precious metals

Bankers, Precious Metals, And MF Global

Did bankers use the MF Global (MFGLQ.PK) bankruptcy to suppress gold and silver prices and create the panicked appearance of collapsing precious metals to give themselves additional precious time to delay the crash of the euro and the U.S. dollar? As crazy as this sounds, a closer investigation of some key data seems to imply this possibility. Though bankers claim that they created futures markets to provide a mechanism for commodity producers to hedge against volatile market prices, I have never bought the Kool-Aid the bankers were selling in this explanation for the rationale behind their creation of futures markets.

Given that today, futures and spot prices for gold and silver in the short-term are entirely set by banker manipulation of the supply and demand for paper derivatives that often have no backing of any physical metal, I believe that bankers created futures markets for the explicit intent of allowing themselves to manipulate the prices of commodities and to enrich themselves, and themselves only, through the process of alternately and artificially inflating and deflating prices as would not be allowed in any type of free market. In other words, bankers invented futures markets to allow themselves to siphon off and steal money from other parties that wanted to invest in commodities with a mechanism, risk-free to them, that required deception and zero honest work and zero integrity.

The futures markets in commodities is such a deceptive market that it is hard to know even where to begin to unravel its many mechanisms of deceit in all their glory. Futures contracts traded on the world’s largest commodity markets such as the COMEX in New York and the LBM in London allow bankers to commit reverse alchemy, turning real physical gold and real physical silver into nothing but false paper contracts and air.

Secondly, through futures contracts traded in New York and London, bankers routinely defy the economic principles of supply and demand, and set short-term prices for gold and silver that have zero to do with the supply and demand dynamics of the physical gold and physical silver market. In the world of physics, such an illogical, comparable feat of deception would be the indefinite suspension of the law of gravity. Bankers invented paper-derivative gold and silver markets to allow themselves to defy and suspend every sound economic principle that exists.

This is important to understand because not only does understanding this concept make the bulk of what you learn in business school a lie and entirely useless, but also because bullion banks, such as Deutsche Bank (DB), Citigroup (C), JPMorgan Chase (JPM), Goldman Sachs (GS), et al, that serve as the puppet conduits for more powerful families that control Central Banks, routinely used to lease physical gold into the open market as their primary mechanism to suppress the price of gold and silver.

However, as their mechanism of fractional reserve banking began to threaten the viability and utility of the most widely used fiat currencies in the world, the USD and the Euro, bankers understood that they needed to utilize and/or create another mechanism to suppress gold and silver prices that could replace selling physical PMs into the open market as they no longer wished to give up a solid asset with no third party counter-risk for what they knew they were turning into essentially worthless pieces of paper.

Thus bankers increasingly turned to the paper futures markets to manipulate and control the price of gold and silver and also served up additional bogus derivative products to the public like the GLD and SLV ETFs. Bankers knew that there was no way they could possibly control the price of gold and silver if the supply and demand determinants of physical gold and physical silver had anything to do with the price, so they conspired to fool the world into believing that the fake paper price they set was set by the supply and demand of the physical markets.

Collapsing of Gold/Silver Futures Markets Directly Related to MF Global Collapse?

And here’s where MF Global enters the banking cartel gold and silver price suppression scheme. Today, short-term futures and spot prices of gold and silver have almost nothing to do with the physical supply and demand dynamics of gold and silver, as odd as that may sound. Bankers created the futures markets and paper derivatives in gold and silver to kill free markets and for the express purpose of suppressing gold and silver prices.

Today we have no idea what the free market price of gold and silver should be or could be, besides the fact that both would be multiples higher than their current price, because of the fake paper market in gold and silver that the bankers created.

As well, bankers ensured that they armed a legion of worker bees in commercial investment firms all over the world that would represent these paper derivatives backed by very little physical gold and silver to their clients as the equivalent of investing in 99.999% pure physical gold and silver. In doing so, the worker bees thereby lured people all over the world into what will turn out to be the fatal mistake of not buying millions of troy ounces of physical gold and silver and instead buying their offering of fool’s gold and fool’s silver.

When we receive a massive default of gold and silver futures contracts that stand for delivery on the COMEX or LBM, or if the SLV and GLD default, then, and only then, will the public start to see true price discovery of physical gold and physical silver in action. However, for clients of MF Global, unfortunately, they have already experienced the mistake of buying fool’s gold and fool’s silver from the bankers and have received air in exchange for gold and silver futures contracts they purchased that stood for delivery.

Bankers invented fake paper gold and silver contracts, because they knew that if they could not fulfill contractual obligations to deliver physical gold and physical silver because the contracts were a binding lie to begin with), that they could always renege on these contractual obligations and give the people the nothingness they truly owned in return. And thus, we have the story of MF Global.

Ratings agencies downgraded MF Global on Oct 25 and MF Global declared bankruptcy on Oct 31. If one scours the data that the Chicago Mercantile Exchange (CME) releases via its aggregated Commitment of Trader reports during this time period, one may not notice any data that immediately stands. However, investigation of the disaggregated reports reveals far more interesting patterns that almost undoubtedly can be traced back to the collapse of MF Global.

In a period just preceding the MF Global collapse, from late August to mid October, the open interest (OI) in longs in gold and silver futures within the Managed Money category collapsed by 33.75% in gold (202,430 to 136,103) and 44.74% in silver (29,849 to 16,494). During this exact same time period, shorts in the gold and silver futures in the Managed Money category increased by 19.3% and 83.82% respectively (see the chart below).

Within the Managed Money category, between Sept 13th and 27th, in just a two-week period, the drop in OI in the longs in gold and silver futures was even more pronounced, with a 25.41% plunge and 34.3% plunge in silver. I imagine if someone could trace the connection of this plunge in OI in the Managed Money category in the gold and silver futures markets, one would discover that a good deal of the plunge was somehow directly tied to the impending MF Global bankruptcy and its freezing and/or liquidation of gold and silver futures accounts in its possession.

After Phase I of the collapse in OI in the gold and silver futures markets, Phase II followed. When the story about MF Global’s legalized client theft hit the presses, an enormous public distrust of the entire futures markets started to build. If clients lost millions of dollars in gold and silver futures accounts due to forced liquidation or freezing of contracts that they were holding for delivery, anyone that had considered using the futures markets to take delivery of real gold and real silver following the MF Global debacle obviously reconsidered their options.

Thus, due to the massive fraud of the futures markets that was revealed by the MF Global collapse, another huge drop in the OI of gold and silver longs in the Managed Money category occurred during Phase II (as labeled in the above chart) that respectively amounted to an additional respective 11.79% and 7.48% plunge. In essence, it appears that the MF Global collapse served up the exact same price suppression effect as a CME issued initial or maintenance margin hike in gold and silver futures, which forces a tidal wave of unwanted and involuntary liquidation of gold and silver longs that consequently violate technical support lines and trigger technical sells.

Of course, we also have to factor in the temporary OI-increasing effect of the risk-on CME event when they lowered initial margins to a 1:1 ratio with maintenance margins at the onset of November. Still, given the figures presented in the chart above, it seems that bankers used the MF Global collapse to force liquidation of gold and silver longs in the futures market quite rapidly and drastically. Why is this important? This is important because typically strong hands ride out any temporary banker manipulations of gold and silver prices downward.

