gold

Clash on Dodd-Frank ‘conflict minerals’

Faith leaders and business groups are colliding over a coming SEC ruling on little-known provisions of Dodd-Frank which require companies to track the use of “conflict minerals” in their production of certain consumer products.

One section of Dodd-Frank requires businesses to track - but not halt – the use of so-called conflict minerals from the Democratic Republic of the Congo, including a private sector audit of tracking methods. Another requires those involved in the commercial development of oil, natural gas, or minerals to disclose payments made to governments.

“It’s terrible what we’ve allowed to go on over the last few years without the world paying more attention to it,” said Rep. Jim McDermott (D-Wash.), on a conference call Wednesday with faith leaders. “As many as 7 million people have been killed… this is a mechanism by which we could cut off the flow of money to the rebels [in the Democratic Republic of the Congo]. The rebels are controlling the mines, and selling minerals on the black market.”

The SEC will soon make a decision on how to interpret the law, and certain business groups are suggesting that the sections would needlessly increase compliance costs.

“We’re concerned that industry pressure on the SEC will be so intense that they’ll water down the law and it’ll become ineffective,”said Corinna Gilfillan, the head of Global Witness, a human rights group.

Conflict minerals are found in all sorts of consumer products, and are widely used in electronics. The four main minerals mined in the Congo are tin, tantalum, tungsten and gold. Tin is used in circuit boards, tantalum in electronic capacitors, tungsten to allow mobile phones to vibrate, and gold as a coating for wires.

Heavyweights like the Chamber of Commerce, the American Petroleum Institute and the National Association of Manufacturers have expressed concerns about the provisions.

On the other end, religious figures have stepped up to join human rights groups in urging for a full enactment of the conflict mineral provisions.

“There is broad consensus in the religious community that transparency of minerals coming from conflict regions is a vital responsibility… we’re all concerned with trying to get conflict minerals out of the system,” said Rabbi David Saperstein, director of the Religious Action Center of Reform Judaism, on the conference call.

The faith leaders emphasized that their religions called them to treat other human beings with respect, which compelled them to support the Dodd-Frank provisions.

“What would it mean for us to be a neighbor to everybody in the supply chain used to make the clothes we wear, the computers we type on, and the cars that we drive? Our call to love is not defined by geographical proximity,” said Lisa Sharon Harper, director of mobilizing for the Christian group Sojourners. “We are all responsible for being good neighbors. It doesn’t matter if we have a good excuse… the people in the Congo are made in the image of God.”

“In the Jewish tradition, according to the Talmud, it was absolutely clear that there has to be transparency in the way that businesses went about selling their products. There were explicit prohibitions against deception, against watering down wine, against claiming something was something that it was not,” added Saperstein, also an appointee to the White House Council on Faith-Based and Neighborhood Partnerships.

By: Tim Mak
Source: http://www.politico.com/news/stories/0112/72002.html

Conflict-Free Minerals Reform In The Congo: What You Can Do

The Democratic Republic of the Congo: a region marked by violent conflict since 1996 in which torture, mass rape, forced displacement, and mass murder have been going on for years without much relief. It is a region in which armed groups are able to propagate the violence through the sale of the Congo’s mineral resources.

According to the Enough Project’s Raise Hope for Congo Campaign,

“Armed groups earn hundreds of millions of dollars per year by trading four main minerals: the ores that produce tin, tantalum, tungsten, and gold. This money enables the militias to purchase large numbers of weapons and continue their campaign of brutal violence against civilians, with some of the worst abuses occurring in mining areas.”

Most of these “conflict minerals” are used in the production of electronic devices in a process involving supply chains marked by a disturbing lack of transparency, so that by the time products such as cell phones or laptops end up in the hands of consumers, there is no way to know whether the purchase of those products contributed to the income of armed groups in the Congo.

The goals of many concerned activists are to find a way to ensure transparency in companies’ supply chains and to pressure companies found to be using conflict minerals to discontinue purchasing those minerals. The market for conflict minerals then, ideally, would be limited in terms of profit, reducing resources available to the armed groups, and thus pushing the armed groups toward peaceful resolution of the conflict which could open the region to other reforms.

There have been arguments that the initial attempts toward conflict-free policies have actually been detrimental to the Congo, by driving companies to search for minerals elsewhere, therefore crippling the economy and reducing the income of the general population. However, the UN Group of Experts recently issued a report stating that a conflict-free resolution proves to be an “important catalyst for traceability and certification initiatives and due diligence implementation in the minerals sector regionally and internationally,” and serves to reduce “the level of conflict financing provided by these minerals” in regions that have begun to comply to the due diligence guidelines. So, it seems that passing and implementing conflict-free resolutions are the first steps toward true reform and peace in the Congo.

Why not focus the fight for conflict-free reform on college campuses, which house a “particularly coveted demographic of electronics companies,” namely, students?

The Enough Project’s Raise Hope for Congo Campaign and STAND, a Student Anti-Genocide Coalition, have created the Conflict-Free Campus Initiative, a “nation-wide campaign to build the consumer voice for conflict-free electronics, such as cell phones, laptops, and other devices that will not finance war in eastern Congo.” By focusing on college campuses, the initiative “draws on the power of student leadership and activism to encourage university officials and stakeholders, both of whom are large purchasers of electronics and powerful spokespersons, to commit to measures that pressure electronics companies to take responsibility for the minerals in their supply chains.”

Organizing the student voice at the university level not only expresses the collective desire of individuals to ensure that they and their university do not participate in the perpetuation of the conflict in the Congo, but it also sends a powerful message to both political and corporate entities that consumers care about policies of those entities that may support the conflict. The Conflict-Free Campus Initiative explains:

“Universities are also a large client for most electronics companies and represent a large section of the buyers’ market for consumer electronics. By raising our collective voice as consumers, we can actually bring about a shift in corporate and government policy and help bring peace to Congo.”

Eight universities have issued conflict-free resolutions, including Stanford University, the University of Pennsylvania, and Duke University; more than sixty other colleges and universities throughout the United States and Canada have begun campaigns to do the same (including Yale University, Harvard University, Dartmouth College, Brown University, UC Davis, UCLA, UCSB, UCSC, Notre Dame, and Georgetown University).

The activism geared toward passing these conflict-free initiatives on college campuses has been successful in inspiring activity at the government level. California passed a bill prohibiting “state agencies from signing contracts with companies that fail to comply with federal regulations aimed at deterring business with armed groups in eastern Congo,” the first state bill to be passed regarding conflict minerals. Massachusetts is now also considering a conflict-free bill. Two cities, Pittsburgh, PA and St. Petersburg, FL, have also passed conflict-free resolutions.

If enough colleges, universities, towns, cities and states take the initiative in decisively acting to prevent the perpetuation of the conflict in the Congo by taking steps toward becoming conflict-free, perhaps the income of the armed groups committing mass rape and murder will be decreased sufficiently to prompt the beginnings of an end to the conflict.

Once the fighting ends, addressing the root causes of the conflict – including ethnic tensions – can be addressed through effective institutional reforms. But the fighting has to end before that can happen, and the fighting cannot end unless the actors in the conflict cannot afford to fight.

By: Cara Palmer
Source: http://www.neontommy.com/news/2012/01/conflict-free-minerals-congo-reform

India’s rich eye gold

The emergence of young, entrepreneurial high networth individuals in India is leading to a more diverse investment appetite, with gold linked debentures and gold ETFs high on the list.

The amount of wealth held by high networth individuals in India has reportedly increased faster than that held by rich people globally, according to a report, which notes that India’s elite are looking to invest their cash in gold.

With Indians holding more than 18,000 tonnes of the precious metal, the report by Indian wealth management firm Karvy Private Wealth has noted that the demand for gold has risen by 13% on average over the past 10 years, and is likely to increase by 30% this year.

The report found that while the fortunes of high networth individuals internationally grew by around 9.7% during 2011, money held by India’s rich increased by more than 18%. The growth made India one of the fastest growing high networth populations in the world, accounting for 1.6% of global wealth, according to the report.

Even as these rich Indians look for risk averse ways to invest their cash, the rising demand for gold from this class has not gone unnoticed. Though much of the growth in wealth was thanks to the increase in investment in fixed deposits, bonds and equities, the most popular alternative asset was structured products in the form of equity and gold-linked debentures, which constituted nearly 72% of the total wealth invested.

Individual wealth of Indians surged to $1,683 billion (Rs 86.5 lakh crore) in 2010-11 fiscal. Investment in alternative assets has increased significantly, boosted by investors’ rising confidence and interest in a relatively newer class of assets, the report states. According to Karvy, total assets under management (AUM) in equity-linked debentures was estimated to have grown 21% year on year.

According to R Parandekar, group head of the Wealth Management and Asset Management team at Karvy, “India’s individual wealth in alternative assets is 0.34% of her total wealth in comparison to 6.2% globally. We believe that alternative assets will be a major investment avenue in India over the next few years. Alternative assets including Gold ETFs, structured products, private equity and venture capital funds, etc. which are expected to grow at a rapid pace of 100% per annum.”

Gold exchange traded funds (ETFs) have also seen a steady increase in interest. The asset base of gold ETFs, as per data from the Association of Mutual Funds in India, has surged 167% between January and November 2011 to $1.8 billion (Rs 9658 crore). In the last two years, gold mutual fund assets have grown nearly 570%.

Analysts say the gold fund category is the only one that has generated significant returns for investors in 2011, ending the year generating over 30% returns. Gold funds gained 27% to 31% over the past one year, as compared to large cap equity funds, short term bond funds and income funds which on an average returned minus (-) 23%, 9.04% and 8.2% respectively during the same period, according to data from Value Research.

Between now and 2016, the wealth of India’s richest is also expected to treble. As per the Karvy report, with current annual household savings of about 34%, and expected to grow 8% on average, India is well poised to lead wealth creation in the global arena.

Source: http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=143379&sn=Detail

China, 14 Currency Swap Agreements and Counting

Since the financial crisis of 2008 China has been signing agreement after agreement with other sovereign nations for bilateral currency swaps. China and these other nations are trying to diversify their central bank foreign - exchange reserves out of U.S. Dollars. China would like its currency, the Renmimbi, to play more of an important role in the world financial system. Here is a list of the fourteen nations that have already signed bilateral currency swap agreements with China.

  • Pakistan
  • Argentina
  • South Korea
  • Indonesia
  • New Zealand
  • Malaysia
  • Belarus
  • Hong Kong
  • Japan
  • Uzbekistan
  • Thailand
  • Turkey
  • Singapore
  • Kazakhstan

After the collapse in 2008 Chinese exporters were finding it difficult to do international trade as they were unable to settle their deals with Yuan (Renmimbi) and were forced to settle in Dollars. The currency swap agreements will make it easier for now for international companies and traders to receive financing in Yuan during difficult economic periods. If they can settle their deals in Yuan (Renmimbi) it would reduce their risk. China and these nations would like to keep trade flowing even in the event of another financial crisis.

