The Morgan Report Blog

Utah Coin Act

Utah Coin Act

Recently, I was interviewed on the Fox Business Channel regarding the Utah Legal Coin Act. Here is a little background and some interview questions.

For the first time since 1971, gold and silver are once again considered legal tender in at least one part of the United States. The State of Utah passed the “Utah Legal Tender Act,” which “recognizes gold and silver coins that are issued by the federal government as legal tender in the state and exempts the exchange of the coins from certain types of state tax liability.”

The law, signed by Governor Gary Herbert on March 25, is a voluntary system that provides an alternative to the fiat-based Federal Reserve notes that are created out of thin air in unprecedented proportions.

The most significant change from a practical perspective is that the Utah’s state tax code now considers gold and silver coins issued by the U.S. Mint as currency rather than an asset, which means since it is considered money it cannot be taxed. However, federal taxes still apply on these transactions.

1. What is this Utah Legal Coin Act about?

The Utah Legal Tender Act (HB 317) is designed to reinstate gold and silver coin as an optional medium of exchange in Utah intrastate commerce. The bill recognizes the inherent and inalienable right of citizens to voluntarily employ these time-tested, inflation-proof, complementary currencies to foster economic development throughout the state. The bill draws its authority from Article 1, Section 10 of the United States Constitution which provides that no state shall make anything but gold and silver coin a tender for payment of debts. Grounded in long-standing principles enshrined in the supreme law of the land, this statute addresses current, pressing monetary issues in modern American society—issues to which gold and silver coin solutions are uniquely suited.

2. Why do we want/need sound money?

Because the founders of our nation had experienced first-hand the ills attendant with unbacked fiat currency, they provided in Article 1, Section 10 of the United States Constitution that no state is to make anything but gold and silver coin tender for payment of debts. Unfortunately, we’ve departed from the wisdom they imparted, and embraced a medium of exchange that has no intrinsic value whatsoever. The value of today’s dollar is upheld by governmental edict, backed only by the indebtedness of our nation and its citizens. Because of sharp increases in our money supply, our national debt is on an upward trajectory, set shortly to eclipse our gross domestic product. Since there is no historical precedent for a totally fiat money system such as ours ever lasting more than a few decades, prudence dictates that alternative, sound means of exchange be put in place well in advance of any potential crises, such as those endured by the fiat-financed nations and empires of the recent and distant past.

Even absent the specter of catastrophic consequences, an alternative sound money system confers many benefits on citizens and state governments alike. Such a system serves as a refuge from the ills that fiat money produces, including the insidious “inflation tax” that our current monetary system imposes. Consider that the U.S. dollar has lost more than 95% of its purchasing power since decoupling from gold and silver backing. By contrast, sound money systems of the past continued virtually inflation-proof for centuries on end.

3. Are there other states that are looking at something similar?

Virginia House Joint Resolution 557
Georgia Constitutional Tender Act
Ohio Honest Money Project
Idaho Silver Gem Act, Bill No. 633
South Carolina House Bill No. 4501
Missouri House Bill No. 561
Washington House Joint Memorial 4010
Colorado Honest Money Act (HB09-1206)
Indiana Senate Bill No. 453
Montana House Bill No. 639
New Hampshire Gold Money Bill 1.1.

4. Why are the states doing this and not the Federal Government?

Because of the co-dependent relationship between Congress and the Federal Reserve, the likelihood of any sound money reform coming out of Washington is remote indeed. Individual states, exercising their sovereign authority, are best equipped to restore sound money to its prior status as a trading currency. So look for a sound money comeback on a state-by-state basis. It makes sense to first support states that are well positioned to make sound money a reality today. Then as the movement gains momentum, reluctant jurisdictions will see the advantages of embracing sound monetary systems.

More information can be found at www.utahsoundmoney.org.

