Gold, Silver & Stock Indices on the Verge of Rolling Over?
This week has been playing out as we expected. Last week we saw the market rally on light volume into a resistance zone on the daily chart. Light volume rallies are always a warning sign, much like the “Calm before a Storm”.
The way I look at bearish price action:
The First Heavy Selling Volume Day – I see this as large institution selling massive amounts of investments (stocks & commodities) because prices have risen enough for them to book profits OR they know something we don’t and they are getting out before the majority of traders find out.
Light Volume Rally/Drift Higher – After a heavy volume sell off we tend to see prices drift higher on light volume. This is when the institutions stop dumping investments and allow the retail investors (Un-educated Traders) to buy the market back up.
Bear Market Trend – In a down trend we see these two phases enter and exit the market. These patterns happen on every time frame from tick charts to yearly charts. Trends vary in length from 1-2 cycles and sometimes 10-20 cycles and more…
Current Market Conditions
So far this week we have seen the market sell down on increasing volume which is bearish and is pointing to lower prices. On Wednesday we saw prices move up on light volume with volatility rising into the close with a short wave of selling. This was indicating to me that sellers were starting to enter the market again.
The daily chart below clearly shows the heavy selling and drift higher on declining volume. The market is now trading deep into a resistance zone and looking ready to drop.
SP500 Intraday 2 Hour Candle Charts
You can see the same selling patterns repeat themselves. Since the Feb 5th bottom we have been forming a much larger bear flag which makes me think a BIG drop is only days away.
SP500 Trend Trading Conclusion:
Both stocks and precious metals are trading with the same chart patterns and volume levels. So if you are wondering about gold, silver and oil, I am seeing a similar scenario playing out for them also.
The reason I keep bringing these bearish patterns up in my reports is because once you master trading in a down market then you can make money during some of the fasted moving times in the market. I have always preferred shorting the market because prices drop much quicker then they rise. So profits are made quickly.
Also, if the broad market does eventually roll over later this year, and I am not saying it is, but “IF” it does, then you will feel somewhat comfortable with the positions we will be taking.
If you would like to receive these Free Bi-Weekly Trading Reports please visit my website for TheGoldAndOilGuy.com at: www.TheTechnicalTraders.com
Thursday, 18 February a.d. 2010
Money Changer Update…
Check this one out: www.cbsnews.com/blogs/2010/02/17/politics/politicalhotsheet/entry6217403.shtml
The report itself is so incredibly uninformed that it can only pass along federal government lies. However, the bill Rep. Pitts has entered is as perfect as human labour could make it, answering every possible legal objection. If only one state will pass an act making silver and gold coin a tender (per US Constitution Article I, Sec. 10, go read it), then it will be the end of the Federal Reserve plague. Next Tuesday a rally will be held in Columbia for this bill. If you’re within 500 miles, you ought to show up.
The 13 Year Gold Bull Has Much More Room To Run
A few weeks ago on February 4th, I penned an article for Kitco forecasting the gold correction trends and the likely outcomes. My opinion was that gold was pulling back to work off excessive optimism from the early December 09 highs. This type of pullback was orderly and there was a gap at 102.50 on the GLD ETF that I believed would fill. The following day, that gap filled and gold hit a bottom at 1042 and has rallied much higher since. I opined that the rally in the US dollar was merely cosmetic against other world currencies, and that Gold was still the preferred asset to accumulate and would begin to move regardless of the dollar moves.
The recent technical move up in Gold only confirms that we are in the final five year window in my opinion where the investing public becomes “aware” that gold is real money. In my August article last year, I discussed my thirteen year bull theory for the Gold market. The first five years from 2001-2006 was the “stealth bull” in Gold and Gold stocks. The average Gold Fund ran up 30% a year for five years compounded. By the time investors figure this out, they all pile in right near a five year peak. The market then chops for three years sideways in an up and down fashion, getting nowhere. Investors get bored, and then we move into the final five year stage where awareness takes hold and the bull cycle really takes off.
It is maybe the second inning of this five year stage, so the recent pullback in Gold to 1040 is normal, and the next advance is likely to be larger than the August to December advance. As this awareness grows, the bears get upset and try to explain how gold bulls are foolish. The investing public sometimes does not get enough credit for being correct, and in this case, those investing in Gold have been proven correct over and over again for the past nine years. They will be proven correct for the next few years as well as Gold continues to climb and befuddle the gold bears of the world. You will know that Gold’s bull market has topped when all of the bears are completely silent and every Gold bull is running around screaming buy at the top of their lungs. Every time I have seen Gold pull back in the past nine years I have chuckled at how fast the erstwhile Gold bulls start getting nervous and the Gold bears pile on hard. As long as I continue to see these behavioral patterns, and the technical and Elliott Wave patterns stay bullish, I will remain a Gold bull while trading around the important pivot highs and lows. As long as the pundits keep trying to talk Gold down, it will keep on rallying and fooling them until they are all believers. This is how the 13 year Tech Stock Bull unfolded from 1986-1999, and it’s how this Gold Bull is unfolding before your eyes.