What is a Currency Swap? Essentially a currency swap is a transaction between two nations to exchange the interest and principal payments on loans issued by two different nations. The two countries gain access to foreign exchange reserves. This limits the nations exposure to exchange rate fluctuations because they can pay back the liability associated with its currency instead of in Dollars.

Why is China so concerned about the U.S. Dollar? China has grown suspicious of the US government unwillingness to curb its spending and printing of its currency. This runaway printing has and will continue to devalue it dollar-denominated assets. Recently we are hearing that the US Federal Reserve will quietly implement QE3 (Quantitative Easing 3).

China would like the world to look upon its currency as a store of value similar to Gold and the Dollar. This privilege has given the US the ability to expand and borrow. China would also like this ability. If nations hold reserves in Yuan (Renmimbi) it is extending credit to the Chinese government. These currency swaps are the first steps in Yuan (Renmimbi) transforming in to a global currency. How many more countries will sign agreements with China in 2012? How will the USA and the IMF react? I look forward to seeing the results of China spreading its influence.

Randy Hilarski - The Rare Metals Rare Earth and Rare Industrial Metals Specialist
Web: www.swissmetalassets.com

2012: The Recognition of The Age of Critical Technology Materials

The following essay was written over New Year’s weekend, 2011-12. My theme is that the rare earths supply frenzy has exposed an irreversible shift in the demand/supply picture for all technology materials, not just the metals, but also the energy minerals, and the minerals necessary for agriculture. The only mining ventures today that have the potential to be profitable on a stand-alone basis are those that can produce at the lowest cost in the global marketplace and the breakeven point of which is low enough to so they can maintain production at very low levels thus holding on to their customers.

America’s technology materials mining industry can prosper now only by vertically integrating to supply the domestic market first. Surplus production can be exported from several points of a total supply chain thus reinforcing capacity flexibility and dropping the breakeven point for the whole supply chain. This is smart globalization. Just as an aircraft flight attendant tells you to connect your oxygen first before trying to help anyone else I am telling you to build total supply chains for technology materials domestically to ensure that you can help yourself before you try to help others.

Note that by “American” I mean North American. The North American market for producing end use technology materials is 90% in the USA, but the production of those materials and at least half of the requisite supply chains can be constructed in Canada. There has never been a better opportunity to make NAFTA into the basis for a world class technology materials production economy.All that is really needed now is insightful finance and much better educated legislators driven by something other than re-election and greed. Call me a cynic, but Happy New Year.

The unprecedented and unexpected growth in total demand for technology materials for the production of fabricated goods, energy, and food since the beginning of the 21st century has changed the dynamic of the global materials market.

The response of American and European style capitalism to this sudden rush of demand has until now been to treat it as a problem to be resolved along traditional lines by raising the prices of the affected “commodities” until the “opportunity for profit” thus created resulted in additional supplies to relieve, or at least, to limit, the upward price pressure. “Demand will create supply” and “shortages will be ameliorated by surpluses” were among the responses I heard from American and European industrial procurement and planning managers. I was among those who then raised the “security of supply” issue only to be told that it was a non-issue due to the fact that the amounts of all materials in the earth’s crust made the potential supply infinite.

It was impossible at first, and it is not much easier now, to explain to industrialists and financiers that only resources the mineral deposits of which are concentrated enough to be recovered and purified by known and economical technologies can be called even potential supplies. The greed, short-sightedness, and poor general science education of our current politicians, industrialists, and financiers has let America and Europe sit back and not only observe but actually assist our economic competitors to gain such an advantage over us through focused acquisition and management of natural resources that the USA and Europe, in order to survive economically, must now restructure our financial as well as our remaining industrial assets in the hope of salvaging some competitive advantage through maintaining a lead in technological innovation.

Yet like the Mahdi’s soldiers who wore talismans to ward off bullets our financial, industrial, and political elites raise the banner of an outmoded form of independent operator capitalism to ward off the advances of a differently structured and focused Asian capitalism wedded directly to the finances and centralized direction of an immense nation able to drown the individual western capitalists in a tsunami of money not for the sole purpose of acquiring more money but mainly to acquire ownership and control of critical natural resources so as to make their home nation(s) self-sufficient in natural resources and energy.

The western capitalists serve the purpose of the eastern capitalists by choosing to concentrate on short term gains while the Chinese, for example, acquire resources for their use to create products and jobs not for speculation.

The problem of course arises from the fact that this growing demand for natural resources has not been created by the USA, Europe, or Japan, but almost solely, at this point, by a new player on the world trading stage, the Peoples Republic of China (PRC).

I believe that 2012 may finally see a recognition by western strategic investors that the long term outlook for the global demand for technology materials is one of continued high net growth and that the present rate of supply of these materials already is at the point where it cannot even now keep pace.

Junior miners, which are basically exploration companies, playing the same old game of appearing to be on the cusp of “rushes” are really just bit players in the new world of natural resource supply. The economic cycles and turmoil in the old capitalist societies of the west and of Japan have taken precedence in the news over the dramatic growth of overall demand for technology materials, but the focus on short term gain from trading junior mining shares in a casino atmosphere is no longer viable when looking at ensuring the security of supply of technology materials.

Ownership of ore bodies and other such natural resources are only of long term value when they are developed to the stage where they contribute directly to Increases in the rate of production of technology materials. This requires years of planning and continual development. This cannot be achieved just by issuing shares to raise capital. The share market for technology materials’ producers is rapidly becoming a sideshow. China seems today to be the only nation-state with both an existing industrial policy and the capital and command organization to carry it out. Like the Soviet Union before it the PRC plans its economy in five-year tranches. Also, like the Soviet Union before it the PRC sets higher production targets for goods and services with each successive five-year “plan.” But the PRC also measures the success of a five year plan by the increase in employment and improvement in the standard of living it brings about. The Soviet Union pretended that it was always at full employment. The planners of the PRC do not seem to follow this tradition.

The key to future wealth is the ownership and control of total supply chains for the production of technology materials. There are no short cuts.

In the western markets tumbling share prices and suspension of IPOs on news of temporary declines in demand or temporary oversupply are simply casino gambling, and if that is the best that the so-called free market can do then China will be the clear long term winner in the technology materials’ self-sufficiency stakes. In order to be a competitive economy it is necessary for a nation to have access to the natural resources it needs so that its economy can grow. The development of such resources can no longer be left to short term planning. It is necessary to commit both capital and intellectual capital to the long term development of adequate and sustainable production rates of natural resources. Base lines must be established for nations and the development of the resources necessary to maintain those baselines and allow for growth must be a priority of the nation’s markets.

This didn’t come about overnight. This situation has been building since the making of money for the sake of having more money eclipsed the making of money from increasing productive commerce

The economic cause of the transfer the world’s trading and manufacturing center from America to China has been American capitalism, which seeks the lowest cost for all resources, goods, and services in a system of as much global free trade as is compatible with minimizing national and international taxation, i.e. maximizing profit. American style free market capitalism does not believe in natural resource exhaustion except as a scare tactic to drive share or commodity prices. In fact it is the maximization of the rates of production of natural resources that is the problem from the point of view of the long term allocation of capital for most, non-energy, extractive industries.

Increasing the rate of production of extractive resources is capital intensive and time consuming, which means, of course, that it must be a low profit endeavor when ranked against speculation.

Twenty-five years ago when the transfer of labor intensive repetitive operations to low labor cost countries was begun in earnest the main driver for American industrialists was cost control as a method for the retention of market share in a very competitive market place then just beginning to feel downward price pressure from Asian, predominantly Japanese, imports. A second, no less important, driver at the time was the maintenance of the industrial company’s share price. This was in the era of blue-chip stocks, which were defined as those of the largest producers of raw materials, energy, or finished goods in an era when banks were service industries. Money was to be made through profit margins on goods and services. Banks were providers of the service of lending money to blue chips mainly for cash flow or working capital purposes. Investment “banks” took new ventures public and the partners in those banks had their own money at risk first of all.

The until now unnoticed political driver that allowed the transfer of low cost manufacturing to China, in particular, was the desire of the ruling communist party of the People’s Republic of China to use the situation (the desire of the capitalists for low cost labor) to literally force-start and then accelerate China’s development into a modern military-technological-industrial state. As Deng Xiaoping had put it succinctly the idea was to make China “strong and rich.” A version of capitalism was to be allowed albeit one with Chinese characteristics so that the nation could be put onto a path that would lead it to being able to provide its average citizen with the safety, health, and material well-being already achieved by the nations of the west of which the paragon is the USA. Of course this would come after or at the same time as China grew in strength to “resume” its natural place among nations.

On Friday, December 30, 2011 the Chinese government announced that China would put men on permanent duty in an orbital space station before 2020. Such an announcement in 2000 would have been considered “crackpot” at best. What a difference a decade of GDP growth at 10% per annum makes!

I have thought, and I have been trying to point out for many years now that apocalyptic theories of supply shortages and of subsequent rampant price inflation supposedly due to peak natural resources, i.e., the exhaustion of natural resources, are based on the type of reasoning that confuses the disease with the symptom. The disease is the financialization of capital, which means that the majority of investments made in the west today are completely detached from any relation to the production of commerce at all. Money is being used primarily for pure speculation. The purpose of such types of investments is solely to make more money. The confusion between wealth creation (jobs, goods, and services )for productive purposes and the simple making of money, for no other reason than to make more money, by the press, the politicians, and the ordinary citizen has masked this societally suicidal frenzy until it has now resulted in the downgrade of the American standard of living for the vast majority, and the placing on the path to extinction not only the contemporary middle-class but also the pathways to entering and remaining in that class.

The American governing classes have purposefully joined the financial elites and insulated themselves from this downgrade, which has now moved beyond their understanding. They have assigned the solution of the financialization crisis to those whose lack of interest in the well being of the nation is manifest, the bankers, who in fact brought on the American abandonment of wealth creation for productive purposes as a status game enshrined in the corrupted phrase, “Him who has the gold makes the rules.”

American industry literally taught the world how to build and equip workshops to economically mass produce consumer goods. The industry was financed by a capitalism, which counted success as the marketing of mass produced products made at the lowest cost that could be sold at a profit.

America’industrialists never worked under a national industrial policy, so that when the opportunity arose to lower costs simply by exchanging the American for a lower cost labor workforce there was no ethical barrier. The short term goal of maximizing profit was paramount. No one was concerned with the long term consequences of such a move to the workforce much less to the country as a whole.

Keep in mind that financiers backed the moving of millions of jobs to low cost labor countries while politicians never even gave a thought to the effect on the economy of the ensuing unemployed masses. As I recall we were told that “service” jobs here would replace those lost to low labor cost countries. It was never clear exactly what the economic pundits were defining as service jobs. We now realize that was because they didn’t know what they would be either.