We have received feedback on this from many people so far and many are of the belief that Gresham’s Law will mean that no one will spend real money (gold or silver) into circulation. We will not argue with the concept but will make the case that the market will decide and perhaps there will be some who want to “spend” their profits into the community. For example, when silver was approaching the $50 level there could have been (in theory) people who wanted to take advantage of that price and spend some profits for some good or service.

Also, we think that some merchants favorable to sound money principals might offer a discount for real money being used in a transaction. We can envision two prices—a silver price and a fiat price. Again, the market will decide and it is our hope that real money circulates enough to encourage other states to adopt such measures.

We find it interesting that some of the opponents of the law come from the CPM Group:

Opponents of the law warn such a policy shift nationwide could increase the prospect of inflation and could destabilize international markets by removing the government’s flexibility to quickly adjust currency prices.

“We’d be going backward in financial development,” said Carlos Sanchez, director of Commodities Management for The CPM Group in New York. “What backs currency is confidence in a government’s ability to pay debt, its government system and its economy.”

Larry Hilton, a Utah attorney who helped draft the law, disagrees and says the gold standard would restore faith in American money at a time when spiraling debt is weakening confidence.

“We view this as a dollar-friendly measure,” Hilton said. “It will strengthen the dollar by refocusing policy matters in Washington on what led to the phrase, ‘the dollar is as good as gold.'”

We, of course, side on the principle of sound money and think the U.S. has not instilled confidence for a very long time. I am scheduled to fly to Utah and be with Governor Gary R. Herbert for a ceremonial signing of this law. We again are hopeful that other states will follow and the principle of fair weights and measures will once again be restored to the people.

Summary

We applaud Utah and are anxious to see if this is a moral victory, or actually becomes a trend. In our view a great deal depends upon how the implementation process proceeds. David Morgan interview the creator of the bill and this will be published in the July issue of The Morgan Report.

David Morgan

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Critical Raw Materials

Richard (Rick) Mills
Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

A critical or strategic material is a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of a country.

The report “Critical Raw Materials for the EU” listed 14 raw materials which they deemed critical to the European Union (EU): antimony, beryllium, cobalt, fluorspar, gallium, germanium, graphite, indium, magnesium, niobium, platinum group metals, rare earths, tantalum and tungsten.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

  • Possibility (or not) of substitution
  • Irreplaceable functionality
  • Potential supply risks

Demand is increasing for critical metals due to:

  • Economic growth of developing countries
  • Emergence of new technologies and products

Access to raw materials at competitive prices has become essential to the functioning of all industrialized economies. As we move forward developing and developed countries will, with their:

  • Massive population booms
  • Infrastructure build out and urbanization plans
  • Modernization programs for existing, tired and worn out infrastructure

Continue to place extraordinary demands on our ability to access and distribute the planets natural resources.

Threats to access and distribution of these commodities could include:

  • Political instability of supplier countries
  • The manipulation of supplies
  • The competition over supplies
  • Attacks on supply infrastructure
  • Accidents and natural disasters
  • Climate change

Accessing a sustainable, and secure, supply of raw materials is going to become the number one priority for all countries. Increasingly we are going to see countries ensuring their own industries have first rights of access to internally produced commodities and they will look for such privileged access from other countries.

Numerous countries are taking steps to safeguard their own supply by:

  • Stopping or slowing the export of natural resources
  • Shutting down traditional supply markets
  • Buying companies for their deposits
  • Project finance tied to off take agreements

Many countries classify cobalt as a critical or a strategic metal.

The US is the world’s largest consumer of cobalt and the US also considers cobalt a strategic metal. The US has no domestic production – the United States is 100% dependent on imports for its supply of primary cobalt – currently about 15% of U.S. cobalt consumption is from recycled scrap, resulting in a net import reliance of 85%.

Although cobalt is one of the 30 most abundant elements within the earth’s crust it’s low concentration (.002%) means it’s usually produced as a by-product – cobalt is mainly obtained as a by-product of copper and nickel mining activities.