It is interesting that Gold bottomed a few times and bounced off the 1070 areas, and then made what appears to be a final bottom around 1042 on February 5th and has rallied hard since then. In my opinion, Gold rallying past the 1040 and 1070 fibonacci pullback windows and now over 1,100 is indicative of a new wave of bullish advance taking us to $1325-$1350 at the next pivot top in Gold. It is as if Gold just cleared two important psychological hurdles at 1040 and 1070, and yet we see articles talking Gold down.
What many market pundits do not understand about Gold and it’s ascent since 2001 is that Gold is real money. Since most world currencies are nothing more than “burning matches” in a debt ridden world, Gold rises to the top of the asset class charts. If you look at the Dow Jones average relative to Gold prices in the past ten years, you can see what real money is doing. The Dow is flat over ten years now while gold is up nearly 400% in the same period of time. Measure the Dow or the SP 500 index against Gold as your money indicator, and we are still in a major 10 year plus bear market. Folks, the Kondratiev winter is still here and the weather is about to get a lot colder. In the winter cycle, all debt gets washed out of the system and this creates all kinds of carnage. Gold becomes favored “money” in this type of cycle. Once this cycle completes, the “spring” comes and we start anew. In the interim, look for Gold to continue ever higher and look for continuing trash talk by the pundits who don’t get it.
I will be launching a new Market Trend Forecast service in early March of this year which will forecast the short, intermediate, and long term views of the markets, indices, ETF’s, and precious metals. This will be in addition to my Active Trading Partners service. You can learn more at www.activetradingpartners.com , read our subscriber testimonials we have compiled in 6 months since our July 2009 launch, and also review our past forecasts at www.activetradingpartner.com/articles.
Stock Market Trends for Indexes and Precious Metals
This report is a mix of both current market action and educational material on how stocks and commodities trend (move).
Since mid October I have been on the look out for the market to top or make a multi wave correction. The market did top in January and has formed an ABC retrace (3 wave correction).
The question everyone wants to know is, is this market topping out or just a bull market correction?
Well the brutal truth is no one really knows what is going to happen next. So the only way to make consistent profits in the market is to clearly understand the main technical analysis skills (Chart Patterns, Trend Lines, Support & Resistance, and Volume). You must also understand how to manage your money/trades. I scale in and out of positions during key support and resistance levels to keep downside risk low.
One of the toughest parts of trading is “Trading Discipline”. If you cannot take losses easily then trading is not for you. You must be able to exit a trade when your stop level has been reached or you think the trade is starting to go wrong. Holding onto losers will blow up your account very quickly.
Other than those key skills, all you can do is watch the charts and re-evaluate each time a new bar (candle stick) pops up on the chart. Remember to trade with the larger trend of the chart 2-4 times longer than your actual trading chart.
Example: If you trade the 30 minute chart for entering and exiting trades, then you should be watching the 2 hour chart (120 minute chart) to understand the full picture.
Market Trends and Price Movement
As we all know, when the market is trending up we are seeing a series of higher highs and lows and the reverse for a down trend. We also know there are several different ways a market can top before reversing. The charts below show how the market generally moves on all time frames.
The market will top and bottom in 1 of 4 ways which are shown below:
Sideways Trend – A consolidation or triple top
Head & Shoulders – This is a great trading pattern
Double Top – Lower volume rally and sharp selling once high is reached
Blow Off Top/Bottom – This is when volume spikes and the price moves quickly (great for panic trading)
Silver and NYSE Daily Trading Charts
Take a look at the charts below and you will see exactly how the market moves and where the market is currently trading.
In short, stocks and commodities have been in rally mode for all of 2009. So far this year prices have started to slide forming some bearish looking charts. But it’s not the end of the world by any means. Depending what happens in the next 1-3 weeks we should know if the market is back in rally mode or still in sell off mode.
I am somewhat neutral at the moment and maybe a little bearish because from a technical stand point there are just as many arguments/technical analysis points for prices to move up as there are to move down. When I get in this situation I just site back and wait for a clearer picture before putting my money to work. When In Doubt, Stay Out!
I will update subscribers tomorrow on our current long positions as we need to tighten our stops to lock in more profits. And thank you everyone for your kind words and support for my new daughter J
Get my reports send to your email: www.GoldAndOilGuy.com
Posted in reverse order– sorry, read the lower one first and then this one to put all thinking in proper perspective…
David Morgan Interviewed by Ellis Martin on The Opportunity Show
October 29, 2009, Part 2
Ellis Martin: Now let’s rejoin our conversation with the silver guru, David Morgan. So, essentially the Chinese are shunning the dollar in favor of their own yuan, as a methodology to boost the value of their own currency, to deal with the deflating dollar. And to continue to work toward controlling the market, not only are they doing that, but they also are buying all the resources around the world. They’re the major driving factor here, are they not, in addition to our own government just printing money?