So why should investors in natural resources care about the sad history of American corruption, greed, and sheer stupidity. It’s because one of the totally unforeseen long term consequences was the shift to Asia of the demand for not only the final assembly and the manufacturing of the parts necessary for such assembly, but ultimately of the TOTAL SUPPLY CHAIN BEGINNING WITH AND INCLUDING THE MINING AND REFINING OF THE MINERALS. This shift has meant the loss of not only the physical plant for total supply chains but the withering away by the attrition of non-use of the intellectual basis of such industrial processes.

The rare supply earth situation, which has been highlighted in the USA for the last few years, is just the tip of the iceberg the body of which is the loss or collapse of the capability to build or operate a total supply chain for a given critical material when the first steps of that supply chain have been moved off-shore.

Clueless and engineering-ignorant American environmentalists for whom mining and refining are simply evil incarnate have managed over the last generation to force re-election-only driven legislators to favor the closing of sites producing natural resources for energy and manufacturing and the imposing of regulations that make such production simply too time consuming as well as adding enormous costs .

The dwindling proportion of capital targeted to increasing productive capacity remaining in a system being squeezed dry of such capital by pure financial speculators seeking short term gain has now made it more productive to move entire supply chains off-shore to where the raw materials CAN being mined and refined rather than to waste capital on endless regulations and battles with the ignorant and suicidal (or ignorant and rich). The result has been at best to increase the cost of re-starting a supply chain and at worst to make it intellectually impossible if only domestic resources are to be utilized.

I note in passing that America’s most important remaining engine of wealth creation is its innovative high-tech industries. These industries, such as electronics and healthcare, have been responsible for more improvement in the standards of living and lifestyle of the peoples of the world than any other intellectual force in history. The American electronics, aerospace, and nuclear industries have held out off-shoring their research and development, but sadly they have only managed to do that by enticing the best of the Asian students to come and work in the USA.

For a generation this worked well, because such individuals for the most part preferred to stay in the USA to utilize their American honed and learned skills to enjoy a better life style than they could at “home.” And to have the opportunity to create their own businesses. Today that situation has changed as places like China and India have improved enough in opportunity-availability to entice their brightest and best to stay home or even to come home. The American mining and refining industry has also had its share of bringing skilled Asian workers and engineers to the USA from China and India and like the high tech manufacturing industries it has now seen the outflow of these same people with their American honed skills and technological improvements back to their “home” countries.” Asian engineers who specialize in mining and refining engineering are very unlikely to remain in an America that blocks them from opportunity at every step.

America’s greatest inherent advantage in the production of natural resources is based on

  1. The variety of items in which North America can be self-sufficient,
  2. The safety of American natural resource production, and
  3. The productivity of North American mining technology and personnel.

The hypocrisy and sheer stupidity of those who want to stop producing natural resources in North America, so that we can get them from places where civil liberties are frequently nonexistent, productivity is low, safety is poor, women are treated worse than domestic animals, and the standards of living are appalling is simply beyond understanding.

I think that January 1, 2012 is as good a date as any to focus on the fact that maintaining a steady flow of affordable raw materials for energy production, food production, and manufacturing all at prices we can afford, which will let our economy GROW without lowering our standard of living is now the imperative.

The problem is that while we are trying to maintain production levels and costs the BRICS are trying to increase the production of the same materials at a rate never before seen in history. It is unlikely that America can ever again be a major supplier of extractive resources to an export led domestic manufacturing industry. We have waited too long and have simply lost the will and the capability to restore that capacity.

We can however conserve capital and reduce debt by becoming self-sufficient in energy and by again being entirely self-sufficient in metals and minerals for our domestic needs. The demand for technology materials of all kinds is ultimately now and in the future to be driven by the BRICS as all of them struggle to build military-technology-industrial complexes. The USA cannot hope to supply the BRICS with structural metal ores or fabricated products, because we waited too long to get into the game. Our structural metal industries cannot now, and have been unable to, compete with those of China or India on price since at least the middle of the last decade. The move to financialization destroyed any hope of American financiers creating truly global metals and minerals giants such as Rio Tinto or BHP. However there is still time remaining for the USA to become a technology materials powerhouse for ourselves and for the world.

The USA and North America are rich in the extractive resources of the metals and minerals that are critical to mass producing high tech devices for all uses civilian and military. The USA and Canada combined currently also lead the world in mining and refining engineering as well as technological innovation. The USA, however, is entering upon the last decade during which it has a chance to return to self-sufficiency and innovative leadership in technology. Once these opportunities are gone the world will have passed us by, and the result will be the slow erosion of our standard of living and of any further opportunities for growth. Canada has been a patient partner, our largest supplier of natural resources, but Canada’s population cannot support the creation of enough capital to move North America into the position of the world’s premier and central supplier of technology materials.

Small investors need to take note that the first decade of the 21st century saw more change in both the movement and the composition of the world’s metals markets than any other comparable period in history. The changes are permanent and their cause is an irreversible and fundamental change in the geography of the global raw materials trade. The driving center of the trade is no longer in the west; it is today in east Asia.

I believe that you can safely relegate the bulk of twentieth century punditry and scholarship on the cycles of the production and prices of metals in peacetime to the scrap heap. There they join such ideas and common wisdom as “the end of history” and descriptions of China as a third-world or developing country. In 2011 as in the prior decade, China and the other “developing” countries of southeast Asia continued to grow their GDPs at a rate of at least 3, and as much as 4, times the pace of the US or Europe. And since their common target, not their target in common, is to develop technology-military-industrial economies with a per capita GDP at least equal to that of the pre-2008 USA the rapidly growing economies of the nations of south and east Asia, and soon, if not already, of Brazil are consuming, in an unprecedented accelerated timeframe, the same volumes of base metals, mainly for fixed infrastructure and for transportation, that the USA and Europe produced and consumed in the from the beginning of the age of steel, 1867, until now!

The strain this acceleration of and growth of demand has put on the world’s productive capacity for the ores of the base metals has now highlighted the differences among the base metals themselves by resolving them, by use, into the structural metals and the enabling structural metals. China alone today, in 2011, already uses 60% of all of the iron ore mined globally and 33% of the aluminum ore. Huge investments of capital in the ores of both of these base structural metals have been made outside of China solely for the purpose of supplying just China. Investors should note that unless the demand for base structural metals grows in the other BRICS-the resource rich and/or resource mega-demanding nations of Brazil, Russia, India, China and South Africa- China could create chaos in the world iron-ore market simply by increasing its domestic output to self-sufficiency, which is in fact possible, although not today economical. This game changing event, Chinese self-sufficiency in iron ore, which is actually predicted by Rio Tinto to take place by 2020, would, without a buildup in demand outside of China, throw global iron ore production into a vast oversupply status thus collapsing prices. By simply, albeit expensively, moving forward towards self-sufficiency China puts downward pressure on global iron ore prices. Strategic investors should now look for the most efficient low cost producers and fabricators of steel and aluminum outside of China, because the creation of a massive non-Chinese demand is absolutely necessary for the non-Chinese owned iron ore industry.

The ores of iron and aluminum are available in proven accessible deposits in great abundance. The proven resources of these ores are sufficient even at present global demand to sustain the global steel and aluminum industries for centuries. As long as energy is plentiful and relatively cheap the global production of steel and aluminum will continue, but continue to grow only through demand from the “developing” countries. Strategically I think that Russia is far from any meaningful development. I am looking at India and Brazil as demand drivers for iron and aluminum. Both are today self-sufficient in iron ore and both are world class exporters. Note well though that should either’s economy ever require the importing of iron or aluminum ore while at the same time Chinese demand were stable at today’s rate, or continued growing, there would then be a run-up in iron ore prices that would dwarf those of the last 10 years. In that case Australia would be the big winner. Australia’s demand for steel can never require more than a small fraction of its capacity to supply of iron ore. The unknown factor in all of this, in the long run, is China, which could become an exporter of iron ore in the 2020s.

Whatever commodity scenario one plots for the long term it is now always Asian demand that is critical. America’s future is tied to sophisticated supply chain developments for natural resources.

I personally do not believe that China will become an exporter anytime soon of iron ore, as a raw material, unless such action becomes necessary to maintain employment in the Chinese mining industry and then only after domestic demand is satisfied.

Additionally it should be noted by strategic investors that a China, self-sufficient, or in an ownership situation globally of resources to make itself self-sufficient, in iron ore, coking coal, limestone, bauxite, and cryolite could easily come to dominate the global supply of steel and aluminum.

It is ironic that monopoly capitalism with Chinese characteristics is the true threat to so-called free market capitalism, which considers monopoly capitalism to be counter-productive to the fair distribution of wealth because it concentrates wealth in too few hands and hands pricing power solely to the monopolist. Yet the Chinese have chosen state monopolized capitalism to ensure the distribution of the wealth created to the largest number of Chinese people. The Chinese system is as much a threat to western economic philosophy as it is a threat to western lifestyles and standards of living. The biggest problem is that even as production rate investments consume more and more western capital it is not at all clear that the prices for the materials so produced will be set by a free market. Thus such investments are high risk-in fact this is exactly the problem in the current rare earths production buildup. There has been almost no change in the geographic center of rare earth demand, China. This means that Chinese moves to regulate its environment, improve worker health, safety, and compensation, and to direct its economy away from being export led to being domestic consumer demand driven will be the drivers for rare earth pricing. When one takes into consideration Chinese moves into global finance are targeted so as to keep Chinese manufacturing competitive this means ultimately a convertible currency in which raw materials such as the rare earths are denominated.

So long as America is dominated by a Wall Street and Washington elite that believes that a man’s worth is measured by the capital he accumulates whether or not it is used productively to make products and create jobs there is no contest. China is winning

By: Jack Lifton
Source: http://www.raremetalblog.com/2012/01/2012-the-recognition-of-the-age-of-critical-technology-materials-the-following-essay-was-written-over-new-years-weekend.html

Supply Threats Persist For Thin-Film Solar Materials Due To Competition

One year ago, a report from the U.S. Department of Energy (DOE) on the global supply of essential PV module materials predicted possible disruptions for thin-film manufacturing.

The availability of indium, gallium and tellurium was examined in the context of current and future production needs, and the DOE found cause for concern. Indium and tellurium were pegged as especially vulnerable to supply tightness and price volatility, according to both the report and several market analysts at the time.

Now, the DOE has released the latest edition of its Critical Materials Strategy. Have the worries over thin-film PV materials supply eased? According to the DOE, the general supply-demand picture for indium, gallium and tellurium has “improved slightly,” but the situation is not entirely reassuring. The three metals are still highlighted (alongside neodymium and dysprosium) as clean-energy materials that face a “significant risk of supply chain bottlenecks in the next two decades.”

The report attributes the slight improvement primarily to decreased demand for the three thin-film materials: Although PV deployment is expected to grow, the requirements of the materials per module are expected to shrink.