Today 40% of the cobalt consumed in the world originated as a by-product from copper production in the West African country of the Democratic Republic of Congo (DRC) – cobalt production in most other countries is a by-product of nickel mining.

The copper deposits in the Katanga Province of the Democratic Republic of the Congo are the top producers of cobalt and the political situation in the Congo influences the price of cobalt significantly. The politically unstable Democratic Republic of Congo contains half the world’s cobalt supply and represents the lion’s share of anticipated future cobalt supply – the DRC’s 2007 output was equal to the combined production of cobalt by Canada, Australia and Zambia.

In a nine billion dollar joint venture with the DRC China got the rights to the vast copper and cobalt resources of the North Kivu in exchange for providing $6 billion worth of road construction, two hydroelectric dams, hospitals, schools and railway links to southern Africa, to Katanga and to the Congo Atlantic port at Matadi. The other $3 billion is to be invested by China in development of new mining areas. Approximately half of  known global cobalt reserves are in the DRC, and close to 40%-50% of incremental cobalt production, over the next five years, is anticipated to emanate from the DRC.

At 19.7 percent of global supply Zambia is the world’s second largest producer of copper-cobalt. According to a recently released report by the Zambian Central Bank cobalt production rose to 2,236 tons in the first quarter of 2011 from 1,989 tons last year, exports increased to 2,279 from 1,977.

China is extremely short of cobalt concentrates and needs to import cobalt concentrates in large amounts every year. The leading global producers of refined cobalt are China (39%), Finland (15%) and Canada (8%). China is a leading supplier of cobalt imports to the United States.

The cobalt market is small in comparison with other base metals. Consumers purchase cobalt through negotiated agreements, bids, and open markets from producers, traders and to a lesser degree, government stockpiles and private inventories.

Uses

Cobalt is a strategic and critical metal used in many diverse industrial and military applications.

  • Super alloys
  • Renewable Energy Re-usable energy storage systems
  • Wear resistant alloys
  • Magnets
  • Binder Material
  • Thermal spray coatings
  • Orthopedics
  • Life Science
  • Catalyst in de-sulfurizing crude oil and as a catalyst in hydrogenation, oxidation, reduction, and synthesis of hydrocarbons.
  • Gas to liquid technology (GLT)
  • Other Uses – Drying agents in paints, de-colorizers, dyes, pigments, and oxidizers. Promotes adherence of enamel to steel, and steel to rubber in steel belted radial tires

Conclusion

China seemingly has most of the DRC’s production of cobalt locked up, that’s up to 40% of global mined cobalt.

Cobalt is classified as a strategic/critical metal.

With the recent strong support for electric vehicles the use of cobalt in this sector alone has led to a formidable demand for the element and the US cannot continue to depend on its cobalt being supplied mostly from China.

There is no doubt in this author’s mind that cobalt’s profile will continue growing in the coming months and years.

Is cobalt on your radar screen?

If not maybe it should be.

Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com

If you’re interested in learning more about the junior resource, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership, and our AOTH newsletter, are free. No credit card or personal information is asked for.

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Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

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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.

For site advertising rates contact: rick@aheadoftheherd.com

Richard Mills does not own shares of any companies mentioned in this report.

Fast Effects of MASSIVE HYPERINFLATION!

This is one of many videos that I shot on my trip to Utah to participate in the signing of HB 371 the Gold/Silver Act recently passed in the state.
 
To the best of my knowledge –no one has gone through the chronology of the Zimbabwe disaster in quite this manner.
 
Here it the link: http://www.youtube.com/watch?v=dcaa0KV2xVg
 
Quite a lesson as I state at the end,
 
Passing this along in hopes that you will find it of value
 
Most Sincerely,
 
David Morgan
 

Stock Market Flashing A Buy Signal?

