www.FinancialArticleSummariesToday.com

“Few investment opportunities arise in our lifetime like silver. The stage is set for a silver price percentage gain of extraordinary magnitude! Forget the popular refrain of “Got Gold?” and make some additions to your portfolio to take advantage of the coming silver supernova!”

So said Donald J. Poitras in an email he sent me after reading an updated version of an article recently about the possible impact the historical gold:silver ratio could have on the price of silver should gold go parabolic to various levels. With Poitras’ permission I present below, in a reformatted and edited version, his views on why he believes there are other sound reasons why silver, in and of its self, can expect to experience a “percentage gain of extraordinary magnitude” in the years to come. As Poitras sees it:

These Facts About Silver Say It All

a) Diminishing Supply: Increasing Demand

– Only 600 million ounces of silver are mined yearly yet industrial demand, with new uses being implemented every year, is currently over 900 million ounces per year.- Investment demand for physical silver has exploded with the advent of silver ETFs and the increase in actual ownership of the physical metal by interested parties worldwide. China, for example, is now encouraging its citizens to own silver. Demand is such in the U.S. that he U.S. mint is rationing silver coins.- Total known world above-ground silver inventories have declined by more than 98% in the past 75 years.  b) Massive Short Position Exists

– Silver has a massive short position, probably greater than any commodity in history. If one factors in short positions on COMEX and the leasing of silver by bullion banks, banks and brokers selling silver certificates and other silver instruments with no silver to back them  then it is quite possible that hundreds of millions – perhaps even billions – of ounces of silver are sold on paper that do not physically exist. c) Inground Silver Is Limited and Will Become Much More Expensive to Mine

– The average occurrence of silver in igneous rock (igneous rock composes ~92.5% of the earth’s crust) is 0.07 PPM or 0.07grams of silver per metric ton of igneous rock, which means that on average 444.3 metric tons of igneous rock must be mined to obtain 1 troy oz of silver (1 metric ton/.07gram Ag)*(31.1gram/1troy oz)!- Because of the geological phenomenon of epithermal deposition, very little silver remains underground.- Only the recycling of silver-containing products, the mining of scarce surface silver veins and the silver by-product of base metal mining can provide fairly cheap silver.- Silver is not found in placer deposits like gold but in veins and these silver veins are formed as epithermal depositions or condensation near the earth’s surface (like whipped cream on the surface of coffee). Simply put, the richest silver deposits are nearest the surface of the earth, and the deeper mines go, the less silver they tend to produce. Economically, the deeper the mine, the more expensive the silver is to obtain.  The Result: The Price of Silver Can Only Increase – Dramatically!

– As current silver is depleted from the abovementioned epithermal deposits and mined deeper at much lower grades (approaching 0.07 grams per metric ton), the costs of mining silver must skyrocket and consequently the price of silver must explode.  The stage is set for a silver price percentage gain of extraordinary magnitude! It is time to embrace the new refrain “Got silver?”

Lorimer Wilson is the Editor of both www.FinancialArticleSummariesToday.com (a sight/site for sore eyes and inquisitive minds) and www.munKNEE.com (a site consisting of edited excerpts of the internet’s most informative articles on money matters).  He can be reached at editor@munknee.com

Source: http://biiwii.blogspot.com/

I added some direct protection for my precious metals holdings in the form of ZSL. So, we have Dow, SPX and silver short… for now. Usually I stare in the crazy eyes of the silver bugs and I not only blink, I get sent running with tail between legs. Last time it was da bugz dat blinked. This time? We’ll see.

Maybe that is a bear flag? RSI needs to hold resistance.

Source: http://biiwii.blogspot.com/

This essay is based on the Premium Update posted on July 9th, 2010

You read a lot recently about “double dip” and it does not refer to two scoops of ice cream, or to the Jerry Seinfeld episode when George takes a large tortilla chip, dips it into a bowl of dip, bites into it and dips it into the bowl again, much to the utter disgust of the person standing next to him.

Yes, the financial meltdown has brought all kinds of new words into our lexicon.
The double dipping you have been reading about refers to recession — a double-dip recession, with a W shape on the chart. It is a recession followed by a short-lived recovery, followed by another recession.

We are half way into the year and it is a good time to ask ourselves if we are in fact facing another “double-dip” recession? And if so, what are the implications for precious metals?

There is certainly enough fear and angst on the subject if you read the financial pages. The word “fear” led the front-page headlines of The Wall Street Journal at least twice last week.

The London Financial Times reported this week that optimism among finance directors of the UK’s largest companies about their business’s prospects has dropped to a 12-month low.