In this case, strong hands, if they existed at MF Global, were not given this opportunity and were forced to liquidate or had their accounts frozen whether or not they desired such an outcome. Furthermore, if primarily strong hands were forced out of the futures market, this would leave the majority of volume in the gold and silver futures markets primarily in the hands of the criminal banking cartel.

We’ve seen repeatedly, this past year in the US SP 500 index, when low trading volume primarily controlled by the banking cartel has translated into curious and inexplicable market bounces of 2% in a single day. In other words, low trading volume allows bankers excessive and easy manipulation over markets. If this was indeed the scenario bankers deliberately created with the MF Global collapse, then the MF Global collapse and simultaneous collapse of open interest in gold and silvers futures certainly would have paved the way for the banking cartel to easily manipulate gold and silver prices.

There was also further circumstantial evidence that bankers used the MF Global collapse to collapse gold and silver futures markets at the end of 2011. For example, in an article posted on the SilverDoctors blog by Jim Willie in which he gathered data regarding the amount of physical gold and silver ounces represented by the longs at MF Global that were standing for delivery in the futures markets before these contracts imploded, he stated: “JP Morgan increased the amount of registered silver and gold by precisely the amount that was suppose to be delivered [by MF Global]…JP Morgan effectively averted both a Comex default and a European Sovereign Debt implosion.”

Silver Lining in the MF Global Debacle?

Can there be a silver lining in the MF Global debacle? I believe that in the long-term, this extremely unethical, negative event could transform into a positive game-changer in the way people buy large amounts of gold and silver. Obviously, the futures market is not a safe market for anyone seeking to take delivery of millions of dollars of physical gold and silver as many MF Global clients learned. The GLD and SLV ETFs, of course, are no safer than any gold or silver futures contract for the same reasons.

So in the future, and I mean the immediate future starting now, I believe that large buyers of physical gold and silver will now opt to bypass the bullion bank’s middle men in the futures market and go directly to the gold and silver mining companies to buy large quantities of bullion. This should eventually help usher in the death of futures markets as a mechanism for buying physical gold and physical silver and be a step towards establishing a free market for gold and silver prices for the first time in our lives.

Mark Cutifani, CEO of AngloGold Ashanti, recently echoed the same:

“Major [asset management fund] buyers are finding it is hard to get physical gold. People are coming directly to us [for large gold purchases,] people who want tonnes of physical gold, people with serious financial muscle, because they are finding it is very difficult to secure the volume of gold they want. That is something we have noticed over the last 18 months, and it has been increasing in the last six months. People are finding it’s hard to get physical gold.”

People that want to own physical gold and physical silver never should have been buying the GLD, SLV, or gold and silver futures. Now, in light of the MF Global debacle, scores of people will stay away from these fraudulent vehicles for good.

About the author: JS Kim is the Chief Investment Strategist and founder of SmartKnowledgeU, a fiercely independent investment research and consulting firm with a mission to help re-establish the monetary freedom that bankers have stolen from us. Despite believing that gold and silver will remain highly volatile in 2012, JS believes that long-term holders of physical gold and silver will be richly rewarded as bogus paper gold and silver derivatives start collapsing and reach their intrinsic value in coming years. Follow JS on Twitter and Facebook.

Republishing rights: The above article may be reprinted as long as all text, links and the author acknowledgment remain intact and exactly as printed above.

Article source: http://seekingalpha.com/article/316197-bankers-precious-metals-and-mf-global

Why Buy and Store Metals Offshore

Offshore Storage Facilities for Rare Earth and Industrial Metals

Today more than ever it is important for a person to diversify the location of their assets. If you are one of my readers there is a good chance that you believe in Precious and Rare Metals as a form of protection against inflation, and governmental shenanigans. Metals give a person piece of mind like very few other investments can.

Some of the benefits of Metals include.
  1. Paper assets can depreciate to zero, Metals will not.
  2. Metals are a hard asset that can be handled, free of third party interference.
  3. Metals are a store of value.
  4. Metals are both a form of money and used in industry.
  5. Metals are highly liquid.

Why take your metals offshore? Inflation according to the US government is running close to 3% and banks are paying a paltry 1-2% for interest. People are increasingly worried about government seizure of their paper assets and hard assets. Recently Portugal decided to take over its pension funds until the financial crisis passes. As we know once a government takes over something they rarely give it back. How long do you think until nations like the USA, UK, Germany, Canada and Australia start invading their pension funds? In 1933 the US government under the leadership of Franklin D. Roosevelt required US citizens to turn their Gold in for currency. Do you think that the governments of today are any less bold?

The four main benefits of offshore investing include.
  1. Asset Protection
  2. Confidentiality
  3. Tax Sheltering
  4. Diversification

There are many different ways a person can buy and store metals internationally. A client could buy and store in their personal name. They could store their metals in an offshore IRA. They could purchase their metals through a company that they control. They could use a Trust or an offshore structure that they control. This opens up a wide range of opportunities for the savvy metals buyer.

In the spring of 2012 we are tentatively scheduled to open our latest storage facility in Panama. We have had many clients asking us if we knew of an option for them to store their metals closer to home. Our waiting list of clients looking to take advantage of this opportunity continues to grow. It will be located in the Panama Pacifico Free Zone which is the old Howard Air Force Base in the Canal Zone. Currently we have our facility in Zurich, Switzerland in the Swiss Free Zone. If you would like more information to buy Metals or to be added to our Panama storage wait list please feel free to contact myself or the team at Swiss Metal Assets.

Customers ask, How would I transport the Metals to Panama? Brinks is the logical choice for me. They offer door to door service for the client. You can learn more on their website.

The financial situations are getting more and more complicated for nations throughout the world. Don´t you think it is time that you protected your assets?

By: Randy Hilarski - The Rare Metals Guy

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.

 

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

Asset protection with special metals - not just rare earths are in demand!

Translated from the original German Article that can be found here:

http://www.foonds.com/article/16165//fullstory

Due to the distrust of paper money system escape investors more and more into real assets. Besides real estate , precious metals and commodity exchanges traded commodities , however, there are other commodities which are increasing the interest of investors. Namely Special Metals Exchange Express spoke with the manager of the venerable German metal dealer Haines Maassen (www.hain-maassen.com) Mr. Gunther Maassen.

BE: Mr. Maassen, you will see an increased interest from investors, including you offer specialty metals investing?

For about four years recorded Haines and Maassen an increasing demand from investors for specialty metals such as indium, gallium and hafnium.

BE: Why do you advertise on a site for commodity investors? Should this be expanded in a targeted area?

Haines & Maassen has over 60 years and active trading in the metal during this period was continuously expanded the offering plate. This particular segment is not promoted specifically, but we have adapted to the needs of this industry and adapted our offerings accordingly. We see our role as a family but in the metal trade, and not as a financial investment advisor.

BE: Is it worth an investment at all in special metals? If an investor wants to sell the purchased metals again, how great the loss is due to the trading range?

Since we are not investment advisors, we want to leave the decision up to our customers. The fundamentals of supply and demand shall, however, seems to indicate that the sustained demand for many of these elements exceed the bid. When individual elements are signs of a significant shortage. Leading research institutions around the world, for example, predict a significant shortage of indium in the next 10-20 years. Include items such as tantalum, hafnium, and tellurium show depletion trends. The trading range in the metal trade the usual manner 10 to 20% higher.

BE: Is it for your company at all interesting to supply retail customers or are you collaborating with distributors for small deliveries to private homes?