David Morgan: I’d say China is definitely one of the main driving factors. Japan also has a great deal of debt. The dollar is in the carry trade mode right now, which means that the bank can make free money by borrowing dollars basically for zero and then renting them out at a specific interest rate. And if you can do that in a leverage environment, you can make quite a bit of money. So it’s a gift to the banking system.
But I want to go back to something I did a few years ago, Ellis, and that is a video on currency crisis. In fact, it’s on YouTube at http://www.youtube.com/watch?v=NN97tmw6qvY. This is something that I wrote about in The Morgan Report many years ago. It is from the movie Rollover, a movie that depicted basically the end of the U.S. dollar and a huge increase in the price of gold—thus a credit crisis, a currency crisis. And a credit crisis/currency crisis is in essence what we’re experiencing right now. Now the currency crisis part is arguable. Is it really happening? Is it going to take place as in the movie? I don’t think so, but Rollover makes some very, very important points, and at the conclusion of the movie, the Middle East (you might substitute the word China) has had it with the dollar and was going into the gold market very stealthily so as not to abruptly disturb the market. It wouldn’t move the price of gold up very far or very fast, but every month they’d go in and, instead of rolling over their bond position, they’d roll over something like 98% of it. And the 2% that they weren’t rolling over went back into cash and that cash went into the gold market and bought gold.
That’s how big positions are developed. You do it very slowly, over a lengthy span of time. You buy enough but not so much that it will actually move the market very much, and you build a position carefully and slowly. During this hypothetical situation in the Rollover film, the word got out that the Arabs were no longer favorable to the dollar and were buying gold. Once that hit the mainstream financial press it ensued a panic. Once the panic hits, you can’t turn it off. So then everybody was selling the dollar and everybody was moving into anything that they could that wasn’t a dollar, or primarily the gold market. The end of the movie shows a banker coming out of a Wall Street bank and throwing cash at the screaming crowd. Then the scene cuts to a news reporter who’s saying that what was witnessed outside the New York bank was happening all over the world, no currency was safe. The reporter names off all the currencies we’ve had, saying we’ve had a currency collapse.
Now I’m not predicting that, per se. But in reality, the U.S. dollar, by the Federal Reserve’s own admission, is worth about four pennies since the date the Fed was founded, so certainly it hasn’t fulfilled its mandate, which is to keep a strong currency.
How it’s all going to wind up I really don’t know, but I do think strongly that the U.S. dollar’s days as reserve currency of the world are limited. I do know through monetary history that probably the best place you can be is in the precious metals. That’s what history has shown us again and again and again. So that’s what I’m looking for. And I want to be careful here, because it’s the doom-and-gloom label I really don’t like. I think I’m more of a realist than a doom-and-gloomer.
There are many reasons for optimism, but when a system starts to unwind, you know it’s got to complete the cycle and this is something that’s happened before. It’s not something that’s unique in monetary history, but it’s unique to America, because we’ve never experienced it before. But if you review monetary history you’ll see there have been cycles and panics like this before.
People are survivors. They’re going to figure out how to best get through this, but the basis is that the overall living standard of the population of the United States, or North America actually, is probably going to be going down, generally speaking. It doesn’t mean the end. It doesn’t mean that it’s all over. It does mean that things are going to change.
Ellis: David, this is just some of the information that’s available on your Web site. We’ve just touched on the tip of the iceberg, so to speak, of what’s available on silver-investor.com. All about the currency crisis, all about the fact that the supply of gold and silver does not meet the demand now nor will it in the conceivable future, and of course your DVD entitled, “Silver Summit 2009.” Let’s talk about that.
David: Well certainly I’d be glad to talk a bit about the DVD. This was my keynote speech at the Silver Summit, which was in September 2009. It’s a speech that I developed based upon the real world and where we are financially in the United States, on a global basis. I compared that to the Weimar Republic. I didn’t really know until I undertook this study how comparable they were, and what I found was rather startling.
If you look at the money supply, the real wage rate, unemployment, and the stock market, and lined up all these things, if you could lay each graph on top of the other it would fit almost perfectly. So all these key components that I looked at lined up, with one slight but key difference at the end, and that is the M1 turnover rate. In other words, this is contrary to what I said a moment ago about how fast people want out of the dollar. The M1 turnover rate is below 1, which means that people do not want out of the dollar right now. The facts are what they are. Right now people are saving dollars. They’re not spending dollars. They’re scared to borrow. Or maybe they want to borrow but they’re not creditworthy, so they can’t borrow. . . . So there are a lot of factors right now that portend more deflationary pressures currently than inflationary pressure. And I go through this very carefully at the Silver Summit.