Some of the world’s leading hedge fund managers are positioning their funds for a double dip recession, saying there has been a dramatic shift in the macro-economic environment over the last month.

Legendary investor George Soros recently told a banking conference in Vienna that the risk of a double-dip recession due to current European public finances woes can’t be ruled out, as credit problems are forcing European countries to accelerate fiscal consolidation.

And then there is Robert Prechter of Elliot Wave International, who in a recent New York Times piece said we’re headed for an even bigger crash than that of 2008 and 2009. He says the Dow could fall as low as 1,000 in the biggest bear market in 300 years. Here is his advice to investors:
I’m saying: ‘Winter is coming. Buy a coat.’ Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead.

Double Dip of Dismal News

It is understandable when you consider that stocks registered their worst quarter since the financial meltdown in the fourth quarter of 2008. The economy is weak and this is after trillions of dollars have already been pumped into it. Hiring is weak, consumers have lost confidence, stimulus dollars are running out and debt is spreading across Europe. Commercial real estate is in trouble and no new buyers are coming into the housing market. Banks are still reluctant to lend and businesses are loath to expand.  Automakers say they see no sign of recovery. Ten-year US Treasury notes are selling at the lowest yields in 14 months.

That’s a lot of bad news to take it. But there’s more.

Consider that Bush tax cuts are set to expire on January 1, 2011. Bush cut taxes in 2001 and again in 2003 in the face of a weak economy. Unless something changes, America is going to enact the largest tax increase in US history that will be matched by equally large tax increases and spending cuts by state and local jurisdictions. Unless Congress acts to make those cuts permanent, massive tax spikes will hit hard and could tip the U.S. back into recession. Research has shown that tax cuts or tax increases have as much as a 3-times multiplier effect on the economy. If you cut taxes by 1% of GDP then you get as much as a 3% boost in the economy. The reverse is also true.

Another New Term—“Option ARMs”

Here is another new term for us to learn—“Option ARMS.” These are Adjustable Rate Mortgages and are considered one of the riskiest kinds of loans made during the housing boom; they have left many borrowers owing much more than their homes are worth.
ARMs generally permit borrowers to lower their initial down payments if they are willing to assume the risk of interest rate changes. Many ARMs have “teaser periods” when the ARM bears an interest rate substantially below the fully indexed rate.

Billions in Option ARM resets are scheduled to take place in 2010, which might make the subprime crisis look like a cakewalk. These are the loans that made it easy for consumers to buy houses they couldn’t afford. About $750 billion-worth of Option ARMs were issued between 2004 and 2007 and they will all begin resetting shortly.

Does the government have the money to bail out the next batch of banks that will fail as a result of these Option ARMs? We should brace ourselves for more bank failures, job losses, foreclosures, delinquencies, and economic adversity.

To make matters even more unsettling, let’s not forget that the world’s governments met recently in Canada and pledged to reduce their countercyclical spending. If they follow through, it could result in the private sector and the public sector de-leveraging at the same time, which means another crisis. When governments begin to tighten at the same time that the private sector is tightening, the effect could push the world into a sharper, deeper recession. On the face of it, cutting back on spending seems like the prudent thing to do. But the move may not be enough to reduce sovereign debt levels, but still might have enough kick in it to tip several national economies into depression.
Having frittered away trillions in bailouts and confidence-building exercises, it will be nearly impossible for those same maneuvers to work again if the economy turns lower and defaults pick up again.

The likely scenario is that there will be wave of bankruptcies at first with inflation to follow.

Fascinating Crossroad in Modern Financial History

Albert D. Friedberg, of Friedberg Mercantile in Toronto, is one of the most respected hedge fund managers in Canada. In a private quarterly report he just sent to his investors Friedberg said: “In my view, we stand at a fascinating crossroad in modern financial history.”

We would like to quote directly from his newsletter:

Massive quantitative easing for the past 18 months, at least in the U.S. and the U.K., has not led to an explosion of money as one would have expected. In effect, the money multiplies has shrunk dramatically; banks have build up record excess reserves and the asset side of their balance sheets has experienced a slight shrinkage, as loans have declined at a precipitous rate and Treasury holdings have only partially offset this decline. Clearly, banks are nervous about extending new credit…

If banks continue to hang on to their excess reserves, money supply will begin to drop in accelerated form and bring down with it asset prices and the economy. As it is, MZM (money of zero maturity, a proxy for transaction type money) has contracted at an annual rate of 6.9% over the past 13 weeks, while broader money (M2) has contracted at a 0.4% rate over the same span. The money contraction is puzzling in that they have occurred during a time when the Fed has made every conceivable effort to expand money to avoid the consequences of the 1930s. Recall that monetarists like Milton Friedman charged that the 30% contraction of money during the 30s was the principal cause of the depression. At the same time, fiscal profligacy in the U.S., Europe and Japan, is forcing the Treasuries of these countries to retrench in a massive way, implying rising taxes and a freeze on spending for years to come. The monetary drama in play at this time puts the continuation of the upswing in doubt.