Even as larger trading company, we look forward to every customer and ensure a competent, based on years of service experience. Each customer, whether he now buys 1 kg or 100 kg of indium, tantalum is just treated as an industrial consumer. For several years we have worked successfully with companies that have created the special baskets for consumers. Leading role in this market is the Schweizerische Metallhandels AG / Switzerland, which brought the first company to a sustainable system for investors in the market. This trained and experienced intermediaries has developed standardized solutions to investors to provide with smaller sums, the opportunity to participate in the development of strategic special metals.

BE: Is there or are you planning it, the metals are VAT-free to keep investors in a bonded warehouse ?

No, this service leaves Haines & Maassen companies like the Swiss metal trading SMH AG, which take on a pioneering role in this field. We see our task in the expert advice and supplies to customers. This has meant that our company has occupied in the commercial sector is not more than 70% of jobs with academics. Chemists, economists, certified interpreter and aspiring metallurgist to join our team. . This allows us a targeted advice at a high level.

BE: Which of you offer metals were the highest price increases in recent years?

There are a number of metals such as rare earths (neodymium, cerium, lanthanum, …) and tellurium, tantalum, indium, gallium, hafnium, and that have experienced including price developments of more than 100%. Appears much more important to us, however, that the price developments of several of these elements in the long term exceed the inflation rate and thus suitable as a value assurance.

BE: Which you can see because of the supply situation and the future demand (particularly by new technologies), the highest price appreciation potential?

This would I got the book “Strategic Metals for investors,” by Michael and me Vaupel point, which is launched in early November. Here it is precisely this question at the center. Of promising innovations will be closed to the required raw materials, which then permits a conclusion on price trends. We specifically do not want to move a single metal in the foreground, but on the contrary believe that a healthy mixture of different metals, the better alternative. BE: Which metals has China as the rare-earth quasi-supply monopoly , China has some metals offer a market share exceeding 50%. about 90% antimony, bismuth, germanium, about 67% about 67%, 60% indium, about 67% silicon and tungsten over 80%. These are just the elements in which China holds more than 50%. There is also a long list of substances for which the People’s Republic plays a significant role.

BE: Some metals are toxic or dangerous now. Is not that problematic when investors rush to such materials and store them at home? Or. even allowed all metals to be delivered?

Yes, clearly this is problematic and it is forbidden even in a single well. The delivery of some metals to individuals such as arsenic, selenium and tellurium are not only forbidden, but also jeopardize the customer. The transport is subject to restrictions. Here it is important that it is made ​​clear in the consultation, where the boundaries of a private storage are located.

BE: What are the traded you metals for investors at all in question and which are ruled out?

This question is very complex and I would again like to the book “Special Metal for Strategic Investors” link. There are plenty of metals that can store private (indium, tantalum, etc.), and there are metals that can be stored without problems by specialist companies (gallium, tellurium, etc.). When no sense can be considered elements that can fail either due to technical reasons (explosive, very toxic ..) or claim due to a relatively low price, very substantial storage space would be (lithium, manganese …).

BE: Why are entirely at your rare earths?

Excluded from the program they are not, if a customer wants to purchase rare earths we can offer him.

BE: Which of the traded you metals are traded on commodity exchanges?

To reach Western markets, these are only molybdenum and cobalt in the form of oxides. In China, there are over 200 raw evil, but they are for the West not accessible or meaningful.

BE: Do you think the interest in physical metal investment for temporary or if the stay a permanent plant-fixed point?

I am personally of the opinion that the trend towards be physical forms of investment is long term and sustainable. Haines & Maassen has set himself definitely on this development and the capacity significantly. For about six months, we have another large warehouse, which predominantly serves the industry as a reloading and packaging facility.

BE: How serious is the market for metals from the perspective of potential investors?

Romp around many charlatans of the matter actually have no idea (push-columns, rushing into this, what’s currently on the market)? Unfortunately, there are black sheep in every industry. It certainly makes sense to find out exactly and above all, the costs can be expected for an investment of over 10 years. It is often cheaper to pay a few percent at the beginning to press for more and ongoing costs. Especially when storage costs are frightening models that cause within 5 years, considerable cost.

BE: Mr. Maassen, thank you for your time!

Source: http://www.foonds.com

Why isn’t the Gold price going through $2,000 now?

Precious Metal Gold

The gold price went over $1,900 and looked as though it was going to mount $2,000, but since then has fallen back to $1,600 and is in the process of consolidating around the lower $1,600 area. It was expected that it would have moved a lot higher faster, but that hasn’t happened, yet.

In the face of Italy’s downgrade to A2 by the ratings Agency, Moody’s summary that, “There has been a profound loss of confidence in certain European sovereign debt markets, and Moody’s considers that this extremely weak market sentiment will likely persist. It is no longer a temporary problem that might be addressed through liquidity support, and several euro-area governments are increasingly affected by the loss of confidence.” The downgrading was expected, as are further downgrades for the different Eurozone members, shouldn’t the gold price be on its way through $2,000 to much higher levels?

The ‘downturn’

The news over the last few weeks has sent global financial markets down very heavily as a slow recovery morphed into a downturn and at best a flat economic future in the developed world. These falls have been accompanied by tremendous worries that there could be a major banking crisis that will cripple the Eurozone economy as a whole, not just the debt-distressed nations. In France growth is now at zero, in Greece it is somewhere south of a 5% dip in growth well into recession. Greater austerity simply adds to the fall in government revenues defeating their purpose of reducing their deficit. All of this implies an ongoing shrinkage of the Eurozone economy. This hurts investor capacities in all financial markets and wealth throughout the Eurozone. Cash becomes ‘king’ as investors flees markets to a holding position waiting for much cheaper prices before re-entering markets at lower levels.

The path to deflation is then made. Deflation in its early stages causes tremendous de-leveraging. That is the selling of positions to pay off loans taken to increase positions. It may come about because of investor prudence, banks calling in loans, stop-loss triggers and margin calls [where the level of debt against positions becomes too high and forces sales]. This often and particularly in the case of precious metals has nothing to do with the fundamentals of the market. It is simply the position of investors. This happened in the precious metal markets as well. This is why gold and silver prices fell.

De-leveraging

As was the case in 2008 and often through history, the process of de-leveraging is a short-lived one, even when it is savage. Once and investor has sold the positions he feels he needs to that downward pressure on prices disappears. Leveraged positions are the most vulnerable of investor held positions and can make up the froth or ‘surf’ in the markets, which cause the volatility levels to increase when dramas strike. In 2008 these positions were huge because there had been two and a half decades of burgeoning markets that encouraged greater risk taking. Since then, while leveraging has taken place it has been less and rapidly removed when dramas hit.

In 2008 we saw a similar drop in prices from $1,200 to $1,000 [20%], which equates to the fall from $1,910 to $1,590 [16.9%]. In 2008 the precious metal prices then slowly rose as buyers started to come in from all over the world. It took over a year for prices to recover back to $1,200.

Change in market structure

Today the shape of the precious metal markets is quite different, particularly that of gold. In 2008 central banks were sellers, today they are buyers. In 2008 the Chinese gold markets were small. Since then they have grown to such an extent that they are soon to overtake India. These are two dynamic features that give demand a totally different shape to 2008. More than that, the impact of the developed world long-term has diminished quite considerably. It now represents less than 21% of jewelry, bar and coin demand. The emerging world as a whole represents over 70% of such demand now.