In addition to that keynote “big-picture” speech, I presented a summary of the key points in the silver market, and then a lunchtime speech about the psychology of the market, where we are on a psychological basis, and where I expect it to go in the future. Also on the DVD is the Webinar that we did with Hugo Salinas Price, advocating using silver currency in Mexico alongside the peso. Fascinating man, fascinating Webinar. And to round out the contents we included one more presentation, which has to do with the Weimar Republic and the destruction of the currency during the 1923 timeframe.
So it’s quite a summary of the Silver Summit that’s available on our Web site. If you’re a student of these markets, if you really want to be in the know, you might consider a purchase.
Ellis: Well I want to encourage everyone listening to this program right now to head over to your Web site, silver-investor.com, that’s silver-investor.com. If you don’t do it now, at least write down the name of that Web site because there’s enough information to assist a sophisticated investor and also to bring you up to speed if you’re a novice potential investor with regard to metals, resource stocks, whatever you like. Silver-investor.com. We’ve been speaking with the silver guru, David Morgan of The Morgan Report. Thank you, David, for joining us today on The Opportunity Show.
David: Always a pleasure, thank you.
David Morgan Interviewed by Ellis Martin on The Opportunity Show
October 29, 2009, Part 1
Ellis Martin: We’re joined now by the silver guru, David Morgan of The Morgan Report. His website is silver-investor.com. Mr. Morgan is one of the preeminent world experts, not just in silver, gold, and precious metals, but also related issues in the mining sector. David is also an author, having penned the book, Get the Skinny on Silver Investing. He’s a teacher, lecturer, world traveler. David, welcome back to The Opportunity Show.
David Morgan: It’s always great to be with you, Ellis.
Ellis: You know I follow The Morgan Report, and recently you talked about what history has taught us about the currency crisis, and I want to hear more about it right from your mouth.
David: Well, Ellis, thanks for asking. This is a subject that has been one of my main big-picture themes. Something that I had been thinking about previously is what silver will do in a deflationary environment, and the question that I was getting most frequently is, “I’m really worried . . . are you sure you’re right,” and question after question along those lines.
So I went back and I studied even harder how silver does do in a deflation. The best body of work on that was from Professor Jastram, who wrote, Silver: The Restless Metal, because he had the same question after he wrote The Golden Constant. The Golden Constant lays out a very strong case that gold does very well in a deflationary environment. In fact, Professor Jastram’s conclusion is that gold does best during a deflation, and yet, almost everyone who’s a gold bug or in the sector will tell you that gold is an inflation hedge. I’m not saying it’s not. What I’m saying is what Professor Jastram’s conclusion was in that book, which was printed in the early 1980s if I recall correctly (and he’s now deceased).
So, markets change and they do move to different beats from time to time, but overall I do believe that gold will do well, either inflation-wise or deflation-wise. Silver is a mixed bag, but I believe this time, regardless, it will do well.
Coming back on point, what I said in January and what I continue to say, especially in The Morgan Report, is that I’m looking beyond the inflation/deflation argument. Certainly they’re important but I think the bigger picture is a currency crisis. A currency crisis is when the currency is basically shunned. People have this idea that they’d rather own anything other than a U.S. dollar. They’d rather own gold, land, a hammer, a third automobile. . . . In other words, the currency becomes, in the mind or the psychology of the dollar holders, something they don’t want. They want something different than dollars. Now what’s so interesting this time around, Ellis, is that I believe that’s going to take place on an international, big scale, and not on a micro scale. Let me develop that thought a little more.
What we’re seeing and we can verify is that China has made sounds in the public financial markets again and again and again, indicating that they are not happy with the United States dollar and they’re looking for a substitute. So on a macro scale, one of our biggest international trading partners that’s holding approximately 1.4 trillion U.S. dollars in long-term and medium-term bonds and also the short-term notes is very unhappy with the performance of the United States dollar and they are looking for an exit. And the IMF has come up with special drawing rights and even Secretary of the Treasury, Timothy Geithner, has said we haven’t ruled that out. From all fronts in the mainstream, there are very specific instances where the idea is in the forefront that the United States dollar will no longer be the reserve currency of the world. It’s at the top of the screen, so to speak. So, moving back, that means there is a possibility, and I believe it’s a strong one, that at some point our international trading partners like China, Japan, the Middle East, and even Europe to some extent are going to say, “I want something else than the dollar,” and exchange it for some other product, be it gold, special drawing rights, euros, whatever. However, on the micro level, meaning on Main Street—not on Wall Street or in the mainstream big financial markets—there are many people who wish they had more dollars than they do. They’re unemployed. Their unemployment insurance benefits are running out. They’re not gold bugs. They don’t really probably understand anything about monetary history or what’s going on. All they know is that the job they once had is no longer available. It’s hard to find work. They are striving for dollars. I want to be very clear here that you can basically have these separate markets. You can have the Wall Street/Main Street dichotomy. You can have the financial markets, the big owners of dollars that want out of them; then on kind of the home-front scale, people that really are striving to gather dollars from whatever place that they can.