Since the first trading session in May we have seen the stock market sell off. The old saying “sell in May and go away” was dead on again this year. Here we are 7 weeks later with the stock market continuing to lose ground. This extended sell off has everyone all worked up that this is the beginning of another market collapse.

Let’s take a quick look at the SP500 hourly chart covering the month of June.

As you can see, price is still falling but every couple of trading sessions we get some big money players nibbling on stocks accumulating shares and running the market higher. This type of price action is typically an early signal that the market is trying to bottom.

 

 There are two key ingredients for a higher stock market and both have been missing from the mix for a couple months. The two key sectors which have a significant weighting in terms of the broader market are the financial and technology stocks.

Let’s take a look at the financial sector:

As you can see on the bottom of this chart, financials started to lag the market in late January. Ever since then this sector has been in a strong downtrend pulling the broad market averages lower with it. The good news is that this sector has just reached a major support zone and is looking ripe for a bounce and possible rally.

 

 The other main ingredient to a higher stock market is the technology sector.

Looking at the technology sector:

Here we can see technology stocks have been pulling back for several weeks. Tech stocks are now trading down at a major support zone and they look oversold. A bounce from this level is very likely in the coming week.

 

Weekend Trading Conclusion:

In short, I continue to feel the market is trying to bottom here and we are at the tipping point when things get volatile and choppy just before we get a trend reversal in the S&P 500. Keep an eye on the short term charts of financials and technology sectors. Once they start making higher highs and higher lows on the 60 minute charts I believe it will be the start of a nice bounce and possible rally.

Get my free weekly technical analysis on sectors here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Mine to Magnet

Mine to Magnet

Richard (Rick) Mills
Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

The rare earths are a group of 17 elements comprising Scandium, Yttrium, and the Lanthanides. The Lanthanides are a group of 15 (Cerium, Dysprosium, Erbium, Europium, Gadolinium, Holmium, Lanthanum, Lutetium, Neodymium, Praseodymium, Samarium, Terbium, Thorium, Thulium, Ytterbium) chemically similar elements with atomic numbers 57 through 71, inclusive.

Yttrium, atomic number 39, isn’t a lanthanide but is included in the rare earths because it often occurs with them in nature – it has similar chemical properties. Scandium, atomic number 21 is also included in the group although it usually occurs only in minor amounts.

The most abundant rare earth elements (REE) are each found in the earth’s crust in amounts equal to nickel, copper, zinc, molybdenum, or lead – Cerium is the 25th most abundant element of the 78 common elements in the Earth’s crust. Even the two least abundant REEs (Thulium, Lutetium) are nearly 200 times more common than gold. Overall Rees have an abundance greater than silver and similar amounts to copper and lead.

The “rare” in rare earth elements came from frustrated 19th century chemists who decided they were uncommon after trying to isolate these chemically related elements. REES are also very hard to find in economic concentrations.

The Lanthanides are divided into light rare elements, LREE, and heavy rare earth elements, HREE. Light REE’s are made up of the first seven elements of the lanthanide series –  Lanthanum (La, atomic number 57), Cerium (Ce, atomic number 58), Praseodymium (Pr, atomic number 59), Neodymium (Nd, atomic number 60) Promethium (Pm, atomic number 61) and Samarium (Sm, atomic number 62).

HREEs are made up of the higher atomic numbered elements – Europium (EU, atomic number 63), Gadolinium (Gd, atomic number 64), Terbium (TB, atomic number 65), Dysprosium (Dy, atomic number 66), Holmium (Ho, atomic number 67), Erbium (Er, atomic number 68), Thulium (Tm, atomic number 69), Ytterbium (Yb, atomic number 70) and Lutetium (Lu, atomic number 71).

 

The principal economic sources of LREE are the minerals bastnasite and monazite. In most rare earth deposits, the first four REE – La, Ce, Pr, and Nd – constitute 80 to 99 percent of the total.

Deposits of bastnäsite in China and the United States represent the largest percentage of the world’s Rare Earth economic resources.