The U.S. U.K., Eurozone and Japan are delicately poised between two very serious dangers; a once in a generation deflation and an accelerating inflation rate. Either a lack of oxygen or too much of it will kill the patient. The deflationary, the more likely scenario, would be deadly almost right way. The inflationary scenario on the other hand, on the other hand, would take a huge toll on the developed economies, but it would be likely to take some time.

Friedberg, a prudent investor, says he placed a modest amount of chips on the deflation table and fair sized short positions in stock indices. A gold bull, he also placed a “fair sized” long position in gold, which he says is becoming a safer international asset by the day.

We obviously agree that going long the gold market is the right move for investors to prepare themselves for the coming storm. Remember that the first goal always is not to lose money while waiting for the next opportunity train to leave the station. Gold is the ultimate money.  We wrote in last week’s Premium Update that there is only one reason not to invest in gold. You should not invest in gold or silver if you believe that Somewhere Over the Rainbow skies are blue, sovereign debt problems will disappear and economic recovery is just around the corner.

This week, however, we will turn to silver as this market provides us with particularly interesting long-term calls. Consequently, let’s begin with the very-long-term chart (charts courtesy by http://stockcharts.com.)

The above chart has been featured in our updates several months ago when we discussed long-term targets for silver and gold.

Just like it was the case back then, it seems that silver prices would need to correct previous upswing twice before moving to new highs. Please note that once a new high is reached after a rally, there is a typical correction and then a move close to the previous high that does not take silver higher. It seems that this is what we have just seen.

Once this second trial fails, price corrects once again – at least 50% of the preceding upswing (as marked on the chart above) before moving much higher.

This means that if we have seen the second top for silver now (which is likely the case) then silver might need to move down to $14 – $15 level before it ignites a rally that takes it to new highs.

We realize that this is very discouraging news to silver and gold investors but it is our obligation to report what our analysis determines. Gold and mining stocks may also go substantially lower but confirmation from other techniques or signals is needed before validating this option as highly probable.

The upper section in this first chart for silver provides conclusive calls long-term. The Trix indicator normally does not imply a final bottom until a downward move has been followed by a correction and then an addition decline. This would be near the zero level for the Trix indicator. Above we see that we are beginning the second part of a corrective phase. This precedes our next rally and we expect to see a zero eventually. This would correspond to a final bottom possibly along with a possible decline to the $14 – $15 level.

This discussion has not been provided to scare you out of the precious metal sector. We do wish however to emphasize that the situation is quite serious. It is most important now to monitor all developments daily and react accordingly. Sunshine Profits has the tools and the expertise to keep our Subscribers informed. This is always our first priority.

The above chart indicates that we might be close to a local bottom, as the price of silver is right at the 200-day moving average. The Stochastic Indicator points towards the bottom possibly being in. The RSI however does not confirm this. So what does all this mean? The signals are presently mixed and unclear and we do not feel this benefits entering with speculative capital at this time.

This final chart for silver points to the bottom being in and a technical turning point also at hand. The Stochastic Indicator also identifies the bottom and a probable move upwards to follow.

Summing up, even though precious metals will likely move upwards slightly in the coming days, this may be the beginning of a bigger downswing in silver, gold and mining stocks. We caution that these moves higher may only be temporary (particular caution is necessary if one wishes to trade this move), as they are driven to a great extent by possibility of a consolidation in the Euro Index. Please note that this is not the end of the bull market for silver; in fact. In this week’s Premium Update we provide a target for silver at the end of 2011, which is much higher than the 2008 high.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you’ll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It’s free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
www.SunshineProfits.com

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All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

By reading Mr. Radomski’s essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Every day last week silver (and gold) traded up in the physical buying markets of Asia and India, only to undergo massive paper selling in London and on the Comex. What was incredibly bullish was the way silver recovered from repeated paper price attacks during the paper-only Comex trading sessions every day last week. I can’t recall seeing price “snap-back” action like this in nearly nine years of trading silver. Silver closed the week slightly lower than a week ago, but closed nearly a dollar above it’s intra-day trading low last week. This is an even more remarkable feat considering that the Dow and the SPX were demolished for the week.