Ellis: We’ll continue our conversation with the silver guru, David Morgan, in the next segment.
David Morgan Interviewed by Ellis Martin on The Opportunity Show
October 15, 2009, Part 2
Ellis Martin: Now compared to how you trade in the speculative portion of your portfolio, you are probably not trading the top-tier companies as frequently, because they’re very cyclical in nature with regard to their stock price. They go up, they go down. Are you watching those carefully, buying and selling with the portion of your portfolio that’s dedicated to the top tier?
David Morgan: In the members section of my Web site there is a PDF file I wrote called, “How to Use The Morgan Report,” and on the top-tier cash-rich companies (some are not so cash rich now), those that make it into our model are basically buy and hold for the long term. These are solid investments that you should be able to buy and hold for the long term, as long as we still are in a bull market—and I believe that we are. Certainly they move around a great deal, as I previously indicated, and timing can play an important part, but if we are in a major bull market these stocks will do well. So these are ones you can buy and hold, and sleep at night.
On the speculative side, for a great deal of time we had a trailing stop loss on almost all of these stocks. When the credit crisis hit last year, it basically wiped out the speculative portfolio. At that time, no one saw it coming, at least to my knowledge. I forget how many stocks remained at that time—I always have ten or less, and I think there were around eight—I said if I had to pick the top eight speculations it would still be those eight. So we have held in there with these. Some have come back up, and we have recommended some new ones. We had one that went from $0.10 up to $0.50, and it’s made a round trip back to $0.10, unfortunately, but that’s the stock market for you—especially in these small companies.
A lot of my readers had the opportunity to cash out at a double, triple, quadruple, or even higher, and many of them did, especially the longer-term readers who know it’s my nature that, whenever we get a double on a stock that’s recommended on the speculative side, we normally sell at least half to recoup our initial investment.
Right now we’re holding what I think are some of the best juniors’ highest risk-to-reward profiles out there. In most cases these are producers and they do have a lot of upside from the aspect of the price of silver, which I believe will go higher over time. On top of that, most of them have exploration potential and they also have the ability to increase their production rate. So, because of all those reasons I think that these are rather “safe” speculations.
Mr. Martin: Since I’m a subscriber to your Web site, silver-investor.com, I know who these companies are.
Mr. Morgan: Yes, you do, because you’re a member. Otherwise, I try not to give them out, and there are a couple reasons for that. If I mention one, then others on the list will ask why I didn’t mention their company or why I seem to favor one over the other. The other thing is, I think that it’s a disservice to me to do that. Since I do a different model than most of the writers in this field, I think I should get paid for my research . . . and not just me—I do have people who work with me to do research. We usually visit the mining projects on foot. In nearly every case we’re actually physically there. We really try to carry out our due diligence and pass on our findings and opinions to our readers so they can make the final decision.
Mr. Martin: I noticed research reports, and you’ve got interviews with various presidents and spokespersons for some of these companies. There is quite a bit of information on the Web site. It’s a fantastic resource, silver-investor.com, and the subscription rate is very reasonable, isn’t it?
Mr. Morgan: Well absolutely. I don’t know anybody in the industry who goes to the length that we do to provide what we provide, for the cost that we ask. For instance, at the Silver Summit I interviewed every company that I could find that was on our speculative list. Only two were not interviewed; they had declined, only because there was nothing left to update since I had done that in Vancouver a few months previously. So, if you just get on the members portion of the Web site you can basically have a TV channel and watch me interviewing some of what I think are the best speculative investments. Although most of them are silver companies, by the way, there are other companies in there. I don’t know anyone who’s doing that on video for their members. Then of course we provide the written reports, the research reports, as well, and we’ve prepared some white papers. Also on our site, our subscribers can e-mail their questions to us and we usually address those. . . .
So you know, it’s a lot of work, but it’s my passion. And it’s a value I don’t think you can find anywhere else at the price that we ask.
Mr. Martin: I was watching one of the interviews with one of the companies that you like, and something you said really stuck with me. You didn’t want to hear about the company, you wanted to see what they did. “Show me, don’t tell me.” Those are the kinds of companies you tend to get excited about.
Mr. Morgan: Well that’s true, and thanks for bringing that up. I try to be as real as possible and certainly we’ve made some errors in the sector, as will any of us who take this kind of risk. It’s impossible not to. That’s why I like having just eight to ten companies in the speculations. If you do as I teach and you spread it out and you don’t focus on just one company that you might think has the best story because you don’t know they’re all speculations, you’re going to do quite well and really have little to complain about.