The bulk of the world’s physical gold that comes to the market is dealt at the London twice daily Fixings. The balance that is traded outside the Fixings is the most short-term price influential amounts, producing the swings that resemble the waves on the seashore. It is these traders and speculators that often persuade long-term buyers to stand back and wait for the prices to swing to the point that persuades them to enter the market. The drop from $1,900 had this effect on investors. Now that the fall has happened we see a surge in demand from the emerging world to pick up the slack in the market. We have no doubt that central banks are buying the dips as well.

So once the selling from the developed world has stopped [emerging market demand waits for this before buying, allowing the fall to extend further] in come the buyers happy that they are entering the market at a good time. Because of this change in market shape we fully expect the market to take far less time to find its balance and allow demand to dominate.

2012 recession and the battle against it

The I.M.F. has just warned that the developed world will enter a recession in 2012. Will that be a negative for the gold market? We do not believe that it will. The world has seen the recovery peter out, has seen the sovereign debt crisis arrive and now sees the I.M.F. recommend that the Eurozone banks be recapitalized. What does this mean for precious metals?

Cast you minds back to the recapitalization of U.S. banks under the TARP measures whereby the Fed bought the ‘toxic’ debt investments of the banks against fresh money. When we say fresh we mean just that, newly created money in the trillions. This did lower the perceived value of the dollar inside and outside the U.S. The effect on gold was palpable as it rose back through $1,200 and onto new highs.

Already we are hearing rumors of an E.U. government minister’s plan to walk the same or similar road. With the recent past in mind, we are certain that that will lower the perceived value of the euro and see euro investors seek places to cling onto the value the euro still has. This time round we fully expect markets to discount these actions in the same way. The downturn will therefore be fought with new money creation in the same way the U.S. did it from 2008 on.

Second time round

There is a significant difference between 2008 and now. In 2008 the credit crunch was new to investors and shocked the markets into overreactions. In 2011 we are not shock but expectant of what lies ahead. In 2008 the developed world economy had considerably more resilience than it does now, so the situation is more serious and less likely to be believed as the panacea for the developed world’s economic crisis. Because the gold and silver prices rose so strongly after that time and in the face of those ‘solutions’ the same will be expected now. In 2008 confidence in the financial system as well as in the monetary system appeared unassailable, not this time. While the developed world, outside of the gold ETF’s in the U.S., has not been the main driver of rising gold prices, this time we would not be surprised to see their resilient confidence in their world snap and a frantic search for safe-havens follow.

Yes, if we see a repeat of the 2008 breakdowns in the near future they will slaughter remaining confidence in the monetary system and the ability of its governments to set matters straight. What then for gold and silver?

By Julian Phillips
Source: www.ibtimes.com

China’s robotics revolution may boost rare earths, precious metals

Taiwanese technology giant, Foxconn has announced that it will deploy one million robots in three years time to do a variety of routine functions including assembling, spraying and welding. The company has an employee strength of 1.2 mn of which one million is employed in Chinese Mainland.

Foxconn has already announced major expansion plans for China and nineteen new projects are in the pipeline including factories that will produce cameral lenses,LED lighting rigs and recently it opened a facility in Chengdu, provincial capital of Sichuan to manufacture laptop computers.

The impact of increased robotics usage in creating unemployment has often been discussed while the goal is to reduce labour costs and improve efficiency.

 However, the impact of increased robotics deployment will be see in commodities- both precious metals and rare earth elements stand to gain if China robotics revolution were to become a world-wide phenomenon. Already China restrictions on export of rare earth elements (REE) very critical for electronics, industrial, automobile and renewable energy applications has led to miners re-opening closed rare earth facilities around the world especially in USA and Canada. Recycling of rare earths has also intensified

Electronics industry also utilises precious metals including Gold and Silver in varying quantities in integrated circuits and assemblies.

The Silver Institute estimates that industrial demand for silver will jump to 666 million ounces by 2015, or a 36% increase from 2010. A report said the forecast growth will come from established applications, such as silver’s use in electrical contacts and in the photo-voltaic market. The technical proficiency of silver limits the ability to switch in favor of lower-cost alternatives, making the metal largely price inelastic. Emerging end-uses that benefit from silver’€™s antibacterial properties or incorporate silver’€™s electrical and thermal conductivity are expected to boost silver consumption through 2015.

According to World Gold Council technology demand for gold remained steady in the first quarter of 2011 at 113.8 tonnes ($5.1bn). A revision to the fourth quarter figures now means that 2010 was the highest year on record for gold demand in electronics at 326.8 tonnes or $12.9bn.

Meanwhile, rare earth mining stocks are seeing a flurry of activity in recent weeks due to general industry movements and short covering, according to an article in Seeking Alpha. Among the stocks to watch are Molycorp (NYSE: MCP) which is now trading at $54 levels. Molycorp shares gained on announcement ofits major supply agreements while Rare Element Resources (AMEX:REE) also rallied recently, to a lesser extent Avalaon Rare Metals (AMEX:AVL) and Rare Earth Stock index at NYSE rose following positive developments in the industry.

By Sreekumar Raghavan
04 August 2011
www.commodityonline.com

The screaming fundamentals for owning gold and silver

Gold bullion This report was originally published at www.chrismartenson.com.

This report lays out an investment thesis for gold and one for silver. Various factors lead me to conclude that gold is one investment that you can park for the next 10 or 20 years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report.

The punchline is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Introduction

In 2001, as the painful end of the long stock bull market finally seeped into my consciousness, I began to grow quite concerned about my traditional stock and bond holdings. Other than a house with 27 years left on a 30-year mortgage, these holdings represented 100% of my investing portfolio. So I dug into the economic data to see what I could discover. What I found shocked me. It’s all in the Crash Course in both video and book form, so I won’t go into that data here.

By 2002, I had investigated enough about our monetary, economic, and political systems that I decided that holding gold and silver would be a very good idea, poured 50% of my liquid net worth into precious metals, and sat back and watched.

Since then, my appreciation for and understanding of the role of gold as a monetary asset and silver as an indispensible industrial metal have deepened considerably.

Investing in gold and silver is still a good idea. Here’s why.

Why own gold and silver?

The reasons to hold gold and silver, and I mean physical gold and silver, are pretty straightforward. So let’€™s begin with the primary reasons to own gold.

1. To protect against monetary recklessness
2. As insulation against fiscal foolishness
3. As insurance against the possibility of a major calamity in the banking/financial system
4. For the embedded “option value” that will pay out if and when gold is remonetized

By “monetary recklessness,” I mean the creation of money out of thin air and the application of more liquidity than the productive economy actually needs. The central banks of the world have been doing this for decades, not just since the onset of the great financial crisis. In gold terms, the supply of above-ground gold is growing at roughly 3% per year, while money supply has been growing at nearly three times that yearly rate since 1980.

Now this is admittedly an unfair view, because the economy has been growing, too, but money and credit growth have handily outpaced even the upwardly distorted GDP measurements by a wide margin. As the economy stagnates under this too-large debt load while the credit system continues to operate as if perpetual expansion were possible, look for all the resulting extra dollars to show up in prices of goods and services.

Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). This is a forced, manipulated outcome courtesy of central banks that are buying bonds with thin-air money. Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver, but not until then. That is as close to an absolute requirement as I have in this business.

Monetary policies across the developed world remain as accommodating as they’€™ve ever been. Even Greenspan’s 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke has recently engineered. But it is the highly aggressive and “alternative” use of the Federal Reserve balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no way to end these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape. In Europe, the equivalent would be the sovereign debt now found on the European Central Bank (ECB) balance sheet.