The trading action I observed and participated in, combined with the amount of silver leaving the Comex, tells me that the paper shorts are having a hard time triggering any meaningful stop-loss selling, which is how the big Comex shorts (JPM, HSBC) have historically covered their short positions.  Here is Ted Butler’s comments from his weekly King News World radio interview:

There’s not a lot of people out there looking to dump physical metal right now…and I can see situation developing where a lot people wake up and say they want to acquire big physical positions and that mismatch of no big physical supply and potential physical demand is what the doctor ordered for a big price explosion.

Here’s the link to the entire interview – it’s about 10 minutes and worth hearing:  Ted Butler on silver

I can’t really add much to my commentary above, but they say (whoever the hell “they” is – who is John Galt?) a picture says a 1000 words:

Financial are under a lot of pressure.  In the past 6 months, the financials have had 7 major weekly distributions verse 1 major accumulation which leads me to believe that this bearish crossover could lead to a major financial decline.  Notice how the financials when it broke into new 52 week highs it was on low volume which means it didn’t have the momentum to really hold those highs.  This is also evidenced by the declining momentum indicators.  The financials had 5 major weekly sell off in the 8 weeks of April and May.  The bearish crossover pattern plus the failure of the financials to hold the 200 day leads me to be long term bearish.

On the other hand Silver, Gold and Miners all appear to be reaching new breakout points.

Silver is very close to a 3 year breakout and I would not be surprised if over the next couple of weeks silver makes a move into new 36 month highs. If this move breaks $19 on silver, which is a major resistance level my target would move to $30 an ounce.  Silver has shown increasing demand as it has found support at the rising trendline support and is at the verge of a major breakout.

The connection between the financials and silver is showing that more investors are moving away from investment vehicles which are exposed to debt, government regulation and weak economic growth.  Investors want their assets in real money which is silver and gold.  Keep an eye on $19 silver and a breakdown of XLF past $14.

Source: http://goldstocktrades.wordpress.com/2010/06/25/banking-reform-pushing-financials-lower-and-silver-higher/

Couldn’t have said it better myself.  I thought the silver bulls out there might enjoy this centerfold picture:

Here is a great 40-year Silver chart from Nick Laird at sharelynx.com, with my annotations.

This long-term chart shows $15/oz as a critical level. Silver rebounded strongly from $15 earlier this year and is soon to attempt to break $20. A clean breakout and Silver should reach $25, which is its final long-term resistance.

This brings up the question, when will Silver break $20/oz?

The above chart provides some helpful hints. First, the 40-week bollinger bands are nearly tight enough (as in previous breakouts). Second, Silver has held above $17.50 despite numerous attempts to go lower. Finally, Silver is performing very well in relative terms. Silver against both currencies and commodities has already broken out past its 2008 high. On the other hand, Silver has yet to breakout against Treasuries. We are keeping an eye on that ratio as it could confirm a sustained breakout in Silver past $20/oz.

Of course no one can predict the future. We try and assess what is probable and what is unlikely. Given the macro backdrop, Gold and Silver should continue to outperform going forward. When we look at the technical backdrop for Silver, we see what is “probable” should the metal eclipse and hold the $20/oz barrier.

Hence, in our premium service, we’ve selected the Silver stocks that are most likely to outperform from the coming move past $20/oz and to $25/oz. You can try our service for free for 14 days.

Good luck and keep your eyes on Silver!

Jordan Roy-Byrne, CMT

http://www.thedailygold.com/newsletter

Jordan@TheDailyGold.com

Source: Karen Roche of The Gold Report 6/02/10

http://www.theaureport.com/pub/na/6436

Weiss Research Natural Resources Analyst Sean Brodrick expects the bull market for precious metals to run for “quite some time,” with gold hitting $1,450 /oz. by year-end and silver at $25 not long after. In this exclusive interview with The Gold Report, Sean sees silver reasserting itself as a monetary, investment and industrial metal. South of the border, some of the Mexican miners have an “embarrassment of riches”—which have largely escaped the attention of Wall Street.

The Gold Report: You recently remarked that we’re “trillions of dollars in debt and we can’t seem to grow our way out of it,” adding that, “the only way to get out from under the debt is to print money or inflate out of it.” But you also cited an article with a long list of bullish indicators for the global economy, including positive indicators for the U.S. So if the economy is growing, why can’t we grow our way out of this debt?

Sean Brodrick: Much of the growth was predicated on debt. We borrowed about one-tenth of our GDP to boost things along and got some growth out of it. The problem, now reflected in the markets, is that investors and traders wonder if we’re going to keep borrowing to keep pushing the economy along. If not, we can expect contraction.