The problem is that every one of these stocks has a great story. But, show me don’t tell me. For instance, look at the uranium sector a couple of years ago: there were so many uranium companies out there but they were stock picks or promotions that you could buy stock in that had as much chance of finding uranium as discovering that the moon is made of green cheese. It was ridiculous. And that isn’t really my sector but I saw what was happening, so I had one of our associates write a very good paper on the uranium sector and I did a couple of radio shows trying to promote that. I was promoting just as a public service, because I knew a lot of people were heavily invested in the uranium sector and no one was telling the straight skinny on it, but we were. I wanted people in that sector to know that they could get an alternative view on it in our report. I thought it was worth their while to know that.
I received a lot of thank yous from a lot of people in that sector. Many people got very smart about how the sector was doing at that time and prevented themselves some really large losses. So, while we’re not perfect, we certainly do our best to be as objective as possible to help our readers. That’s who I work for. I work for the readers. I don’t work for any given mining company or other entity. I work for the people who read our reports.
Mr. Martin: Now you’ve written a book called, Get the Skinny on Silver Investing; can you tell us a little bit about that.
Mr. Morgan: Well I’m always looking for ways to grow the business and expand effectiveness. The idea that I should write a book had been floated by me many times, so I finally decided to do it. I found a publisher who was just getting started, doing kind of a take off of The Idiots Guide series. Their theme was “Get the Skinny” on a particular subject, and my subject was, obviously, silver investing. They had a very simple format and it was pretty easy to put the book together in a few months’ time, with just two regrets. It was to have been offered for sale at $19.95 but unfortunately was priced at $9.95—a little bit too cheap, I thought. The other problem that I had was with the editing that was to have been provided by the publisher but in fact did not occur. So in the final product there are punctuation, spelling, and other formatting errors that I would and could have fixed, had I known. I mean, my name’s on it so I’d like it to be as perfect as possible. Unfortunately, it’s not. But considering the price, and if you can overlook the style errors and that type of thing, it’s a very good primer on the silver market. For ten bucks you can read and learn a great deal on silver investing and decide whether it’s for you. I always stress education in any endeavor in life, and I think Get the Skinny on Silver Investing is a good way to spend an hour or so to find out about the silver market.
Mr. Martin: Where is the best place to get your book, David?
Mr. Morgan: The easiest place is probably the Internet. At silver-investor.com we have an electronic version you can download and read, or you can check Amazon, eBay, or other such sites.
Mr. Martin: David, once again thank you for joining me today on The Opportunity Show. It’s been a pleasure having you on the air.
Mr. Morgan: My pleasure. Thank you, Ellis.
The Big Australian & the Brazil Consortium
By Richard (Rick) Mills
As a general rule, the most successful man in life is the man who has the best information
In the spring of 1869 a German Chemist named Charles Rasp immigrated to Australia for his health. Unable to find work in his chosen trade Charles learned to ride a horse and began wrangling sheep. One day, while out riding his horse at Broken Hill, he discovered mineralised rock. He took out a mining lease, punched holes in the ground and eventually found rich veins of silver. The Broken Hill Proprietary Company – BHP – was incorporated in 1885 while mining silver and lead at Broken Hill in western New South Wales.
Billiton was a mining company that got its start in September 1860 when the articles of association were approved by a meeting of shareholders in the Groot Keizerhof Hotel in The Hague, Netherlands. Shortly afterwards the company acquired the mineral rights to the tin-rich islands of Banka and Billiton off the eastern coast of Sumatra.
BHP Billiton – also known by the nickname “the Big Australian” – is the world’s largest mining company. It was created in 2001 by the merger of Australia’s Broken Hill Proprietary Company and Anglo-Dutch Billiton. Today BHP produces – oil, natural gas, bauxite, aluminum, copper, silver, lead, zinc, uranium, diamonds, coal, titanium, well, you get the idea, they’re miners, they pull “stuff” out of the ground and sell it.
Last week BHP paid $341 million, C$8.35/share, to acquire Saskatoon’s Athabasca Potash (TSX: API). This acquisition will give BHP Athabasca’s Burr Project, which is located next to BHP’s Jansen Project to which the company just committed $240 million. BHP likes big stories, the unfolding potash story is one of the biggest and in this author’s opinion it can only get bigger.
“We cannot rule out further acquisitions of potash juniors: With over half a billion dollars committed to potash within the past week, it’s clear that BHP Billiton are favourable towards the commodity.” Macquarie analyst Sam Catalano
Vale S.A. – formerly known as Companhia Vale do Rio Doce (CVRD) – of Brazil is the second largest mining company in the world. It was founded by the Brazilian Federal Government in June 1942. The company was privatized in 1997 when the Brazil Consortium bought just over 40% of the Federal Government’s stock.
Even though Vale has operations in the energy and logistics sectors both sectors combined contribute less than ten percent to Vales total revenues. Vale is a miner and controls the Brazilian iron ore industry owning all Brazilian iron ore exporters.
In recent years, in an attempt to diversify its operations, Vale has made a string of purchases getting into copper, kaolin, nickel and coal. In October 2006 Vale bought Canada’s second largest mining company, Inco, for $18.9 billion. Vale also produces manganese, ferroalloys, bauxite, potash (Sergipe mine in Brazil), alumina and aluminum.