For copper indium gallium diselenide (CIGS) modules, manufacturers are shifting to compositions with higher proportions of gallium and lower concentrations of indium, the DOE says. The result is a “partial trade-off in the potential for supply risk between the two elements.” At the same time, CIGS’ market share assumption has been reduced under the DOE’s new calculations, lowering projected demand for both indium and gallium.

Cadmium telluride (CdTe) thin-film modules currently account for approximately 10% of the PV market, according to the report. Declining silicon prices may threaten this slice of the market, but high tellurium costs and the increasing need for CdTe manufacturers to compete for supply with non-PV companies requiring tellurium continue to cause supply headaches.

“The cost of tellurium is a critical issue for CdTe solar cell makers, and the industry is working to lower material use and increasing recovery of new scrap to reduce reliance on primary tellurium,” the DOE says in the report.

Although short-term supply of tellurium appears adequate, future capacity increases may be insufficient to supply both CdTe manufacturing and the multitude of other manufacturing sectors that use tellurium. Under one scenario modeled in the report, tellurium supply would need to increase 50% more than its projected 2015 total in order to meet expected demand.

Indium and gallium have also experienced increased popularity in non-PV manufacturing uses, such as semiconductor applications, flat-panel displays, and coatings for smartphones and tablet computers. The DOE forecasts that as a result, supplies may run short by 2015 unless production of these materials is increased - or non-PV demand lessens.

Of the two metals, gallium poses more cause for concern, as the DOE has adjusted its assumptions of future gallium use under CIGS manufacturers’ expected manufacturing modifications.

“These higher estimates [of gallium requirements] are driven largely by the assumption that gallium will increasingly be substituted for indium in CIGS composition,” the DOE explains. This change points to the benefits of reducing material intensity in other aspects of PV manufacturing, such as reducing cell thickness and improving processing efficiency.

Overall, indium, gallium and tellurium all receive moderate scores (2 or 3 on a scale of 1 to 4) from the DOE with regard to both their importance to clean energy and short- and medium-term supply risk.

In order to help mitigate possible supply disruptions that could threaten the manufacturing and deployment of PV, as well as other types of clean energy, the agency has developed a three-pronged approach.

“First, diversified global supply chains are essential,” the DOE stresses in the report. “To manage supply risk, multiple sources of materials are required. This means taking steps to facilitate extraction, processing and manufacturing here in the United States, as well as encouraging other nations to expedite alternative supplies.”

The second strategy relies on developing alternatives to materials whose supply may be constrained. For PV, one DOE research program focuses on advancements in thin-film formulations such as copper-zinc-tin and sulfide-selenide. Another initiative funds research and development into PV inks based on earth-abundant materials such as zinc, sulfur and copper.

“Several projects also seek to use iron pyrite - also known as fool’s gold - to develop prototype solar cells,” the DOE notes in the report. “Pyrite is non-toxic, inexpensive, and is the most abundant sulfide mineral in the Earth’s crust.”

Finally, improving recycling and reuse mechanisms can reduce demand for new materials, the DOE says, adding that these strategies also can help improve the sustainability of manufacturing processes.

By: SI Staff
Source: http://www.aer-online.com/e107_plugins/content/content.php?content.9408

Photo: Enbridge Inc.’s 5 MW Tilbury solar project in Ontario uses First Solar’s cadmium telluride thin-film modules. Photo credit: Enbridge

Critical Reading for Rare Earth Metals Investors

A quick search of media stories from the month of December, 2009 shows 24 clips including references to the 15 lanthanides and their related elements scandium and yttrium. By contrast, one day in December, 2011 produced 56 stories on the same resources. Even the tone of REE coverage has transformed over the years. Two years ago, an analyst piece from veteran metals consultant Jack Lifton titled “Underpriced Rare Earth Metals from China Have Created a Supply Crisis ” was a common headline as the world discovered that cheap supplies had left manufacturers vulnerable to a monopoly with an agenda. That supply fear made REE the investment de jour and sent almost all of the rare earth prices through the roof. In December of 2010, the headlines in big outlets like The Motley Fool announced that the “Spot Price of Rare Earth Elements Soar as much as 750% since Jan. 2010.”

Reality soon set in as investors realized that this was not a simple supply and demand industry. First, demand was still vague, subject to change and very specific about the type and purity of the product being delivered. Second, the ramp-up period for companies exploring, getting approval for development, mining, processing efficiently and delivering to an end-user was very, very long. Some became discouraged. That is why this year, the consumer finance site, The Daily Markets ran an article with the headline: “Why You Shouldn’t Give Up on the Rare Earth Element Minerals” by Gold Stock Trades Newsletter Writer Jeb Handwerger.

Through it all, Streetwise Reports has focused on cutting through the hype to explain what is really driving demand, how the economy and geopolitics shape supplies going forward and which few of the hundreds of companies adding REE to their company descriptions actually had a chance of making a profit.

Back in June of 2009, in an interview titled “The Race to Rare Earths,” we ran an interview with Kaiser Research Online Editor John Kaiser that concluded “China’s export-based economy, once dependent on American greed, is now but a fading memory. While the U.S. was busy printing and preening, the Chinese were long-range planning. But America wasn’t the only country caught off guard by China’s strategic, if surreptitious, supply procurement.” Even while other analysts were panicking, Kaiser was pointing out how investors could be part of the solution–and make a profit in the process.

“For the juniors, the opportunity right now is to source these projects. They get title to them, and when these end users want to develop them, they’re going to have to pay a premium to have these projects developed,” Kaiser said. “So it will not be economic logic that results in these companies getting bought out and having their deposits developed. It’ll be a strategic logic linked to long-term security-of-supply and redundancy concerns. And we’re seeing that sort of psychology at work in this market. It’s a bit of a niche in this market. Not as big as gold, but it is an interesting one because of the long-term real economy link implications.”

After years of covering the space by interviewing the growing chorus of analysts and newsletter writers singing the praises of rare earth elements, in June of 2011, we launched The Critical Metals Report to give exclusive coverage to the entire space, including rare earth elements, strategic metals and specialty metals. One of the first experts interviewed was Emerging Trends Report Managing Editor Richard Karn in an article called “50 Specialty Metals under Supply Threat.” He warned that investing in the space is not as simple as some other mining operations. “The market is just starting to become aware of the difficulty involved with processing these metals, which, in many cases, more closely resemble sophisticated industrial chemistry than traditional onsite brute processing. Putting flow sheets together that process these metals and elements economically is no mean feat.”

In this early article, Karn busted the myth that manufacturers would find substitutions, engineer out or use recycled supplies for hard-to-access materials. “The advances we have seen especially in consumer electronics over the last decade and a half have not been driven by lone inventors or college kids tinkering in their parents’ garages, but rather by very large, well-equipped and well-staffed research arms of powerful corporations. The stakes are high and if a certain metal is critical in an application, they will buy it regardless of the price,” he said.

Similarly, a July 2011 article for The Critical Metals Report featured Energy and Scarcity Editor Byron King sharing “The Real REE Demand Opportunity” driven by the automobile industry and beyond. He was one of the first to point out that not all rare earths are the same with Heavy Rare Earth Elements demanding big premiums.

“Going forward, the serious money will be in HREEs, which have a lot of uses other than EVs,” King said. “For example, yttrium is used in high-temperature refractory products. There’s no substitute for yttrium. Without it, you can’t make the refractory molds needed to make jet-engine turbine blades. If you can’t make jet-engine turbine blades, you don’t have jet engines or power turbines. The price points for these HREEs will reflect true scarcity and unalterable demand. People will bite the bullet and pay what they have to in order to get the yttrium.”

House Mountain Partners Founder Chris Berry also addressed the impact of electric vehicle demand on vanadium, a popular steel alloy strengthener now being used in lithium-ion batteries in the interview “Can Electric Vehicles Drive Vanadium Demand? “

“The use of vanadium in LIBs for EVs is not significant yet, but could eventually become important as the transportation sector electrifies. One of the real challenges surrounding LIBs is settling on the most effective battery chemistry. In other words, what battery chemistry allows for the greatest number of charge recycles, depletes its charge the slowest and allows us to recharge the fastest? Today, based on my research, lithium-vanadium-phosphate batteries appear to offer the highest charge and the fastest recharge cycle. It seems that the lithium-vanadium-phosphate battery holds a great deal of promise, offering a blend of substantial power and reliability. I am watching for advances in battery chemistry here with great interest,” Berry said.

In September, Technology Metals Research Founding Principal Jack Lifton shared his insights on why some junior REE companies are prospering while others wither and die. In the article, “Profit from Really Critical Rare Earth Elements,” he said: “Rare earth junior miners are now being culled by their inability to raise enough capital to carry their projects forward to a place where either the product produced directly or the value to be gained from the company’s development to that point by a buyer can be more profitable than a less risky investment. The majority of the rare earth junior miners do not understand the supply chain through which the critical rare earth metals become industrial or consumer products. Additionally, they do not seem to recognize the value chain issue, which can be stated as ‘How far downstream in the supply chain do I need to take my rare earths in order to be able to sell them at a profit?’”

Then Lifton made this important point for Critical Metals Report readers. “It is very important for the small investor to understand that the share market does not directly benefit the listed company unless the company either sells more of its ownership or pledges future production for present, almost always sharply discounted, revenue.” As always, Lifton encouraged investors to follow the money to a specific end rather than the general market demand often envisioned by investors accustomed to the more defined gold market.

In October, JF Zhang Associates’ Principal Consultant and Chief China Strategist J. Peter Zhang shared his insights on “U.S. Manganese Supply as a Strategic Necessity.”

Manganese is now largely used largely in the production of low quality stainless steel, but is being incorporated into lithium-ion batteries. That increased demand is focusing attention on the limited supply outside China. “There really is no electrolytic manganese metals production in the U.S. or anywhere outside China except for a small percentage from South Africa. We don’t produce even a single ounce in North America. Relying on other countries to supply essential commodities (like oil for instance) is always a problem. If China suddenly decided to reduce production, or in the likely event that its domestic demand increases, the world would be out of options. Policymakers need to understand this risk and Congress needs to take action to minimize the potential impacts,” he said. “From the end of 2008 to 2009, China tied things up. Since then, the price has doubled, tripled and quadrupled. That should be a wakeup call. North America needs to either establish a strategic reserve system for critical metals or build production capacity to mitigate supply risk. I think there is some sense of urgency right now, but a lot more needs to be done.”

Picking the right junior is the trick. In the November article “Navigating the Rare Earth Metals Landscape” Technology Metals Research Founding Principal Gareth Hatch outlined the odds. “TMR is tracking well over 390 different rare earth projects at present; I can’t see more than 8-10 coming onstream in the next 5-7 years. Projects already well past exploration and into the development and engineering stage, and beyond, clearly have first-mover advantage.”

Just this month, in an interview entitled, “The Age of Rare Earth Metals” Jacob Securities Analyst Luisa Moreno compared the impact REEs will have on our daily lives with the transformation in the Bronze Age.