In Europe, of course, they’re now borrowing even more to bail out the bankers who loaned Greece too much. The market’s really wondering where that ends. The whole point of this exercise is to stimulate the economy enough to spur intrinsic growth instead of debt-fueled growth.

As in World War II, they should have borrowed more to really stimulate. Or they should have left some banks hanging and accepted everybody losing and going back to a lower level for a while. They should have gone one way or the other. Instead, they’ve gone into a no man’s land.

They can keep borrowing more and more, and I think we’ll see that because this is an election year. Politicians don’t want things to really turn down. We just have to remember that a lot of the growth we’re seeing is borrowed. It is borrowed through debt from the future. That bill will finally come due someday.

TGR: So the future growth you foresee in terms of the bullish indicators is still debt-driven.

SB: Exactly. They were hoping to use debt to fuel the economy enough to spur real economic growth. We haven’t seen that much of that yet. There are bullish indicators, but it’s a very weak recovery. The markets fear that things are really going to go down when we take away the blindfold, and they might be right. We’re caught between a rock and a hard place. Either keep borrowing and keep spending the money all over the place and keep the market moving along—or else sober up, stop the borrowing and the extra spending and understand that things will slow down.

TGR: As you indicated, no politician is going to want to stop the spending in an election year. So they’re going to continue to stimulate economic indicators with debt. Eventually, as you stated, they’ll to have to print money or inflate out of it.

SB: That seems likely. But on the other hand, the GOP has turned into the party of “no.” They don’t want to do anything; maybe they’ll say “no” to everything. I kind of wish I didn’t have to live through it, but it’s actually interesting. We are living this grand socioeconomic experiment. I don’t really like any of the choices we’re facing, but I think we will see more borrowing—if not to stimulate the economy, then to pay for bad choices Wall Street is making right now. Wall Street always gets bailed out; it just works out that way. And as we see more borrowing of one kind or another, we will see pressure on the paper currencies.

TGR: It’s already hitting the euro hard.

SB: The euro is under a great deal of pressure and, within a year, it might well not be in the same form it is today. The U.S. dollar looks strong right now, but that’s only because central banks around the world have decided they own too many euros. The fact that they’re getting rid of euros is the reason the euro’s been sliding so much. They are buying U.S. dollars just because they can always convert the dollars to something else. And of course, they’re buying—and have been buying—gold. So the U.S. dollar and gold are going up at the same time. The question is, what will they do maybe six months from now? Will they keep buying the USD? Will they keep buying more gold? The U.S. debt situation is actually quite remarkable for the way it’s being ignored, frankly; and I think we’ve hit peak gold.

TGR: That should be good for the gold price.

SB: Absolutely. The ore bodies being discovered now are smaller and lower-grade than in the past. We aren’t finding big, rich ore bodies anymore. The amount of gold we can produce in any one year is probably hitting a peak, so the price is just going to go higher. So I think gold will get more valuable for that reason, as well.

TGR: Does that also bode well for silver, particularly if you look at silver as a monetary metal?

SB: Again, absolutely. Silver is not only a monetary metal, it is an industrial metal. But it’s always a problem for any silver investor to gauge how much silver’s price reflects global economic conditions. Maybe there will be a global recovery. Things don’t have to get worse just because I see that possibility; the global economy could improve. If it does, we’ll see increased demand from multiple sectors of society—more demand for silver for all of its many industrial uses.

The economy is on an improving track globally now, but will a return to recession drive the price of silver down? It can do that. Also, if the global economy slows and we see less demand for industrial metals, remember that much of the world’s silver production is a byproduct of other industrial metals. If they shut down industrial metals mines, it pulls silver supply out of the market. That might cause a financial panic, which will send people looking for hard assets again. That would drive silver up. None of this means silver can’t go lower, but I think the trend will be up for silver and gold alike.

Either way, I think we’ll see silver reassert itself as a monetary metal, as well as an investment metal. More small investors, in particular, will start putting money into silver because, as gold gets more expensive, it becomes unaffordable for some people. It’s kind of an interesting situation for silver.

TGR: So the two primary demands are industrial, which depends on the global recovery; and monetary or physical silver, which will go up in tandem with gold. Do you know the percentage of physical silver held versus what’s used for industrial purposes?

SB: I don’t have that statistic in front of me. But people are buying bars and coins in addition to ETFs. If mint production doesn’t keep up with demand, it tends to feed into the price of silver. That’s the funny thing about precious metals—everybody wants more when it’s not available.

TGR: If everybody will want more, where would you peg the price of silver in two or three years?