Lately Vale S.A. has moved into the fertilizer business in a big way:
In January of 2009 Vale bought Rio Tinto’s potash assets in Argentina and Saskatchewan Canada for $850 million US.
In January 2010 Vale announced it will acquire all the shares of Bunge Participacoes e Investimentos S.A. (BPI). Vale will pay $1.65 billion US for BPI – for its wholly owned phosphate mining operations in Brazil – and another $ 2.15 billion US for its 42.3 percent in Fertilizantes Fosfatados S.A. (Fosfertil) – a leading Brazilian fertilizer company.
The U.N. calls the global food crisis a “silent tsunami” and faith in the ability of local and global commodity markets to fill 6.6 billion bellies, never mind the projected 2.7 billion more by 2050 (U.N. projections say the world’s population will peak at 9.3 billion in 2050) has been shaken.
Most of this population growth will be seen in developing nations.
As incomes in these developing nations grow people will demand a more protein rich diet – which means more people eating more meat. This has an amplifying effect on the demand for fertilizer, because it takes about 10 kilograms of grain to produce one pound of meat. As meat consumption soars, more grain is needed to feed more livestock. 75 million more people per year are going to have to be fed and all this while our arable land base is shrinking and fresh water supplies in many areas of the world are under tremendous strain.
In order for a plant to grow and thrive, it needs a number of different chemical elements. Three of these are the macronutrients nitrogen, phosphorus and potassium (a.k.a. potash, the scarcest of the three).
Potassium makes up 1 percent to 2 percent of any plant by weight and is essential to metabolism. The availability of nitrogen, phosphorus and potassium in the soil, in a readily available form, is the biggest limiter to plant growth.
The United Nations Food and Agriculture Organization (FAO) reported they think that the total world demand for agricultural products will be 60 percent higher in 2030 than it is today.
“This is a solid business and the big mining companies agree. If they can find a way to participate in it, they will.” Mark Connelly, New York brokerage Sterne Agee.
As I’ve just shown you, the world’s two biggest miners are moving into fertilizer in a big way. The reality is the potash story is just starting. Unlike other resource plays there is no cycle, demand is always going to be there and its rising year over year making potash an excellent play in what will be a long term agricultural commodities bull market.
Besides the developing, across the board, interest in potash – a rising tide lifts all ships – there are some pretty interesting stories developing around a few individual companies.
I believe a question we should be asking ourselves is: are there any potash juniors out there – that for whatever reason – seem to stand out from the crowd?
Here are three that might fit the bill…
Amazon Mining (AMZ – TSX.v)
AMZ is a mineral exploration and development company founded by Brazilians in 2005. The company is focused on the development of its Cerrado Verde project. Cerrado Verde is the source of a potash rich rock from which Amazon plans to produce a slow-release, non-chloride, multi-nutrient, fertilizer product.
The combination of acid soils and torrential rains in Brazil reduces the efficiency of traditional chloride based potassium because it dissolves too quickly.
“The low concentration, slow release fertilizer is a perfect combination for Brazilian soils. Verdete is the best alternative source of Potash for Brazil.” Professor, Institute of Mining Engineering department of UBC & Amazon’s Technical Advisor
One in three workers in Brazil is employed in Agriculture. Brazil has the world’s 10th largest GDP, 24% of which comes from agriculture – yet Brazil only produces 10% of its current potash needs. Brazilian soils are generally poor in potash. Their leading exports – sugar cane, soy beans, coffee and corn – all require potash rich environments. The Brazilian government would love to see potash produced locally, so the Cerrado Verde project is being fast-tracked at the highest levels of government.
“If they can demonstrate that this source is more efficient in terms of providing nutrients that the plants need and can absorb and that the cost is reasonably constrained, this company with a current market cap of $50 million or $60 million will become the linchpin for a multi-billion dollar agricultural industry. A company like this will end up being absorbed at a much higher price than its current $2 trading range.” John Kaiser, Kaiserbottomfish.com
Brazil is a country that wants and needs potash – Amazon is definitely going to attract attention and capital.
Encanto Potash (EPO – TSX.v)
The Muskowekwan Prospect in Saskatchewan, Canada, is EPO’s main focus. The company has acquired historical data from 6 oil and gas wells which almost completely surround the Muskowekwan Project (The wells range from as far as 15.6 km away to as close as 11.4 km away from the Muskowekwan property boundary).
The grades and thicknesses of the potash beds in these historical oil wells were estimated in an engineering report prepared by Chapman Petroleum Engineering of Calgary.