Federal deficits are seemingly out of control and are now stuck in the -$1.5 trillion range. Massive deficit spending has always been inflationary, and inflation is usually gold/silver friendly. Although not always, mind you, as the correlation is not strong, especially during mild inflation (less than 5%). Note, for example, that gold fell from its high in 1980 all the way to its low in 1999, an 19 year period with plenty of mild inflation along the way. Sooner or later I expect extraordinary budget deficits to translate into extraordinary inflation.

Reason #3, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold. I’m not referring to “paper gold” either, which includes the various tradable vehicles (like the “GLD” ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver because of their unusual ability to sit outside of the banking/monetary system and act as monetary assets.

Literally everything else financial, including your paper US money, is simultaneously somebody else’€™s liability, but gold and silver are not. They are simply, boringly, just assets. This is a highly desirable characteristic that is not easily replicated.

Should the banking system suffer a systemic breakdown, to which I ascribe a reasonably high probability of greater than 1-in-4 over the next five years, I expect banks to close for some period of time. Whether it’s two weeks or six months is unimportant; no matter the length of time, I’d prefer to be holding gold than bank deposits.

During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rocket up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy; keep some “money” out of the system to spend during an emergency. I always advocate three months of living expenses in cash, but you owe it to yourself to have gold and silver in your possession as well.

The final reason for holding gold, because it may be remonetised, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high.

Here are some numbers: The total amount of “official gold,” or that held by central banks around the world, is 30,684 tonnes, or 987 million troy ounces (MOz). In 2008 the total amount of money stock in the world was roughly $60 trillion.

If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($60T/987MOz) = $60,790 per troy ounce.

Clearly that’s a silly number (or is it?), but even a 10% partial backing of money yields $6,000 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world’s money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a fraction of the world’s money supply by gold will result in a far higher number than today’s ~$1,500/Oz.

The difference between silver and gold

Often people ask me if I hold goldandsilver as if it were one word. I do own both, but for almost entirely different reasons. Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.

There is a chance, growing by the week, that gold will be remonetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.

Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive metal known, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in such vanishingly small quantities that it is hardly worth recovering at the end of the product lifecycle — and often isn’t.

Because of this dispersion effect, above-ground silver is actually at something of a historical low point. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed, and today there are perhaps 1 billion ounces above ground, when in 1980 there were roughly 4 billion ounces.

Because of this consumption dynamic, it’s entirely possible that over the next twenty years not one single net new ounce of above ground silver will be added to inventories, while in contrast, a few billion ounces of gold will be added.

I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

Scarcity

If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 8x more than today, we have to ask how many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation, and how many will close because their energy costs will have exceeded their marginal economic benefits.

After just 100 years of modern, machine-powered mining, nearly all of the good ores are gone. By the time you are reading stories like this next one, you should be thinking, ‘Why are they going to all that trouble unless that’s the best option left?’

South African Miners Dig Deeper to Extend Gold Veins’ Life Spans

Feb 17, 2011

JOHANNESBURG: With few new gold strikes around the world that can be turned into profitable mines, South Africa’s gold miners are planning to dig deeper than ever before to get access to rich veins.

The plans raise questions about how to safely and profitably mine several miles below the surface. Success would mean overcoming problems such as possible rock falls, flooding and ventilation challenges and designing technology to overcome the threats.

Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company’s Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn’t in time operate an additional 3,000-plus feet deeper.

“The most critical challenges for all of us in South Africa are depths and depletion of reserves,” Mr. Cutifani said in an interview.

The above article is just a different version of the story that led to the Deepwater Horizon incident. By the time exceptional engineering challenges are being pondered to scrape a little deeper, it tells the alert observer everything they need to know about where we are in the depletion cycle. We are closer to the end than the beginning.

We are at the point in history where we can easily look forward and make the case for declining per capita production of numerous important elements just on the basis of constantly falling ore purities and gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic and it is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.

The issue of Peak Oil only exacerbates the reserve depletion dynamic by adding steadily rising energy input costs to mix. Should oil get to the point of actual scarcity where we have to ration by something other than price, then we must ask where operating marginal mines fits into the priority list. Not very high would be my guess.

Supply and demand - gold

Not surprisingly, the high prices for gold and silver have stimulated quite a bit of exploration and new mine production. With over decade of steadily rising prices, there has been ample time to bring on new production. Which leads to a real surprise: in the case of gold, relatively little incremental mine production has occurred.

The analytical firm Standard Chartered has calculated a rather subdued 3.6% gold production growth over the next five years:

Most market commentary on gold centres on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years.

Of course none of this is actually surprising to anyone who understands where we are in the depletion cycle but it’s probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs while greenfield, or brand-new, projects require a gold price of $2,000 an ounce.

This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it’s not as simple as the fuel that goes into the CaterpillarD-9s; it’s the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.

Just as is the case with oil shales that always seem to need an oil price $10 higher than whatever it currently is to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, ore body from being developed. Given declining net energy, that’s forever as far as I am concerned.

The punchline of the Standard Chartered gold report is that they think $5,000 gold is a realistic target and go on to note the most important shift in gold accumulation of the past 30 years:

The limited new supply comes at a time when central banks have turned from being net sellers to significant net buyers of gold. The result, in our view, will be a gold market in deficit, even assuming flat growth in demand.

With the supply-demand balance so out of kilter, we see the gold price potentially going to US$5,000/oz.

(Source)

The emergence of central banks being net acquirers of gold is actually a pretty big deal. Over the past few decades central banks have been actively reducing their gold holdings preferring paper assets over the ‘barbarous relic.’ Famously, Canada and Switzerland vastly reduced their official gold holdings during this period, a decision that many citizens of those countries have openly and actively questioned.

The World Gold Council out of the UK is the primary firm that aggregates and reports on gold supply and demand statistics. Here’s the most recent data on official (i.e. central bank) gold holdings:

(Source)

Note that the 2009 data is lowered by slightly more than 450 tonnes in this chart to remove the one-time announcement by China that it had secretly acquired 454 tonnes over the prior six years, so this data may differ from other representations you might see. I thought it best to remove that blip from the data. Also the data for 2011 is for the first four months only, so we might expect 2011 to be a record-setter if the current pace continues.

Overall, world supply and demand are a bit out of alignment right now with supply increasing by 2% last year and non-official demand increasing by 10%:

The summary of the fundamental analysis is that with mine production seriously lagging the price increases for gold, coupled to increased central bank and investment demand, we have set the stage for some hefty prices increases irrespective of any fiscal or monetary shenanigans.

However, once we put those back into the mix, I forecast a quite volatile but upwardly sloping price for gold over the coming years. Possibly a very steep upward slope at points.

Supply and demand, silver

Silver demand is growing by double-digit percentages, being led primarily by industrial uses and investment demand. The Silver Institute does a fine job of tracking and reporting on these matters.

First demand:

Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver’s use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011.

Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world’s improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India.

(Source)

Now Supply:

Silver Production 2010

Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year.

Mexico eclipsed Peru as the world’s largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010.

Again, we are comparing double digit demand increases against low single digit supply increases. After a decade of rather dramatic price increases for silver, the alert observer should be asking exactly why this is the case.

In table form, we can clearly see that the silver balance for the world requires both dishoarding from government stockpiles and from the recycling of scrap silver. That is, shortfalls from mining have to be made up from above ground stocks:

There’s only so long that such an imbalance can continue before the shortfalls require much higher prices to cool off demand.