“There is an economic war over the rare earths, with China on one side and other industrialized nations on the other—Japan, the United States and the E.U. China is probably winning. It has decreased exports in the last few years and increased protection. It has attracted a great deal of the downstream business and it is positioning itself well. At this point, it produces most of the world’s rare earths, and prices are at record highs. Japan and the other countries have been left with few options, and those options are more expensive, such as substitution, recycling and adapting production lines to use less efficient materials.” Moreno then pointed to the seven companies that could come to the world’s rescue and usher in a miraculous new world of smaller, stronger, more powerful gadgets based on a steady supply of REE materials from reliable sources.

By: The Gold Report
Source: http://jutiagroup.com/20111227-critical-reading-for-rare-earth-metals-investors/

2012 Outlook: Uncertainty Continues For Rare Earths Prices, China Still Major Player

(Kitco News) - After exploding onto the metals scene in 2010 and garnering widespread media and investor attention, rare earths element prices have dropped and have been unstable mainly due to demand tapering off in 2011, leading to uncertainty in 2012.

Low demand during 2011 was caused by high rare earths prices from both heavy and light rare earths metals, which despite their fluttering prices, remain historically high.

Despite unstable prices throughout 2011, there is some expectation that rare earths prices might become more stable in 2012.

“I think that rare earth metals, they tend to be more strategic in nature and supply versus demand remains quite balanced in favor of prices being stronger in 2012,” said Mike Frawley, global head of metals at Newedge Group. “The pace of consumption in mainland China is a critical component of demand, prices.”

The Chinese continue to control most of the rare earths supply but reports show that Chinese exports are extremely low. Information provided by Metal Pages, a news site that focuses on non-ferrous metals, ferro alloys and rare earths, indicated that rare earth elements exports have dropped 65% in 2011 and that China has only exported 11,000 metric tons of rare earths through the first three quarters of the year.

Reports suggested that the Chinese government may change regulations that would get around Chinese producers who have cut their supply while keeping prices high.

Rare earths prices alone are also an issue not only with volatility, but with their general cost.

According to a report focused on rare earth elements performance for the upcoming year from A.L. Waters Capital, the firm highlighted some specific rare earths and their current prices compared to their peak prices.

A heavy rare earth such as dysprosium, which is commonly used in televisions and lasers, reached a market high of $2,800 per kilogram while its current price is $2,000.

Another heavy rare earths type, europrium, which is used in television screens, peaked at $5,900/kg while its current price is $3,900.

Some light rare earths come at a substantially cheaper price, such as neodymium, which is used in magnets, peaked at $410/kg on the market and currently sits at $270. (A complete list of all 17 rare earth metals and their uses can be found at the end of the article.)

While rare earths are expensive to use in producing several products used daily, the drop in demand does not come from an alternate substance that can be as effective for a fraction of the cost.

“Demand has gone down (in 2011) but I also think that they haven’t really been able to replace rare earth metals,” said Arnett Waters, chairman of A.L. Waters Capital. “I think that part of what’s going on is that businesses are spending less money on more expensive stuff. If I have a use for europrium and I can use a quarter of a pound of it and it does ok in the product that I’m making, I’m not going to adopt a new product in this economy. It would cost too much money.”

Also, with current economic crises around the globe, it is expected that demand will not be strong in 2012 given the historical high prices of rare earths.

Waters used strategic military defense equipment as an example.

“In the case of strategic military equipment, defense budgets are declining,” Waters said. “I realize the U.S. may not be cutting stealth bomber production, but I am saying that in many countries that would like to use these rare earth metals for strategic purposes are cutting their defense budgets and they cannot afford it.”

Rare earths metals play a large role in current modern technology, cruise missiles and other weapons systems.

PRODUCING RARE EARTHS METALS OUTSIDE OF CHINA

China holds most of the processing capacity for rare earths metals.

“A lot of the processing capacity is in China and you can’t use Chinese capacity unless you’re actually getting your rare earths from them,” said Waters. “That’s why Lynas Corporation Ltd. (ASX: LYC) and others have been building their plants in Malaysia.”

Lynas currently has a concentration plant under construction at Mount Weld in Western Australia as well as an advanced materials plant in Kuantan, Malaysia. Neither plant has begun production yet.

Molycorp Inc. (NYSE:MCP) has three facilities, two located in the U.S., California and Arizona respectively, as well as one located in Estonia. The company stated earlier in 2011 that production from the three facilities would produce between 4,941 and 5,881 metric tons by the end of 2011. The company expects to raise production to 19,050 metric tons by the end of 2012.

The sentiment to mine and produce rare earths outside of China does not fall squarely on the shoulders of these two companies but it is still believed that bigger companies will gain more control of mines and production compared to smaller mining companies.

“At the end of the day it just means that there’ll be fewer smaller mines and there’s a natural evolutionary process that takes place in all developing parts of the world,” said Frawley. “You’ll have the small miners who will be succeeded by stronger companies. A more efficient process will begin to emerge.”

“That takes a long time and I don’t see it changing the balance of that supply any time soon.”

RARE EARTHS AS AN INVESTMENT OPTION FOR THE GENERAL PUBLIC

The biggest obstacle rare earths metals face as an investment is that although classified under the umbrella of rare earths metals, there are 17 different types and they are separated into two categories.

“Rare earth prices are not listed like precious and base metals prices so it is difficult for the average person to invest in,” said Waters. “It’s a barrier to the growth of the industry.

“As the market is maturing, there is going to be a need for a centralized source of information.”

Although newer in the metals world than precious and base metals, information can always be found.

“They’re small markets in comparison to gold, copper and aluminum in terms of tonnage and consumption tonnages,” Frawley said. “In terms of price transparency of these markets you’ll have to dig a little deeper.”

-List of heavy and light rare earths metals and their uses-

Heavy

Yttrium TV, glass and alloys

Promethium Nuclear batteries

Europium TV screens

Gadolinium Superconductors, magnets

Terbium Lasers, fuel cells and alloys

Dysprosium TVs, lasers

Holmium Lasers

Erbium Lasers, vanadium steel

Thulium X-ray source, ceramics

Yterrbium Infrared lasers, high reactive glass

Lutetium Catalyst, PET scanners

Light

Samarium Magnets, lasers, lighting

Neodymium Magnets

Lanthanum Re-chargeable batteries

Cerium Batteries, catalysts, glass polishing

Praseodymium Magnets, glass colorant

Scandium Aluminum alloy: aerospace

By Alex Létourneau of Kitco News
Source: http://www.forbes.com/sites/kitconews/2011/12/30/2012-outlook-uncertainty-continues-for-rare-earths-prices-china-still-major-player/3/

Battle lines drawn in gold price direction predictions

Precious Metal Gold

While some headlines are predicting the end of the bull market for gold, many commentators remain bullish on the yellow metal and all agree that more volatility should be expected.

GRONINGEN -

As gold prices plunged as much as 3.5% in trade yesterday, permabear and economist, Nouriel Roubini, was engaging in some gold bull baiting on Twitter.

“Gold at a 7 weeks [sic] low down to 1635. Where is 2000 gold dear gold bugs?” He said, and, later in the day, “Gold bugs in hiding as gold prices plunge.”

At roughly the same time gold mining entrepreneur Rob McEwen in a talk to the Geological Society of Nevada, stood firm on his prediction that gold prices would hit $5,000 over the long term

McEwen and Roubini represent polar opposite visions of the metal that are long held and well reported on and so their sticking to their guns came as little surprise. More noteworthy in the context of the second-worst rout in the metal since the 2008 financial crisis were the recent comments by author and economist, Dennis Gartman.

In his most recent letter, Gartman was quoted by Bloomberg as writing, ” “Since the early autumn here in the Northern Hemisphere gold has failed to make a new high. Each high has been progressively lower than the previous high, and now we’ve confirmation that the new interim low is lower than the previous low. We have the beginnings of a real bear market, and the death of a bull.”

He went on to add that while buying in China rose significantly in October, the news of the surge failed to move markets, “Buying of that sort should have sent gold prices soaring,” Gartman wrote. “One of the oldest rules of trading is simply this: a market that cannot or does not respond to bullish news is a bearish market not a bullish one.”

The question now becomes, are the recent falls a sign of a longer term pull back in the metal, or rather a shorter term move brought about by year-end squaring and liquidations by the more speculative longs, in order to cover other loss-making positions.

While Gartman has turned bearish, many other commentators remain positive about the longer term outlook for the metal.

UBS’s Edel Tully wrote this morning, “Our core view on gold remains bullish. We forecast an average 2012 price of $2,050. Most of the factors that pushed gold higher in 2011 are not going away. Indeed, a compelling case for higher gold returns next year can be built on: persistent sovereign stress, an expected recession in Europe, benign growth across developed markets, a relatively sedate outlook for competing asset classes, still-low interest rates in the US, and further rate declines in Europe, as we expect. Adding to the mix another of our expectations - that central banks will maintain their 2011 gold buying spree - makes gold a compelling investment thesis.”

However, while the bank remains positive on gold it has lowered its average gold price estimates for both 2011 and 2012 by 2% and 1% respectively to $1,570/oz and $2,050/oz.

And, overall, the group is more bearish on commodities in general, ” Two of our most important signals for the miners and commodities have turned negative. Capital is flowing out of emerging markets and back to the US, undermining commodity demand - because macro data and credit conditions there are improving, making an imminent commodity-supporting ‘QE3′ unlikely. Meanwhile, European bank deleveraging promises more credit stress, directing commodity consumers and traders to destock. Right now, commodities need support from either a resurgent China or a substantial, US/European-led QE programme.”

Standard Bank, writing in its daily commodities note yesterday said of the weakness in the yellow metal, We believe that this downward pressure is likely to remain in place. Physical market demand from India and South East Asia continues to pick up, with gold below $1,650 providing support at this key technical level. However, as pointed out yesterday, the pick-up in demand is from relatively low levels, and overall demand remains well below levels seen in October.”

But, as it points out, “While gold in dollar-terms is under huge pressure, gold in euro-terms only shed €20. Market sentiment and momentum has also turned bearish on gold, reflected in the short-dated gold skew where puts are in high demand relative to calls.”

Silver specialist and precious metals commentator, David Morgan, speaking on Mineweb.com’s metals weekly podcast, described the situation currently being seen in markets as one of “wait-you-out or scare-you-out.”

He explained that either markets will “scare you out” with huge drops that are very rapid - or “wear you out where you get these long consolidations where silver and/or gold do not make new highs but the fundamentals keep getting better and better.”

Currently he says, there is a lot of fear in markets and, while a minority of people view gold and silver as the “ultimate cash” most of the world’s population view currency as such and, as a result, when there is a liquidity squeeze markets move into cash.