“Based on the report, estimates of the Patience Lake Member has average thickness and potash grade in the four drill holes of 13.7 feet of 32% KCl *(20% K2OS); 11.9 feet of 30% KCl (19% K2OS) in the Belle Plaine Member; and 8 feet of 29% KCl (18% K2OS) in the Esterhazy Member. Assays are based on a 23.7% KCl (15% K2OS) cut off.” From Encanto’s website
EPO’s first drill hole into its 43,000 acre Muskowekwan potash property returned values of 25.2% K2O (39.9% KCl) over 3.6 metres in the Patience Lake potash bed, and 25.5% K2O (40.4% KCl) over 2.4 metres in the Belle Plaine potash bed.
The total thickness of the Patience Lake and Belle Plaine potash beds is 6 meters having an average grade of 25% K(2)O. As a comparison the recently purchased Burr Project of Athabasca Potash averaged 5.14 m of 21.04% K(2)O and 4.79 m of 23.39% K(2)O on their upper Patience Lake and Lower Patience Lake potash beds respectively.
“These results on Muskowekwan have added greatly to our belief that it has the potential to establish a substantial and economic potash resource. The Muskowekwan First Nations and Encanto management are very excited about these grades. This is a fantastic start to 2010.” states CEO James Walchuck.
This was taken directly from Potash Corp’s 2008 annual report: “In 2008, our conventional potash operations (excluding Esterhazy) mined 23.119 million tonnes of ore at an average grade of 22.88% potassium oxide (“K2O”). The potash ore….lies about 1,000 metres below the surface….the potash beds of approximately 2.4 to 5.1 metres.”
Results from a 3-D seismic will be released in March and a 43-101compliant resource calculation is scheduled for September of this year.
Encanto is backed by Endeavor Financial (EDV: TSX), a merchant bank that specializes in the natural resource sector.
Western Potash (WPX – TSX.v)
WPX was formed when the opportunity arose to acquire key prospective ground adjacent to known potash deposits. In July 2007 a private consortium obtained the potash rights on 555 square kilometers – adjacent to BHP Billiton’s Lease and Agrium’s Exploration permits – and within 13km of Saskatchewan Potash Corps’s Rocanville Potash mine.
Western Potash has just announced a preliminary resource calculation done by independent U.S. engineering firm, Agapito Associates, for its emerging possible solution mine able Milestone potash project.
The Milestone project currently has 34 million tonnes of indicated potash with 245 million tonnes of inferred potash. The next step will be to upgrade the resource to the measured and indicated category leading to a preliminary economic assessment of the deposit.
“Our board is extremely satisfied with the initial results of the resource calculation, considering that it only reflects the first 4 wells drilled at Milestone. We anticipate that the resource in the indicated and measured categories will be enhanced by the additional 5 wells that have now been completed. This resource calculation is only the beginning. The Company will now fundamentally change from a pure exploration company to one that is poised to begin the development of Saskatchewan’s newest green-field discovered Potash mineral resource in decades.” Patricio Varas, president of Western Potash
Vale is developing a solution potash mine, the Regina Potash Property, next door to Western Potash’s Milestone Project.
The Milestone project is also closely located to Mosaic’s Belle Plaine mine. This is the largest solution potash mine in the world and has been in operation for over 40 years.
When mixed with phosphate and nitrogen potash makes it possible for fertilizers to boost crop yields by as much as 60% (USGS). Potash Corp (TSX: POT) claims that each dollar spent on fertilizer returns $3 worth of improved crop yields, POT also says that for every $100 added to the price of a tonne of potash only three cents is added to the price of a bushel of corn – potash is a high margin product and there is no commercial substitute.
“Companies involved solely in exploration of potash are likely take-out candidates, either by diversified mining companies seeking a way into the potash industry or by countries looking to lock-in supply.” Jacob Bout, fertilizers analyst for CIBC World Markets, Global Potash Supply – A Focus on Saskatchewan Exploration
I think potash is a story Charles Rasp would like. Is it on your radar screen?
If you’re interested in the junior resource market and would like to learn more please come and visit us at aheadoftheherd.com
Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald and Financial Sense.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard Mills does not own shares of any company mentioned in this article. Amazon Mining, Encanto Potash and Western Potash are advertisers on aheadoftheherd.com
This is a video all silver bugs should watch…
The March issue of my report will discuss silver over the next ten years. This will be based upon the speech I presented in Phoenix just a week ago.
I was interviewed on Fox Business yesterday..
I am not sure how long the video will remain on the Fox site. It seems the hosts were very
interested in my becoming “seduced” by silver at 11. Point is as explained in my book, I
simply noticed the coin change from 90% silver to clad in 1965.
Coming back to the thrust of the interview…
The point I tried to make on the show is that all currencies are in trouble at this point and
China may have enough in the U.S. already. My view did not seem to be taken seriously by
To further my point Read This
As the financial survival mode shifts from astute individuals to larger groups like money
managers it eventually makes it to different nation states and this is the basis for trade
and/or currency wars!
Germany has blinked according to the latest news and the PIGS (Portugal, Ireland, Greece, and Spain)
are not of much concern now.
Stay tuned it continues to get interesting…