SB: It has to get through $20, and I think we’ll see that fairly soon. I’m expecting the pullback in gold to work out over the next week or so, and then it should head higher again. My target for gold would be $1,450 by year-end. We could easily see silver at $25—if not by then, certainly next year. We haven’t hit the mania phase for either metal yet. Most people remain completely unaware of the gold and silver markets. If anything, people are actually selling to all these outfits that are in the scrap market now, urging people to bring in their old and broken jewelry. They aren’t taking a part of each paycheck and running to their local gold and silver dealer to purchase more every month. That’s not happening yet.

When the mania phase does come, I don’t want to put a price target on either gold or silver. I don’t know how high they can go, but whatever it is, it won’t stick. You want to buy before the mania.

TGR: And then?

SB: We’ll have to see what happens. Usually after a period of mania, you get some kind of blowoff. This could be years down the road, by the way; these things take time to unfold. I’m not expecting this to happen next year. We’re in a good bull market for both gold and silver. They’re both continuing quite nicely, so I expect higher prices for both for the next two or three years at least. Then we can finally get to the mania.

TGR: If the global economy is recovering, albeit slowly, from where will the fear that fuels the mania originate?

SB: That is a good question. I’m not really sure that most manias in investments are necessarily caused by fear. It could be greed. But we can have a nice bull market for quite some time. If the global economy continues to grow, perhaps slowly, it will increase industrial demand for silver. A lot of people worried about demand when they stopped using silver in photography, but now it’s used more and more for many other things. It’s an amazing metal in the way it conducts heat; it’s really far beyond the competition. Something like 300 tons are used every year just as chemical reagents for plastics and so forth. Silver’s also used now in solar power technology. They’re talking about using silver for catalytic converters. They don’t quite have that technology yet, but silver would be a great replacement because platinum and palladium are scarce.

TGR: That brings up an interesting possibility. Everyone gets all riled up about rare earths because China mines most of the world’s production. If silver can replace rare earths in such applications, would we see an exponential rise in the silver price?

SB: I’m not talking about silver replacing rare earths. It doesn’t mean they can’t find new substitutes for lithium for batteries, but I don’t know what would replace rare earths now. That’s the beauty of metallurgy, right? You can always find substitutes. They may not work as well, but once you get down into nanotechnology, that’s coming. That will probably be the next big industrial wave; we’ll see some really amazing things. That’s actually one of my hopes for the future.

TGR: What’s that?

SB: That we might be able to engineer our way out of the mess we’re in if we can get that technology to come fast enough.

TGR: Back to silver. Do you focus on Mexico?

SB: As natural resource analyst for Uncommon Wisdom Daily, I cover everything. But yes, I certainly cover silver in Mexico.

TGR: One of your articles talks about Mexico being relatively unexplored for various political and historical reasons, which leaves plenty of bonanza-grade deposits. Would you talk a bit about that?

SB: Sure. Blame it on the Mexican Revolution. They had some really serious troubles at the beginning of the 20th century. Many people who were investing in mines there got very nervous, so they up and left. They were able to invest in other places without the headaches. As a result, Mexico missed out on a whole phase of exploration and expansion that the U.S. went through. Now there are these really high-grade ore bodies there—many of which were mined before; that’s the amazing thing.

For example, I was recently at IMPACT Silver Corp. (TSX.V:IPT), which has maps of at least 1,800 narrow shafts that were put in the ground over the past 500 years just in one valley. That’s only three per year over 500 years, but it’s amazing when you remember that they were using extremely primitive technology. They basically mined the silver they could see. They pulled silver of 1,000 –1,500 grams per ton (gpt) from these narrow shafts, ignoring this huge block of rock all around them. They weren’t interested in it because it wasn’t visible silver, not their “high-grade” stuff; but it’s high grade to us—500 gpt, at least. Impact Silver’s saying, “We’ll take it. This is absolutely fine. This is a great grade to be working nowadays.”

Impact Silver’s is an interesting story. They are making money and they have almost an embarrassment of riches. There’s so much around them that they can mine. The question is what do they mine next? It’s not as if they have to look for stuff—they’re surrounded by it. They have an interesting approach. They are not going into debt. They are drilling to prove up ounces in one of their land packages, but they’re working in an area that’s easier to drill because of the geology. The main mines have what you might call “lumpy” deposits; they know where the silver is, but they aren’t in a hurry to prove up those ounces because it would be expensive. So while they will have a new resource report coming out later this year, they have so much more they won’t be reporting because that would require a lot of drilling that they’d rather not pay for just yet.