“There’s a rush from any asset - real estate, stocks, bonds, even metals, and especially paper metals, into the monetary base or the ultimate monetary base which is the currency. And that puts a lot of pressure upward in certain currencies like the US dollar because right now it’s perceived to be the safest… I believe this is an intermediate term situation which puts pressure [downward] on the gold and silver price and also puts pressure upward on the currencies, especially the ones perceived to be the strongest and safest.”

All in all, while a lot of commentators remain bullish long-term there is a significant amount of fear present in markets, especially as we head toward the year-end. As usual coming up to and during the holidays emotions are high and when you mix in a continued crisis in the euro zone, looming debt problems in the U.S. and the frantic scramble to square the accounts before December 31st, it is safe to guess that markets are both scared and worn out. How long that will last though, is anyone’s guess.

By: Geoff Candy
Source: http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=141729&sn=Detail

Buy Silver…Now!

Silver is an amazing metal…which is why it’s likely to soar over the coming years…

You see, silver has more than 10,000 uses. It’s one of the world’s best conductors of heat and electricity. Inventors filed more patents on silver uses than any other precious metal in the world. And when silver is used for most industrial and technological purposes, it is used up forever… It simply costs too much to try to recycle the tiny bit of silver from every cell phone or casino chip.

I’m not saying industry is going to use up all the world’s silver. That simply can’t happen. But scarcity is a real issue.

Our rapid consumption of silver leaves very little to meet any uptick in demand from investors. A spike in interest will send prices spiraling higher…

Here’s a breakdown of the silver market. The table below shows the percentage of the total amount of silver consumed by each category over the past four years…

As you can see from the table above, only 12% of the silver supplied to the market made it to bullion in 2010. That means only a little more than 100 million ounces of silver became bullion for the entire investing world.

That’s a tiny fraction to sop up all the investment interest in the world.

Of that silver, about 43 million ounces went to exchange-traded funds like the iShares Silver Trust (SLV) and the Sprott Physical Silver Trust (PSLV).

That means you could buy all the extra silver bullion for about $2 billion. We could buy all the surplus silver bullion from the last four years for about $10 billion.

That’s the same as the market value of the iShares Silver Trust today. If you wanted to build another silver fund, you couldn’t. There just isn’t enough silver bullion out there to fill the order.

Even trying to amass that much physical silver would send the silver price soaring. It’s a simple market fact… When there is more demand than supply, it drives the price up.

And the economic problems confronting Europe and the United States have increased interest in precious metals… Silver gained a colossal 174% from August 2010 to April 2011.

In May 2011, however, the price collapsed 31% in just four weeks. The bull market simply ran up too far, too fast… and the decline wiped out many highly leveraged silver traders.

The big money is tiptoeing back into silver.

Last month, commodity trading advisors, pool operators, and hedge funds — the “big money” — weren’t interested in silver AT ALL…

But as they move back into the market, silver prices could soar. Let me show you what I’m talking about…

Jason Goepfert created SentimenTrader, a service that tracks investor sentiment toward various asset classes. According to Jason, silver just bounced off its most pessimistic reading in four years.

The so-called “commitment of non-commercial traders” hit 10,352. That’s incredibly low. The last time sentiment numbers were that low was in August 2007. Six months later, the price of silver was 59% higher. It rose from $12 per ounce to $19 per ounce.

I went all the way back to 2002 and found that silver sentiment bottomed near 10,000 six times… On average, the price of silver rose 33% in the next six months and 54% over the next year. This chart shows the last four times it bottomed…

Here’s how the silver price performed after each of the last four times silver sentiment bottomed out…

The best return came after Bottom No. 2, which coincided with the US banking/credit crisis. Silver soared an eye-popping 405%, including its parabolic rise in 2010.

As those numbers indicate, silver is one of the most volatile assets in the world. Over the last year, silver has seen massive price swings, including an 81% rally and two 30% drops. That forced many traders to liquidate their silver holdings in order to meet emergency short-term requirements. (Plus, the debacle at commodity broker MF Global has scared many folks out of the market.)

But the long-term drivers of gold and silver’s uptrends are still in place. Enormous and growing Asian economies like China and India are getting richer…and they have deep cultural affinities for precious metals. Plus, the Western world has lived way beyond its means for a long time…the debts and liabilities it has taken on can only be paid back with devalued, debased money. This is bullish for “real money” assets like gold and silver.

With sentiment so negative toward silver (and just beginning to turn back up), it’s a great time to take a position in this long-term bull market.

If gold and silver prices are nearly certain to rise over the next few years (and probably rise dramatically), the simplest way to play that trend is to buy bullion…real, hold-in-your-hand silver coins.

And I recommend everyone do just that… Buy some silver and store it away.

Regards,

Matt Badiali ,
for The Daily Reckoning

Buy Silver…Now! originally appeared in the Daily Reckoning. The Daily Reckoning provides over 400,000 readers economic news, market analysis, and contrarian investment ideas.

 

Gallium Helping Us Stay Connected

Rare Earth Metal - Gallium

The element so instrumental in the success of CIGS or Copper Indium Gallium Selenide solar panels garners little respect. If you do some research on Gallium you will see very few articles on this element. What you see is people talking about how to make melting spoons, and talk of the metal melting in your hand due to its low melting point of 85° F or 29.8° C. Here we are going to go over the history of Gallium and its uses in technology today.

Gallium has the symbol of Ga and the atomic number 31 on the periodic table of the elements. In 1875 Paul Emile Lecoq de Boisbaudran discovered Gallium spectroscopically. He saw Gallium´s characteristic two violet lines. Gallium does not occur free in nature. Lecoq was able to obtain the free element using electrolysis.

Gallium is found in bauxite, sphalerite and coal. It is primarily extracted from Aluminum and Zinc production. The exact amounts mined and recycled are very difficult to quantify. According to the United States Geological Survey the total amount mined in 2010 was approximately 106 t and the total recycled was approximately 78 t. Gallium supply is highly reliant on other Aluminum and Zinc mining for its supply, when the prices of the base metals fall the amount of Gallium available will be highly affected. Similar to other rare industrial metals, mining companies will not invest in the production of these metals because the markets are so small.

The uses of Gallium are found all around you. Semiconductors, LED´s, medicine, electronic components, CIGS solar and new tech like IGZO (Indium, Gallium, Zinc and Oxygen) LCD screens. The new iPhone 5 will have this kind of LCD. Over 90% is used in electronic components in the form GaAs (Gallium Arsenide). Recently CIGS solar panels reached an unprecedented 20.3% efficiency once again proving that CIGS is the most efficient form of solar on the market. The technology that will greatly increase the use of Gallium is smartphones. Analysts predict that smartphone use will grow at a rate of 15-25% over the next several years. Recently LED´s backlit screen TV´s and computer monitors have been all the rage. The LED screen market will continue to grow, further putting strain on the small Gallium supply.

The top producers of Gallium are China, Kazakhstan and Germany. Once again China has a strong position in the production of a rare industrial metal. The difference with Gallium is that almost 40% of the metal produced every year is coming from recycling.

With all of the new technologies coming along using Gallium what will the market for this metal look like in a few years? Unlike some metals like Silver and Gold, Gallium is not traded on the LME (London Metal Exchange). This makes the price of Gallium very stable. Rare industrial or technical metals are small markets with big possibilities. So if you are looking for an investment that is rarely talked about, Gallium could be a good option.

 By: Randy Hilarski - The Rare Metals Guy

Cracking Down on Conflict Minerals

Photo: Matt Moyer/Getty Images DIRTY JOB: Men and children work at a gold mine in Mongbwalu, Democratic Republic of the Congo, in 2005. The mine is controlled by one of the many warring militias in the area. Electronics firms could face bad publicity for using gold from such mines.

In the jungles and mountains of the Democratic Republic of the Congo, battles are raging, part of a 13-year-long civil war. Most of the world has paid little attention to the murder and rape that still dominates life in the DRC’s eastern provinces. But U.S. electronics companies like HP, Intel, and Apple recently became deeply interested, thanks to a provision on “conflict minerals” that was slipped into a 2010 financial reform law, the Dodd-Frank Act.

The minerals provision is intended to deprive the Congo’s warlords of funds by cutting off sales from the mines they ­control. It focuses on the ores that ­produce the “three Ts”: tin, ­tantalum, and tungsten, as well as gold. Public companies that use these ­metals in their products will be required to investigate their supply chains, determine if they use metals that were mined in the DRC, and disclose their findings to the U.S. Securities and Exchange Commission (SEC), in their annual reports, and on their websites. If its minerals did originate in the DRC, a company must submit a larger report on whether the purchase of these minerals financed or benefited armed groups in that part of Africa. The SEC is expected to issue final rules for implementing the law before the end of the year, and companies are scrambling to get ready.

While the conflict minerals law applies only to companies that are required to file annual reports in the United States, it’s expected to have an international impact. Since mineral suppliers sell to electronics companies around the world, any change in operations they make for the U.S. market will have ripple effects elsewhere.

The law doesn’t only affect the electronics industry. But the conflict mineral issue has been linked in the public mind to ­electronics because the three Ts play ­crucial roles in smartphones, TVs, and laptops. Tin is used in solder and thus found on every circuit board, tantalum is used in capacitors, and tungsten is used in the vibrating motors of many phones.

Electronics companies had been warned that they’d eventually have to account for their use of these minerals. So firms like HP and Intel asked the Electronic Industry Citizenship Coalition (EICC) and the Global e-Sustainability Initiative, two trade groups, to investigate the industry’s options.

The groups found that it’s extremely difficult to determine the origin of the tantalum used in a certain batch of smartphones. But they also realized that only about 45 smelters worldwide deal with the three Ts, buying the ores from suppliers and turning them into pure metals. After several years of research, the industry groups came up with the Conflict-Free Smelter Program, which is currently in the pilot phase for its first metal, tantalum.

The program asks each smelter to allow an annual independent audit of its mineral procurement process. If the auditors are convinced that no minerals are sourced from the Congo’s conflict mines, that smelter is certified as “conflict free,” allowing companies to buy its metals without worry. While the program is voluntary, EICC spokeswoman Wendy Dittmer says many smelting firms believe it’s in their interest to participate.

“Electronics companies are starting to ask questions all the way down their supply chains,” she says. “That certainly makes the buyers of the minerals very interested in being able to talk about their own due diligence.”

There are concerns that the law may backfire. By making the reporting requirements more onerous for companies that source minerals from the DRC, the law may reduce demand from all DRC mines, even those that aren’t in conflict regions and don’t finance armed groups.

These concerns about such a de facto ban led Motorola Solutions to initiate the Solutions for Hope Project, in which Motorola and several other companies formed a relationship with a conflict-free tantalum mine in the DRC’s Katanga province.

To establish the program, Michael Loch, Motorola’s director of supply-chain corporate responsibility, visited the mine and accompanied a shipment of ore along its export route. “This pilot allows our industry to stay engaged in the area,” says Loch. “We didn’t want to abandon the region.” But he acknowledges that it took a lot of effort to get the process in place for one mine and says it may be difficult to scale up the program.