One of the reasons that I originally invested quite heavily in silver is precisely because I came to the conclusion that the price was far too low, artificially so, and that it would therefore be a great investment. So far so good.

Given the above fundamentals, I project that prices for the precious metals will be many multiples higher - in today’s dollar terms - by the end of the decade.

Part II of this report: How to Play The Greatest Gold & Silver Bull Market Of Our Lifetime delves into the specifics of how much of your net worth to invest and in what forms, what price targets gold and silver are likely to reach, and what indicators to look for that will indicate it’s time to sell out of your precious metal investments.

Silver to outperform gold

Eric Sprott believes that silver is likely to be the investment of the decade and could easily get to $50 per ounce by the end of the 2011. Eric Sprott is the founder of the Toronto-based investment firm, Sprott Asset Management LP. His renowned hedge fund, Sprott Hedge Fund LP, is heavily weighted in precious metals and has generated an estimated 23% annualized return over the past decade.

Silver promises to become the next big buzzword among investors in 2011 and beyond, according to one of the investment industry’s most prescient and successful experts on precious metals. “I think that silver could easily get to $50 this year,” Sprott tells BNWnews.ca.

Meanwhile, Sprott says the big catalyst for surging silver prices in the coming years will be exponentially increasing investment demand, which is already beginning to overwhelm existing silver supplies. The mining industry only produces around 800 tonnes of silver per annum. This is a relatively inelastic supply, regardless of silver prices, he adds.

As household investors are becoming increasingly jittery about the debasement of the U.S. dollar and other major currencies, they are loading up in record numbers on silver bars, coins and silver-denominated exchange traded funds, Sprott says.

However, there’s also a quantum shift in investment demand taking place among big players in the precious metals market, including India (which is aiming to increase its imports by about 77 million ounces per annum), and of course China.

“China’s net imports of silver were 112 million ounces last year. In 2005, they were net exporters of 100 million ounces,” he says. ”That’s a 200 million ounce shift in an 800 million ounce annual market that seldom ever grows because production hardly ever goes up. So where’s it all going to come from? We don’t know.”

In fact, silver promises to outshine gold over the coming years, Sprott says. “Silver is the poor man’s gold. Gold has had a great run for the past 11 years. But I absolutely believe that silver will outperform gold this year. Currently, there’s more investment dollars going into silver than into gold.”

Such a game-changing scenario should recalibrate the gold to silver pricing ratio in silver’s favor, thereby eventually restoring it to its traditional level of about 16 to 1, he says. “It’s the easiest call of all time.”

“Silver as a currency always traded in a ratio of around 16 to 1 compared to gold, when it was a currency in the U.S. and the U.K. The current ratio is 48 to 1. If we go back to a 16 to 1 ratio, the implied price for silver would be $85.62 (per ounce).” he adds.

“On that basis, if gold goes to $1,600, then that would value silver at $100. And we certainly think that gold is going to $1,600. In fact, I’m willing to bet that this ratio will overshoot on the downside. It might even get to 10 to one.”

The only reason why silver is still trading at a 48 to 1 ratio to bullion’s spot price is that its price is being “manipulated” by big banks, Sprott says. That’s because they don’t want precious metals to become a popular alternative currency to Fiat money (currencies that are not backed by hard assets).

“Then there’s also a huge short position out there on silver,” he adds.

But time is on silver’s side, he says, as the sovereignty debt crisis deepens in Europe and a continued policy of qquantitative easing in the U.S. continues to undermine the value of the greenback.

To read more click here

China Will Continue to Dominate the Rare Earths Market in 2011

Editor’s Note: Prices for many precious and base metals hit record highs in 2010, as economic uncertainty rattled around the globe. What does 2011 hold for gold, silver, platinum, palladium, copper and other metals? Kitco News reporters have prepared a series of stories which examine what is in store for 2011, not only for metals but for currencies, stocks and the overall economy. These stories will be posted on Kitco.com during the holiday period and also will be featured in a special section. Stay tuned for video highlights as well.

(Kitco News) - China’s dominance of global rare earths output will continue in 2011, yet at the same time other nations are starting to make preparations to pull more metal from the ground and reduce China’s stranglehold on the market in future years.

Until the last few months, the mention of rare earth metals likely would elicit a blank stare unless the conversation involved someone in a specific sector that uses the elements.

Rare earth metals, known as REEs, burst into the mainstream media limelight during the past several months, with articles in The New York Times, The Wall Street Journal, the Financial Times, on major wire services and televised segments on CNBC. The big exposure came with a flap that developed when China, which controls 95% to 97% of the current REE global output, stopped exporting to the Japanese.

Fears continue over the supply of rare earth metals, which consist of 17 elements used in creating a variety of consumer, environmental and industrial-driven technological products. Despite some movement expected in 2011 and beyond to develop greater supply from other global sources, the Chinese still hold the shovel.

“They have the ability to dictate the market if they want to,” said Charl Malan, senior metals and mining analyst at Van Eck Global. The company offers a number of metals-related investments and this fall started the first U.S.-listed exchange-traded fund for equities of companies involved with producing, refining and recycling rare earth/strategic metals.

“With rare earths growth in the next five years about 225,000 tons, that’s about 9% (year-on-year) growth number,” Malan said. “Currently, supply is about 125,000 tons, out of which China produces about 120,000 tons.”

Major importers have come to depend on China due to its ability to manufacture REEs at a reasonable cost. The embargo China placed on exports to Japan has been devastating to the Japanese and shows the strength of the REE demand China commands. Japan was the leading importer of REEs.

“News out of China is a big part of it,” said The Mercenary Geologist Mickey Fulp. “It is a purely speculative sector. As news comes out of China about export quotas, relaxing export quotas or news of any kind on that regard supply and demand fundamentals of the rare earth elements sector is going to affect prices.”

Fulp said China controls well over 90% of the current supply. The dominance is mainly because the Chinese have developed the ability to manufacture these minerals in such a way that the rest of the world could be falling behind quickly, not because rare earth metals are really that rare.

“For me, if I look at the bigger picture for rare earths, this is what’s essential,” Malan of Van Eck said. “There’s an abundance of rare earths around the world. It’s not so much the mining, it’s the fact we don’t have the manufacturing capacity and we don’t have the skill sets or the equipment. That’s my biggest concern.”

Malan believes that China has invested its resources in such a way that it is now properly positioned for the future in terms of manufacturing capacity, but more importantly, well placed from a knowledge standpoint.

“To have the refined product really work, you obviously need very highly educated, highly skilled people specifically within an industry,” Malan said. “There’s something like 800 people with Ph.D.s specifically linked to rare earths. They don’t just focus on the equipment, the processing and the manufacturing side of it but also the manpower and the knowledge base behind it.”

A half century ago China was not among the leading producers of REEs. Between 1950 and 1980, the U.S., India, South Africa and Brazil were considered to be the front-runners in production. During the 1980s, China began underselling competitors, leading to consumers purchasing cheap supply from the Chinese.