TGR: But even if it’s in lumpy deposits, it’s high-quality stuff.

SB: Any miner in the U.S. would be knocking themselves over to get it. The very high grades that have been mined out in the U.S. Charts show how the ore grades of all metals peaked in the 1920s to 1930s—incredibly rich grades of iron, copper, silver, gold and more. Why? We came to this new level in technology that made mining easier, especially at the deeper levels. So most of the high-grade stuff is gone now; it’s been used.

TGR: And in the meantime?

SB: Mexico’s become a very mining-friendly country. As long as a few decades ago, many smart Canadian miners went to Mexico and put together land packages of properties that had been abandoned. They’re finally getting to work on them and are finding some amazing grades. An average grade of 500 grams of silver per ton is a very rich mine. You don’t even have to drill much, you just go along the same path the previous miners followed. The ore you get is just really excellent.

TGR: Quite the bonanza.

SB: And it’s not just Impact Silver. Great Panther Silver Limited (TSX:GPR) is another one I’ve visited a couple of times. Very interesting story. It’s a smaller miner but it’s really ramping up production. Guanajuato is one of their projects and Topia is another one. Between the two, they produced about 2.2 million ounces last year, and should produce 2.6 million ounces this year. They’ve increased production in each of the last four years. They’ll probably hit production of about 3.8 million ounces of silver equivalent per year by 2012. Operating costs are around $6/oz. net of royalties. Great Panther is cash flow positive and has another project it’s fast-tracking toward production.

Guanajuato is just amazing. It’s an incredibly long strike—something like 4.7 kilometers. This huge ore body stretches on forever, and it’s really, really rich. They’ve pulled something like a billion ounces out of there.

TGR: All that, and they aren’t close to exhausting it?

SB: There’s a lot left, and remember the huge upgrades in technology. As they go deeper—deeper than was possible in the past—Great Panther comes to incredibly rich grades. There’s a lot of amazingly rich stuff left in Mexico that lay dormant for a long, long time. It’s now coming into play, and Mexico is a very mineral-rich country anyway. So that’s why I think the future for mining in Mexico is so bright.

TGR: One of your recent articles said that the Mexican silver miners are underpriced. With those amazing grades and amazing land packages, what’s causing them to be underpriced?

SB: Part of it is the fact that some are better at public relations than others. Not all of them are underpriced, but some just don’t get their message out well. If you do your research and check into them, you can find some really good bargains. Another factor is that they aren’t really being followed on Wall Street; so, to that extent, people don’t know about them either. They are being followed up in Canada, of course. As you might expect, only people who know the niche in the U.S. and tune in to what’s going on in Canada realize the great things going in Mexico. Right now, they’re a few steps removed. But their story will get out, especially as the world gets more focused on what’s happening with gold and silver. These companies will become much better known.

TGR: How about some examples of companies that aren’t well-known but are really well-positioned?

SB: Impact Silver is one. I think their approach is about the only thing that’s weighing on their price, plus the fact that they aren’t as well-known as they might be. Great Panther is another that has great upside potential simply because they’re in this old historical silver-rich zone and keep stepping out beyond what had been done so many years ago.

Another one would be First Majestic Silver Corp. (TSX:FR; OTCQX:FRMSF). It is a better-known stock than some, but it still has tremendous upside—it’s well off its highs. It owns and operates three producing silver mines in Mexico with all-in costs of about $8.49/oz. That’s higher than some, but it is certainly very profitable. They produced 4.3 million ounces last year and should produce 6 million ounces this year. Their production schedule is just to keep going higher and higher and higher, and they have a pipeline of projects lined up. It should really be a great story going forward. They just picked up a new property that has some 33 million ounces of silver Measured and Indicated. Add that to some 184 million ounces already in their other resources, and you can see that is going to be a really, really good story.

I’ve also been to Endeavour Silver Corp. (NYSE:EXK; DBF:EJD; TSX:EDR) and seen their projects in Guanajuato and Guanaceví—they look great. I expect they’ll be acquiring either a private or a public company. I’m not hearing that from them; just seeing how they’re positioned, sitting on cash, looking around for this deal and that deal. What that would do to the share price depends on the structure of the deal, but it can’t hurt. Endeavour isn’t in the same league as First Majestic, at least not yet; but they have a good path outlined going forward and I think they’ll do extremely well. They had nice revenues last year, and in the first quarter of this year revenues increased something like 115% over the year prior. That’s not hard to do when the price of silver is soaring, of course; but the nice thing about each of these companies I’ve mentioned is they went through the low prices we had in silver and came out stronger. Each of them had to cut back, really tighten their belts. That made them much leaner and meaner. Their growth picture is really good now because they’ve already been through the bad times. So as the price of silver goes higher, they can have real growth in their earnings and their revenue. And they’re all ramping up their production. They have new land packages.