The pilot programs should ­provide a framework to make ­compliance easier. Still, ­companies around the world are waiting for the SEC’s final rules with some anxiety. And there may be some efforts to block the rules’ enforcement through U.S. courts. The U.S. Chamber of Commerce, for one, has discussed the possibility of a lawsuit. The chamber disagrees with the SEC’s initial compliance cost estimate of US $71 million, saying that costs will instead be counted in the billions of dollars.

One thing is already certain about the SEC rules: There will be no fines for using conflict minerals. Even so, activists think it will have its intended effect, because companies will want to avoid bad publicity.

“For years we have been unknowing consumers of these minerals because companies have turned a blind eye,” says Sasha Lezhnev, a policy consultant on conflict minerals with the human rights group Enough. “This will enable consumers to make choices on whether or not to buy products from companies that are sourcing from these mines.”

By: ELIZA STRICKLAND
Source: http://spectrum.ieee.org/semiconductors/materials/cracking-down-on-conflict-minerals

What Are Technology Metals?

So, just what are “technology metals’? As a relatively new term, coined by Jack Lifton in 2007 and now widely used in the industry, there are probably a number of alternative definitions out there. Here at TMR, we say that the technology metals are those generally-rare metals that are essential for the production of ‘high tech’ devices and engineered systems, such as:

  • The mass production of miniaturized electronics and associated devices;
  • Advanced weapons systems and platforms for national defense;
  • The generation of electricity using ‘alternative’ sources such as solar panels and wind turbines;
  • The storage of electricity using cells and batteries.

There are of course numerous other uses and applications of these metals.

Almost all technology metals are byproducts of the production of base metals, with the exception of the rare earth metals, as a group, and lithium.

Prior to World War II, there were many metals for which there were no practical uses. They were literally laboratory curiosities available only in small quantities, obtained at high costs in both time and money.  For this reason, they were called the ‘minor metals’; they simply had no major uses in contrast to the base metals and even to the precious metals.  It didn’t matter how abundant a metal actually was in nature; if it had no practical uses it simply wouldn’t be produced. Nickel, for example, was a ‘minor metal’ before the commercial development of stainless steel in 1919, when economical methods of mass producing and using stainless steel were undertaken in earnest. Nickel after that rapidly became a high volume production metal.

In the first few years of the 20th Century, malleable tungsten was developed at General Electric and it rapidly displaced all other materials for use as filaments in incandescent light bulbs. Tungsten production increased, and shortly thereafter tungsten steels were developed and used, at first for military armor and armor piercing projectiles. Tungsten carbide for cutting tools soon after that revolutionized precision machining, just in time to make mass produced engines a reality. Tungsten, a minor metal in 1900, became by 1918 an important industrial metal, and had the designation ‘technology metal’ existed in 1918, tungsten would surely have been recognized as such at that point.

As an example of a more well-known metal transitioning from ‘minor’ to ‘major’ status, look at the late 19th Century  minor metal aluminum, which was used to cap the Washington Monument in 1886, as a symbol of America’s wealth. Aluminum was then more expensive than gold. Keep in mind that only a lunatic or a visionary would have predicted in 1886, that common people would cook with aluminum pots and pans less than a century later, and that even in 1919 the idea of nickel stainless steel kitchen appliances for the masses would have been considered fantasy nonsense.

World War II transformed a sleepy academic discipline, the study of the physical properties of all of the metals, into modern metallurgy with its emphasis on developing end uses for metals based not just on their properties as structural materials but even more important, on their newly categorized electrical, electronic, and magnetic properties for use in technology.

Fifty years ago, it was unclear which, if any of the then minor metals would be most useful for practical mass producible technologies.  We were then only just discovering and, actually, determining which of the electronic and magnetic properties of the chemical elements were important to our civilization’s needs and desires.  Prior to World War I, only the structural, decorative, simple electrical transmission and storage, and monetary metals were well known even to the metallurgists of the day. The last naturally occurring metal to be discovered was rhenium and that was only in 1924. What no one knew between the wars was that it would be important to know which, if any, of the little used minor metals could in fact be produced in significant volume at a significant yearly rate of production. There was no need for any such information, certainly not in academia, where most of these studies would be then undertaken. The equation was simple; no use equals no demand and therefore no attempt to supply in quantity.

World War II was the single most important driver for the transformation of the minor metals into the technology metals. Economics as a limitation to innovation was put aside and national security became the only driver for the development of the technologies for jet and rocket engines, radio and radar, electronic computing, and super weapons.

A glittering galaxy of physicists and innovative engineers, perhaps a once in a thousand years gathering of intellects, told the chemical engineers who specialized in metallurgy, which metals they critically needed in abundance and the world’s governments told all of them not to consider economics in their quest to produce them. The chemical engineers then began systematically to learn how to find, refine, and mass produce the formerly minor metals, now desperately needed for war technology. Among others this lead to the production for the first time, in every case, of large quantities of previously never-before-seen ultra pure silicon and germanium, as well as high purity gallium and indium, uranium and thorium, and mixed, and some individually separated,  rare earth metals and, just after the war, of lithium.

After the hot part of World War II ended, a 50 year long Cold War immediately ensued, during which the postwar uneconomic overproduction of minor metals for the new technologies continued, and the increasingly surplus production was diverted to high volume civilian consumer uses, spun off from technologies developed for the military on a cost plus basis. This was the seeding of our modern ‘Age of Technology.’ Its original economics were synthetic; the critical materials for modern technologies were being produced from operations and sources the development of which had been fully subsidized, in an unprecedented open-ended hand out by the war economy, both cold and hot.

So, at the same time, today, that we have become totally dependent on the technology metals for the mass production of necessary consumer goods such as miniaturized electronics, large scale television and cinema displays, electronic data processing, and personal communications,. i.e., our way of life, we are also critically dependent on technology metals for our national security in the form of secure communications, weapons guidance, surveillance, and battlefield superiority. The problem is that the bulk of the technology metals is now used for civilian production and the military instead of catalyzing the supply and taking a priority position, is now simply another customer.

In the table below we list those metals that we define as ‘rare’, by defining rare as ‘produced annually in a quantity of 25,000 metric tonnes or less.’ Only the most obscure of these rare metals, such as the rare earths holmium, ytterbium, and lutetium, can still be defined as minor metals, because even today they only have minor uses since they are and will remain too rare ever to be available in sufficient quantity for mass production of a technology.

Estimated global production of various metals in 2009
[technology metals are in red: rare metals are in bold]
Sources: US Geological Survey, British Geological Survey
Metal Production [tonnes]
Cobalt 62,000
Uranium 35,332
Lanthanum 32,860
Silver 21,332
Neodymium 19,096
Cadmium 18,000
Lithium 18,000
Yttrium 8,900
Bismuth 7,300
Praseodymium 6,150
Gold 2,350
Dysprosium 2,000
Selenium 1,500
Samarium 1,364
Zirconium 1,230
Gadolinium 744
Indium 600
Terbium 450
Europium 272
Palladium 195
Platinum 178
Germanium 140
Gallium 78
Rhenium 52
Rhodium 30
Hafnium 25
Tantalum 0
Erbium UNKNOWN
Holmium UNKNOWN
Lutetium UNKNOWN
Scandium UNKNOWN
Tellurium UNKNOWN
Thorium UNKNOWN
Thulium UNKNOWN
Ytterbium UNKNOWN

The technology metals are almost all rare metals, and they are almost all produced as byproducts of base or common metals.

The problem with the technology metals is that our supply of them, or more specifically our maximum rates of production of them, is critically dependent mostly upon our production of base metals. In the case of the rare earth metals, mined as a group, the key supply issue is the complex metallurgy of the separation of the individual rare earths from each other; for the case of lithium, a key issue is the length of time that primary concentration takes. The rare earths as a group are actually not rare, based on the admittedly arbitrary definition above, though individual rare earths certainly are.

The rare earths and lithium are today the subject of much discussion, because they have become the most visible technology metals.  The definition of a rare metal is somewhat fluid; a few of today’s rare metals may not always be so. Lithium, for example, is on the cusp of being struck from the list of rare metals, because of its use in electrical storage. But it has turned out that once a minor metal becomes a technology metal, it will never again be a minor metal.

Source: http://www.techmetalsresearch.com/what-are-technology-metals/

Silver Set To Reach New Highs

Silver Bullion

So what is the story with silver – did the bubble burst? Is it headed for $50 an ounce or more? What about the gold/silver ratio: Is it headed towards new lows or new highs and what does it really mean? What is the real supply and demand picture for silver?

Silver remains a precious metal despite years of being the “bastard stepchild” to gold. An attempt to corner the silver market drove prices to historical highs in 1980 and more recently towards $50 an ounce based on several proven and unproven factors including short covering of a reportable massive JP Morgan (JPM) short position inherited from the takeover of Bear Stearns, global economic concerns resulting from sovereign debt defaults to currency devaluations to political unrest.

Technically, I have a strong case that silver has been tracing a corrective pattern off of the 2011 highs which may be complete with the larger bull market advance in full force again. Fundamentally, the same story presents itself over and over again – silver is set to advance reaching new highs that will surprise and astound many.

HISTORY

Historically, silver has been an indispensable metal for over 5000 years. Evidence can be found in Anatolia (modern day Turkey) of the first major source of mined silver dates which back to 4000 BC and served craftsman throughout Asia Minor, the Near East, Crete and Greece. More sophisticated processing of silver was developed in about 2500 BC in what is now Armenia.

Fast forward eighteen hundred years to the Greek civilization where historical writings and physical evidence suggest the Laurium mines near Athens were producing about 1 million troy ounces a year. In fact, through the 1st century AD, the Laurium mines were the largest individual source of world silver production.

After the Greek domination in mining silver spread to Spain, the Punic Wars brought in Roman rule and the expansion of exploiting Spanish silver extended to other areas of Europe. Spanish mines provided for the domestic silver needs of the Roman Empire. Historical records though, suggest the actual production levels did not rise significantly even though mine production in Spain dominated the first 1000 years AD. Expansion in production took place in the 500 year period from 1000 – 1500 AD as mining locations increased and mining technology began to improve.

During the next 375 years silver mining and production was dominated by the Spanish as colonies were established in South America (Bolivia and Peru) and in Mexico. Eighty five percent of world production was attributable to Bolivia, Peru and Mexico. After 1850 production increased substantially as the United States and several other countries began mining and world production jumped from around 40 to 80 million troy ounces a year by the 1870’s.

The 20th Century ushered in an explosion of technologies that enabled world production to jump again to about 190 million troy ounces a year. Major mines were established in the United States, Canada, Australia, Central America and Europe. Technology introduced steam-assisted drilling, mining, mine dewatering, and improved haulage enhancing the ability to handle ore and increasing the exploitation of ores that contained silver.