This had a negative effect on REE mines in several countries, leading to most being shut down. Molycorp Minerals mine in California was once the largest REE producer in the world but was forced to close in 2002. The mine is set to reopen in 2011 and should begin contributing production by 2012.
“In 2012, there will be additional supply from Molycorp which will be 20,000 (metric) tons,” said Marino G. Pieterse, publisher and editor of Gold Letter International, Uranium Letter International and Rare Earths Elements International.
Molycorp is not the only rare earths company beginning REE production in the next few years.
“In 2013 you’ll have three other companies that will begin producing REEs,” Pieterse said. “Frontier Rare Earths will produce 10-20,000 (metric) tons, Greenland Minerals and Earths LTD will have 40,000 (metric) tons and then there’s Rare Elements Resources LTD, which will have 20,000 (metric) tons.”
Lynas Corporation in Australia is also slated to begin REE production, with tonnage reaching over 20,000.
Analysts said that the move towards wider production could mean there will be an over-supply of REEs by 2014-2015, which will bring stability to prices.
Despite the title of being rare, REEs are in abundance. With countries other than China developing the means to manufacture these metals coupled with the need to introduce and maintain greener technologies, REEs are expected to perform well in the coming years.
“I see bigger and better things for the entire sector,” Fulp said.
——
Scandium
Aluminum alloy: aerospace
Yttrium
Phosphors, ceramics, lasers
Lanthanum
Re-chargeable batteries
Cerium
Batteries, catalysts, glass polishing
Praseodymium
Magnets, glass colorant
Neodymium
Magnets, lasers, glass
Promethium
Nuclear batteries
Samarium
Magnets, lasers, lighting
Europium
TV color phosphors: red
Gadolinium
Superconductors, magnets
Terbium
Phosphors: green, fluorescent lights
Dysprosium
Magnets, lasers
Holmium
Lasers
Erbium
Lasers, vanadium steel
Thulium
X-ray source, ceramics
Yterrbium
Infrared lasers, high reactive glass
Lutetium
Catalyst, PET scanners

Silver may outshine Gold this year

Kunal Bose / January 18, 2011, 0:41 IST

In line with many other commodities, including precious metals, silver, often described as poor man’s gold, has shed some gains from a 30-year high at $30 an ounce in December to trade now at a little less than $29.40 an ounce. Such correction is in order as the November US unemployment rate fell to 9.8 per cent, this year’€™s GDP growth forecast for the world’€™s largest economy is three per cent and the dollar rally is finally on.

The past year saw some spectacular rallies in silver with prices rising 80 per cent on perception of it being a store of value, continuing shrinkage of above-ground refined silver and demand staying ahead of supply. The fact that for the past two decades, demand for silver was more than mining supply, the above-ground silver float had hit historical low of less than one billion ounces. In response to tightening supply situation, the world has seen drawing down of stocks held on government and private accounts. Though, not in any significant quantities, physical shortages and good prices off late are also leading to silver recycling. There will be more of recycled silver if prices rise as the year advances.

An umbilical kind of relationship in terms of prices exists between silver and gold. Both the precious metals have gone through some corrections as the New Year dawned. Gold over the last two years and silver in 2010 saw impressive price appreciation and therefore, irrespective of their fundamentals are likely to experience occasional dips. At their respective prices, silver at this point on a historical basis is grossly undervalued vis-a-vis gold. This is in spite of silver outperforming the yellow metal by a very high margin last year. Most precious metal experts have forecast that silver once again this year will gain more, principally on safe haven demand than gold. At the same time, if gold gets a boost for reasons such as concerns about Portugal’€™s sovereign debt and UN world food prices index climbing to a record level in December, then silver also stands to gain, very likely more than its illustrious partner in the precious metals basket.

Silver’€™s demand is both for its store of value and industrial applications now also embracing new generation products like flat screen panels, iPad, solar panels. No doubt, industrial demand for silver took a hit as raw film-based photography made way for digital kind. But many new applications, including use of antimicrobial and antibacterial properties of silver in the medical space are compensating for the lost ground in photography. Silver is no longer a metal used for making jewellery for the masses only. It is now seen as an ideal material for making jewellery for high fashion women too. Moreover, silver jewellery made in our country is coming for growing appreciation in the world market. However, the mainstay of silver demand is its application in a wide range of industries.

What is mostly going to help the cause of price of the metal is the existence of a limited number of pure silver mines with their reserves getting depleted over time. But for a long period, silver almost to the extent of 80 per cent is derived as a by-product of base metals like copper, zinc and nickel. Supply of silver as a derived product got squeezed since the second half of 2008 with the world lapsing into a scorching recession on the back of a systemic financial failure. Simultaneously, as there was loss of confidence in currencies with stimulus programmes running full steam in several countries led by the US, investors thought it wise to turn to gold and silver to protect their wealth.

To add to supply concern, China, the world’€™s third-largest producer of the metal after Peru and Mexico, effected major cuts in exports of this high value metal to take care of the domestic investment demand and industry requirements. According to an observer, the Chinese demand is coming from all areas, €œincluding investment, jewellery and fabrication.€ China is not short of millionaires with huge appetite for gold and silver. The country that exported 3,500 tonnes of silver in 2009 sold nearly 60 less in the world market in the first three quarters of last year. China is also taking considerable physical silver position. The country, now the world’€™s largest gold producer, caused a stir by importing 6.7 million ounces of the yellow metal in the first ten months of last year against imports of 1.6 million ounces in 2009. But China does not export gold.

With so much cash to spare, China is in an enviable position to splurge on precious metals like no other country. Experts say the bulging inventory will come to Beijing’€™s aid whenever it seeks a major world status for its currency. Where will you see silver prices at 2011 end? Bullion experts say the price will be in the range of $35 to $45 an ounce. Though silver will forever draw inspiration from gold, chances of the white metal outperforming the yellow metal once again this year remain a distinct possibility.

Tellurium Nerds Gold

Tellurium, used in both photovoltaic and thermoelectric technologies, has become a recent topic of debate in cleantech and materials science because of its rarity. With massive recent commodity price increases in rare earths and precious metals, I attempt to make some sense of the tellurium demand picture and whether we might expect a similar rush for the inconspicuous chalcogen element.

History

Tellurium (Te) is an element, number 52 on the periodic table, whose rarity on earth rivals only that of a handful of other elements, including gold. It is the namesake of the Telluride Film Festival and Telluride, Colorado, a mining town where gold telluride was thought to be found in the late 1800s.

The chart above shows the natural abundance of elements on Earth. For all practical purposes, this picture is static: it is the result only of world-formative events like the big bang and major asteroid impacts (despite any attempt at alchemy, black magic old or particle accelerator new). The fact that gold and tellurium have similar abundances on earth is merely a coincidence, but they are nonetheless found together in alloys of tellurium, or tellurides. Tellurides like calaverite were initially foolishly discarded during the first gold rush of 1849 and the subsequent discovery of gold in them spawned a second gold rush a few years later. Mining and metallurgy, an often high-tech profession at the time, was probably the only field that had tellurium in its vernacular.

Unlike tellurium, gold is the element of basilicas and twenty twos not because of its rarity, but because of its (anti) corrosive properties. Technically speaking, gold’€™s chemical reduction potential is positive, meaning it requires extra energy to become oxidized and therefore it never loses its luster while adorning our teeth and bathroom door handles. Tellurium, on the other hand, was not blessed with the pretty gene. Its current spot price on metals markets (~$200/kg, 200x cheaper than gold) reflects this.