TGR: How about gold miners in Mexico?

SB: I’ve been to Timmins Gold Corp. (TSX.V:TMM) in Sonora. They have a nice open-pit heap-leach operation and are producing now. I believe their cash cost is about $412/oz. They are expanding their San Francisco vein. Timmins still has some things to work out. Maybe it’ll merge with one of the others in the area; maybe it will do some other acquisitions. Certainly it has other projects in Mexico that it can advance. While I like that particular project and the people running it, I don’t see the clear path that I see in some others. That’s the simple reason I haven’t recommended Timmins to my subscribers. I can see where each of the other companies I’ve talked about is going in terms of increasing their production.

TGR: Any other companies that you’d like to discuss?

SB: Not at this point, though I am looking, especially as we’re getting back to what I think is going to be a buying point. You can’t buy small caps the way you do larger-cap stocks because they just aren’t as liquid. In fact, they can be illiquid at times. You need a plan, not only for getting in but also for getting out. What if the company comes out with some bad news? People have to be very careful. They certainly shouldn’t buy anything just because I talk about it. Even things in my subscribers’ portfolios aren’t necessarily right for everyone’s portfolio.

TGR: Any other suggestions for potential investors?

SB: Yes. Be very careful where you put your money, especially in this kind of market—and very careful how you go in. I usually go in one slice at a time and take the same way out, so as not to move the stock too much. Another point—if you like something because it’s cheap and it gets expensive, don’t chase it. You might have another chance to buy it on the cheap again.

TGR: You mentioned your subscribers. Can you give our readers a quick overview of the publications you edit?

SB: Crisis Profit Hunter focuses on how to invest in anticipation of some emergency situations that I see coming along—protective investing but also making money. For instance, I think we’re heading toward an energy crisis. I also think we’re heading toward a food crisis. Other crises face us as a society. The Crisis Profit Hunter doesn’t focus exclusively on stocks that pay nice dividends, but looks at dividends; and we like natural resource stocks, especially in that portfolio.

Red-Hot Commodity ETFs is another subscription service. It basically tracks the large bull market in commodities using ETFs. Of course, there are also pullbacks, as we’ve seen lately, but you can play those with inverse ETFs. I have Red-Hot Canadian Small-Caps, too, and finally, Red-Hot Global Small-Caps—which probably is really the one I’m known for. That’s small-cap miners all around the world—Australia, Thailand, Chile and Mexico, as we’ve been discussing—also Canada, of course. Just looking for and investing in those companies that have a really bright future in both the small-cap and micro-cap space.

TGR: You have some wonderful freebies, as well.

SB: You can always find the free stuff at Uncommon Wisdom Daily. I write the Friday column there, and I have a video there every Tuesday. And you can go read the free blog that I write every day; if you click on the blogs tab, you’ll see my smiling face.

A natural resources analyst for Weiss Research, Inc., Sean Brodrick travels far and wide seeking out investment values in the sector, primarily among the small-cap and micro-cap players. He edits Weiss Research’s Crisis Profit Hunter, Red-Hot Canadian Small-Caps, Red-Hot Global Small-Caps and Red-Hot Commodity ETFs, as well as making regular contributions to Uncommon Wisdom Daily. He is also a contributing columnist to Dow Jones MarketWatch and a frequent commentator on one of Canada’s premiere financial websites, HoweStreet.com. Sean’s expertise has led to many financial talk show appearances, including CNBC Squawk Box, Fox Business, CNN, The Glenn Beck Program, Your World with Neil Cavuto and Bloomberg Market Line. Released early this year, his book The Ultimate Suburban Survivalist Guide to help people survive the ever-changing economic landscape, from stock market shakeups to oil and currency crises to natural disasters. A graduate of the University of Maine, Sean has more than 25 years experience as a professional journalist and financial analyst, including a stint as investment director of the Sovereign Society—the world’s leading publisher of offshore asset protection strategies and global investment opportunities. His favorite movie (interesting in light of his focus on Mexican miners in this interview) happens to be John Huston’s The Treasure of the Sierra Madre.

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DISCLOSURE:
1) Gold Report Publisher Karen Roche personally and/or her family own the following shares of companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Great Panther Silver, Timmins and First Majestic.
3) Sean Brodrick: I personally and/or my family own shares of the following companies mentioned in this interview: None. I personally and/or my family are paid by the following companies: None.

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