As the 20th century progressed improvements in electrorefining techniques ushered in easier separation of silver from other base metals which increased the sources of silver. Ultimately the increase in output of silver-bearing residue led to refined silver production.

HOW SILVER IS USED TODAY

The demand for silver can be broken down into three main areas: Traditional, Industrial, and New Technologies.

  • Traditional
  • Coinage
  • Photography
  • Silver Jewelry
  • Silverware
  • Industrial
  • Batteries
  • Bearings
  • Soldering
  • Catalysts
  • Electronics
  • New Technologies
  • Medical Applications
  • Solar Energy
  • Water Purification

The latest annual figures reveal that in 2010 over 487 million ounces of silver were used for industrial applications, 167 million ounces were used by the jewelry market, over 50 million ounces producing silverware and over 10 million ounces in minting coins and producing medals.

Industry continues to rely on silver’s unique properties such as its strength, malleability and ductility. As well as its electrical and thermal conductivity, its high reflectance of light and the ability to handle extreme temperature ranges.

GOLD/SILVER RATIO

Under the direction and guidance of Alexander Hamilton as Secretary of the Treasury the U.S. Government set the first formal gold/silver ratio under the “American Act for Establishing a Mint” in 1792 at 15 ounces of silver for every one ounce of gold or 15:1 The act was put in place to facilitate at what ratio they would coin gold and silver. Based on the relative value that was present in Europe the gold/silver ratio was used to reflect the commercial value of each metal. While this may have been the case in Europe it did not extend further east where in India, parts of Africa and East Asia the gold/silver ratios were reported as low as 1:1.

Beginning in the 19th century gold increased in popularity in Europe and the U.S. as a more stable monetary asset. By the end of the 19th century the demonetization of silver was well underway and picked up speed in the 20th century as most countries discontinued their silver from currency circulation and began dumping their silver stockpiles driving the monetary demand even further into the abyss.

The early 20th century saw the gold/silver ratio drop to 100 ounces of silver to one ounce of gold. It should be noted that at that time the mine production of silver was not 100 times that of gold nor was the abundance of silver money 100 times that of gold. The prejudice of governments and mints during this time predicated or perhaps manipulated the gold/silver ratio from 15:1 to 35:1 and as high as 100:1 as government dumping of silver took place. Records indicate that between 1965 and 2000 government(s) sold 3 billion ounces of silver versus 150 million ounces of gold. Currently, it is reported that governments hold only 60 million ounces of silver versus 1 billion ounces of gold. It would appear that silver is now more rare than gold.

Gold Silver Ration as of October 2011

Source: thechartstore.com

Today, the gold/silver ratio is still used by many to determine which metal is undervalued or overvalued, which in essence doesn’t make sense since the gold standard as a monetary system was abandoned and replaced by fiat currency systems around the globe. There are additional ratios between the precious metals such as:

Approximately nine times as much silver as gold is pulled from the earth each year. The majority of this silver is used by industry.

According to the United States Geological Service (USGS) the general belief amongst mining companies is that there is only about six times as much silver in the ground that is mineable, although there are published reports claiming there is 15 or 20 times more silver in the earth, (this ratio is the natural occurrence ratio and not the reserve base ratio.)

  • Over the past 10 years, approximately 40 times more silver was NOT earmarked for coins and bullion and this is what the price ratio of gold to silver tends to reflect.
  • 9:1 is the silver to gold annual mine production ratio
  • 6:1 is the USGS estimated gold to silver in the ground ratio
  • 1:1 is the year to date investment dollar demand ratio
  • 1:3 (more silver than gold) is the physical ratio of gold and silver coins/bullion

THE MID & LONG TERM PICTURE FOR SILVER

Supply and Demand

Undoubtedly supply and demand for any product will ultimately rule its price. That said the demand side for silver over the past year or so propelled prices to astounding levels. Investor interest and fabrication demand spurred by the industrial segment recovery easily offset the increase in supply.

Total silver supply rose by 15% in 2010 primarily on the return of producer hedging (61 million ounces), government sales (net sales increased with Russia being a major seller) and recycling where the decline in photographic scrap was balanced by a strong rise in industrial, silverware, and jewelry recycling. Mine production saw a very modest expansion of 2.5%.

Demand for silver was robust in 2010 as well. Industrial demand rebounded 21% and was the largest contributor to the 13% increase (879 million ounces) in fabrication (see inset for detail), which includes jewelry and coinage. Together the net increases in demand offset the continued losses in photography and silverware.

Net investment jumped by 47% to an all-time high of 178 million ounces (most of which took place within the last four months of 2010.) ETFs and physical bars ruled last year with the Comex seeing less of a commanding role via silver futures.

Pent up demand remains in the market as investors seek out “safe havens” when quantitative easing in the United States remains in the near term picture and European sovereign debt problems remain unresolved. The economic outlook thus far continues to support silver’s safe haven status as monetary policies are unlikely to be significantly tightened anytime soon and the sovereign debt crisis grows.

Silver’s Fabrication Uses

Industry: Silver is the best electrical and thermal conductor of all metals and so is used in many electrical applications. The most significant uses of silver in electronics are in the preparation of thick-film pastes, in multi layer ceramic capacitors, membrane switches, and silvered film in electrically heated auto windshields. Silver is used in the fabrication of photo voltaic cells, coating material for compact discs and DVDs, mirrors, and batteries. Jewelry and Silverware: Silver possesses working qualities similar to gold, enjoys greater reflectivity and can achieve the most brilliant polish of any metal. Photography: the age of digital photography has diminished silver’s usefulness within this sector. Radiography, graphic arts and consumer photography though continue to use film manufactured with a very high purity silver. Coins: Historically, silver was more widely used in coinage than gold, being in greater supply and of less value, thus being practical for everyday payments. During the latter 19th century silver was phased out in favor of gold. Investors though remain buyers of coin and bullion especially in the U.S., Australia, Canada, Mexico and Austria. Source: GFMS Ltd. World Silver Survey 2011

Silver (Physical)

After a stellar rally to nearly $50 ounce silver put in a needed correction. The correction itself consisted of two steep and at times precipitous declines separated by a three month upward biased sideways move. The correction did fit the profile and it appears that off of the 26.15 (September intraday low) silver has resumed the larger advance. However, without strong upward momentum it leaves open the possibility for an additional down leg taking place before prices head higher on a more sustained basis.

Technically, the long term charts continue to support and suggest additional downside remains in the picture for now. The stochastic oscillator is pointing lower and is currently in neutral territory. The MACD is beginning to register oversold and the MFI oscillator continues to show money is stronger on the buy side rather than sell side.

Silver Spot Price

The chart below (courtesy of thechartstore.com) reveals silver’s upside potential when prices have been adjusted for inflation (PPI) and suggests silver will reach $100+ levels over the longer term.

Silver Prices

iShares Silver Trust (SLV)

In contrast the weekly chart for SLV reveals a more convincing picture that the larger advance may indeed be back in force. The stochastic and RSI oscillators support the advance continuing over the midterm with MFI oscillator being the caveat; pointing lower indicating money is exiting rather than moving into SLV.

iShares Silver Trust

Silver Mining Companies

Some have argued that silver mining companies have lost their appeal (luster) and a check on the table below does show some dismal year-to-date returns. However, when compared to the outstanding and incredible returns on a two and three year basis the picture becomes much clearer. As in the physical metal itself, silver mining companies have been in the process of tracing out corrective patterns. The longer term supply and demand picture continues to support higher prices for mining companies as well. The companies included in the table below are focused (earn 50% or more of revenue) in silver mining and exploration with a market cap of $1 billion or more.

Coeur d’Alene Mines Corporation (CDE)

Coeur d’Alene Mines Corporation is the largest U.S.-based primary silver producer and a growing gold producer. The Company has three new, large precious metals mines that continue generating significantly higher production, sales and cash flow. In 2011, Coeur will realize the first full year of production and cash flow from all three of its new, 100%-owned mines:

  • San Bartolomé in Bolivia;
  • Palmarejo silver/gold mine in Mexico,
  • Kensington Gold Mine in Alaska.

In addition, the Company is expecting new production from its long-time flagship Rochester mine in Nevada. The Company also owns non-operating interest a low-cost mine in Australia, and conducts ongoing exploration activities near its operations in Argentina, Mexico and Alaska.

Coeur d’Alene Mines Corporation

Pan American Silver Corp (PAAS)

Pan American Silver Corp. was founded in 1994 with the mission to be the world’s largest low-cost primary silver mining company. Achieving this by constantly increasing its low-cost silver production and silver reserves. Pan American owns and operates seven silver mines in Mexico, Peru, Argentina and Bolivia. In 2010, Pan American produced a record 24.3 million ounces of silver. In 2011, the Company expects to produce 23 to 24 million ounces of silver and 76,000 to 78,000 ounces of gold. Pan American operates the La Preciosa silver project, located in Durango, Mexico. Pan American also owns the Navidad silver project, one of the largest undeveloped silver deposits in the world, located in Chubut, Argentina.

Pan American Silver Corp (PAAS)

Silver Wheaton Corp. (SLW)

Established in 2004, Silver Wheaton has quickly positioned itself as the largest silver streaming company in the world. Silver Wheaton has entered into a number of agreements where, in exchange for an upfront payment, it has the right to purchase, at a low fixed cost, all or a portion of the silver production from strategically selected high-quality mines. The company currently has silver streaming agreements covering 16 operating mines and three development stage projects around the world. Silver Wheaton’s portfolio includes silver streams on Goldcorp’s Peñasquito mine in Mexico and Barrick’s Pascua-Lama project straddling the border of Chile and Argentina. With low fixed cash costs and unhedged silver sales creates significant shareholder value by providing considerable leverage to increases in the silver price while reducing many of the risks faced by traditional mining companies.

Silver Wheaton Corp. (SLW)

CONCLUSION

Silver may indeed still be in a correction with an additional down leg on its way, but the longer term picture continues to favor the trend remaining up. Due diligence remains important for each investor to perform in accessing whether silver is appropriate in diversifying portfolios. Should additional price weakness drop prices below $30 (basis silver futures or SLV) a long term buying opportunity would exist. Silver mining stocks are an additional way to add silver to one’s portfolio. Here again due diligence is recommended in choosing which company is appropriate.

Both gold and silver remain important investment choices in protecting against the ongoing global economic calamity. Long term planning and portfolio diversifying should include the addition of both.

Again, I am drawn to quote an old Mercedes advertisement where the announcer states

“Perception is not always reality.”

This quote continues to rule the day as speculators flood in and out of the markets taking their turns at controlling the price, albeit short term, since there is much more paper silver than physical metal to cover the commitments. The price of silver has dropped (within the context of a correction) as the fundamental picture favors higher prices. It can then be said that misconceptions weigh heavily as traders (speculators) move in and out of positions.

By: Michael Filighera
Source: http://seekingalpha.com/article/306118-silver-set-to-reach-new-highs