Any engineer will tell you that looks aren’€™t everything. Tellurium, in the throws of its own fifteen minutes, has the potential to become similarly priced in the long term due to its increasing use in the highest tech applications. Tellurium has a rich history, if anything, having played a role in every stage of mining and materials science since 1849. During the space race, mining and metallurgy eventually became materials science, an interdisciplinary field of science and engineering incorporating physics and chemistry. With the discovery/invention of quantum mechanics in the 1910s and 20s, solid state physics was born and so was the modern notion of a semiconductor material. It would be thirty years before a semiconductor was applied to computation through microchips, and it would be silicon that proved ideal for this application. Initially, however, an alloy of tellurium, bismuth telluride, was the star of the solid state physics community for its fantastic Peltier, or thermoelectric, properties. A Soviet physicist who published much of the seminal work on solid state physics named Abram Ioffe believed that the commercial application of semiconductors would come in refrigeration through something known as the Peltier effect. The Peltier effect is when a semiconductor material pumps heat when electricity is made to flow through it. Any material that does this efficiently is called a thermoelectric.

Clearly, bismuth telluride and thermoelectric technology lost to the common compressor refrigerator, but one can nonetheless find these semiconductor coolers in a few places. If you have a quiet wine fridge in your living room, a climate controlled seat that cools you down in your Ford F150, or night vision goggles, then you’€™ll find a Peltier cooler inside.

Today tellurium is seeing its first real growth in use in a different application: solar cells. First Solar (FSLR), darling of all solar startups, uses a thin-film of cadmium telluride (CdTe, or €œcad-tell€) as one of the functional layers in its cells that helps collect sunlight. The company is increasing production quickly. Raw cadmium and tellurium demand is increasing and alas, tellurium could finally have its day. The question is whether Te, currently priced at ~$200/kg on the spot market and with the same supply constraints as gold, will ever have the type of demand that has gold currently trading two hundred times higher at ~$40,000/kg.

Production

Tellurium supply has historically never been much of a concern to anyone. Today tellurium is produced from the refining of copper in the same way gold is produced, as the byproduct of an electrolytic refining process that manifests itself in nasty resultant anode sludges. Tellurium is produced primarily by a Canadian company named 5N Plus which extracts it from these sludges. According to the US Geological Survey, 200 metric tonnes of tellurium were mined in 2009 worldwide and the world can sustain 1,600 metric tonnes of production per year maximum (but these estimations are hard to make accurately“ see Jack Lifton’s piece on tellurium supply here). In comparison, there were about 2,500 tonnes of gold mined in 2009, and 165,000 tonnes of gold have been mined, ever. Gold production peaked in 1999 at 2,600 tonnes. Let’s assume that tellurium could be produced at similar levels to gold going forward.

Gold demand currently comes from three areas: jewelry (~2,750 tonnes/year), reserve assets (~350 tonnes/year), and the electronics industry (~350 tonnes/year). Adding this up we get 3,450 tonnes/year demand, well over the amount produced. The difference is made up from both recycling of jewelry and the selling of reserve assets.

Gold, however, as an element that is also tied to the world economy through federal reserves and currencies, is not truly a commodity because its price is not generally close to its marginal cost of production. For that reason, let’€™s consider an element that might be slightly more similar to gold (Au) in that sense: platinum (Pt) or palladium (Pd). Both of these elements currently trade at $60,000/kg and $25,000/kg, respectively. The order of magnitude of these spot prices are the same as that of gold’€™s; while these elements tend to follow gold and are therefore somewhat subject to price swings that may not be concomitant with economic fundamentals, tellurium’€™s price can still be expected to rise significantly, albeit perhaps not quite by 200x, if demand for it was also >2,000 tonnes/year.

So how could tellurium demand increase by a factor of ten? Should First Solar be worried? Should producers of bismuth telluride thermoelectric devices be worried?

Tellurium Demand

First, let’€™s examine how much tellurium First Solar uses, and what this costs as a fraction of their total cost to produce a CdTe photovoltaic cell.

The density of CdTe is 5.8 g/cc. This gives 3.08 g/cc of Te in CdTe.

The efficiency of FSLR’€™s modules is ~11%. At a solar irradiance of ~1100 W/m^2, their cells will have a maximum power density of ~121 W/m^2.

At a CdTe film thickness of 3 µm, and at a 2.7 GW target production in 2012, they will be using roughly 71 m^3 of tellurium per year in the cells alone.

This would mean using 218 metric tonnes of tellurium per year in their cells. As described earlier, global production is currently estimated at 200 metric tonnes/year and could go as high as 2,500 if we do a straight comparison to gold.

This means FSLR would have to be producing somewhere near 27 GW per year of solar panels to ever be truly supply constrained by tellurium. Considering 20 GW of new power plants were built in the US in 2009, and that 550 GW of new capacity is expected to be installed in China between 2010 and 2020, 27 GW of PV production per year is somewhat plausible many years out and by no means likely.

To understand whether First Solar is shielded from volatility in the price of tellurium, let’€™s look at what the cost of tellurium is within their cells. From our analysis above it takes 80 metric tonnes of tellurium to manufacture a gigawatt of cell, assuming FSLR’€™s CdTe deposition is 100% efficient in that no tellurium is wasted or lost (not the case, but we’€™ll stick with this assumption). At $200/kg, 80 metric tonnes costs $16 million, or 1.6¢/Watt. At an overall production cost of $1.00/Watt, the price of tellurium would have to increase by at least 10x before FSLR would feel significant pain. It is safe to say that they are not going to affect the tellurium market nor be sensitive to much volatility in it with business as usual.

Now let’€™s look at thermoelectrics and their application for something converse to refrigeration: power generation. Bismuth telluride and a similar alloy, lead telluride, have been studied for a long time for their ability to generate electricity from an applied temperature gradient such as a waste heat source. The automotive industry, in particular, has big plans to incorporate thermoelectric waste heat recovery technology into engine tailpipes to turn wasted heat in exhaust back into electricity. These systems require roughly 1 kg of bismuth or lead telluride per car typically, roughly half of which is tellurium.

Will adoption of automotive thermoelectric generators cause a tellurium shortage? About 60 million motor vehicles were produced in 2009, only a tiny fraction of them not with an internal combustion engine. If each had a thermoelectric generator on them with 0.5 kg of tellurium within, over 30,000 metric tonnes of tellurium would be required per year€“ over 10x more production than what is thought to be possible, and over 100x more than what is currently produced annually. Modestly, if only 7 million cars per year had thermoelectric generators (all of GM’€™s and BMW’€™s autos, for instance) we would expect tellurium demand to be 3,500 metric tonnes/year. Even if we assume this tellurium usage could come down by a factor of ten through going to more power dense configurations and by using thin film materials, the long term picture is still bleak. Surely a problem for anyone expecting to scale this technology€“ and for FSLR for that matter! (Note FSLR’€™s relationship with the largest tellurium supplier 5N Plus.)

More importantly, however, is that it currently costs $100 for just the tellurium in an automotive thermoelectric waste heat recovery generator, and these systems typically produce no more than 500 W of power. In the low margin automotive industry, $0.20/Watt will never cut it; the question of whether the automotive industry will ever impose a tellurium shortage practically moot.

Gold, platinum, palladium, and rare earth elements have all seen their values skyrocket in recent months. While there is nothing immediately suggesting tellurium will follow suit, it will surely be an interesting metal to follow over the next decade – and an analysis like this hopefully helps guide technologists away from the use of telluride materials in all but the niche-est of applications.

Matthew L. Scullin is CEO of Alphabet Energy, Inc., a producer of thermoelectric materials that use no tellurium. This article was previously published on his Scullin blog.