In fact, it's better than
a PP opportunity that's only 20% off, because if you buy now, there are
no hold times, where your shares are restricted from re-sale for 4
months to a year or more. And if you buy now, you can sell later at any
time--such as when raising money the next time the silver stock market
is hot, and up 100% from here, perhaps one-three months from now, and
you need to raise money for your next private placement.
Shop as a wise housewife, and buy when the stocks are up to 50% off. That's now.
April 23, 2004
Jason Hommel
www.goldismoney.com
Other essays by Jason Hommel:
25 Reasons To Support The Sound Money Bill - 08 July 2004
I'm Insanely Bullish On Silver - 19 June 2004
Silver Stock Evaluations - 22 May 2004
The Silver Bull Is Back - 04 May 2004
Late April Silver Update - 22 April 2004
Silver Juniors With Cash Flow - 04 March 2004
Major Frauds of the U.S. Monetary System - 26 February 2004
Market Perspective & Cabo Mining - 12 February 2004
Usury Enslaves - 19 January 2004
Sterling Mining - 29 December 2003
The U.S. Trade Advantage With China - 17 December 2003
Rising Gold Prices Will Help The Economy - 02 December 2003
Miners to Use Silver as Cash - 27 November 2003
Private Placements in Silver Companies - 20 November 2003
Is the Silver Market Too Small to Buy? - 13 November 2003
Inflation & Deflation During Hyperinflation - 06 November 2003
Silver Price Expectations of Silver Stock Investors - 30 October 2003
Buying & Tracking Canadian Silver Stocks - 29 October 2003
Canadian Zinc--Silver Potential - 23 October 2003
Silver Stocks--Comparative Valuations - 4 - 13 October 2003
Silver Stocks--Comparative Valuations - 3 - 06 October 2003
Silver Stocks--Comparative Valuations - 2 - 29 September 2003
Silver Stocks--Comparative Valuations - 1 - 22 September 2003
Silver and Cardero Resource - 08 February 2003
The Moral Failures of the Paper Longs - 22 January 2003
CFTC Response to Silver Problem - 14 January 2003
People Talking About $32,567/oz - 10 January 2003
Letter To Authorities of Silver Markets - 06 January 2003
Why no talk of $32,567/oz ? - 02 January 2003
Refuting Myths about Gold - 28 October 2002
Controlling Gold with Paper - 10 June 2002
Impending Gold Futures Default - 29 May 2002
Certain gold stocks are still cheap - 07 May 2002
A Few Supply and Demand Fundamentals of the Dollar and Gold - 06 May 2002
New DROOY Institutional Holdings - 21 February 2002
Hommels View of Gold - 23 March 2001
Gold Price Under Differing Scenarios - 24 June 2000
Goldismoney.com
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