The second largest percentage of the world’s LREE Rare Earth economic resources is monazite. Monazite contains less La, more Nd and some HREE with usually elevated levels of thorium compared to bastnasite.

Ion-adsorbed REE in clays from South China provide the bulk of HREE to the market place.

Uses

Many REE applications are highly specific and substitutes are inferior or unknown:

  • Color cathode-ray tubes and liquid-crystal displays used in computer monitors and televisions employ europium as the red phosphor
  • Terbium is used to make green phosphors for flat-panel TVs and lasers
  • Lanthanum is critical to the oil refining industry, which uses it to make a fluid cracking catalyst that translates into a 7% efficiency gain in converting crude oil into refined gasoline
  • Rechargeable batteries
  • Automotive pollution control catalysts
  • Neodymium is key to the high strength permanent magnets used to make high-efficiency electric motors. Two other REE minerals – terbium and dysprosium – are added to neodymium to allow it to remain magnetic at high temperatures
  • Fiber-optic cables can transmit signals over long distances because they incorporate periodically spaced lengths of erbium doped fiber that function as laser amplifiers
  • Cerium oxide is used as a polishing agent for glass. Virtually all polished glass products, from ordinary mirrors and eyeglasses to precision lenses, are finished with CeO2
  • Gadolinium is used in solid-state lasers, computer memory chips, high-temperature refractories, cryogenic refrigerants
  • Used in improving high-temperature characteristics of iron, chromium, and related alloys
  • Y, La, Ce, Eu, Gd, and Tb are used in the new energy-efficient fluorescent lamps. These energy-efficient light bulbs are 70% cooler in terms of the heat they generate and are 70% more efficient in their use of electricity
  • REEs are used in metallurgy as an alloying agent to desulphurise steels, as a nodularising agent in ductile iron, as lighter flints and as alloying agents to improve the properties of superalloys and alloys of magnesium, aluminium and titanium
  • Rare-earth elements are used in the nuclear industry in control rods, as dilutants, and in shielding, detectors and counters
  • Rare metals lower the friction on power lines, thus cutting electricity leakage

China

China mines REEs from bastnäsite ore in the provinces of Gansu and Sichuan. In Inner Mongolia REEs are obtained as a by-product from iron making.

HREE extraction, based on ion absorption clays, occurs in the states of Guangdong, Hunan, Jiangxi and Jiangsu. These clays have very low cerium content and as a consequence the other REES, in particular the HREEs, comprise a much larger share of the ore than is typically found elsewhere.

Currently Chinese ion absorption ore is the main source for HREE and resources are not published. There may be the possibility of discovering new ion absorption deposits in Southeast Asia, however high costs for labor, lack of infrastructure and environmental restrictions may render these new deposits uneconomical when competing in the market place with Chinese output.

China has 36 to 53 percent of the world’s REE deposits (industry figures differ) and supplies 97 percent (this number is constant) of the global demand for rare earth elements. The low cost and unregulated production from China’s large deposits forced the closure of almost every rare earth mine outside of China. 

Tighter limits on production and lowered export quotas are being put in place to ensure China has the necessary supply for its own technological and economic needs – in 2006 volume dropped to 48,000 tonnes. In 2007 volume dropped to 43,574 tonnes, in 2008 volume dropped to 40,987 tonnes and in 2009 to 33,300 tonnes. In 2010 China dropped its annual REE export quota by 37% and then announced an additional 35% drop in its H1 2011 export quota.

In a hunt to secure jobs, and access to advanced technologies, the Chinese have forced manufacturers needing access to REEs to make their products in China. These manufacturers must either cut back production or build their factories/products in China –  recently major producers of the magnet material Neodymium-Iron-Boron have transferred their operations to China.

Demand for Rare Earths is forecasted to grow at 8-11% per year between 2011 and 2014. Many experts are predicting that the Chinese, and those end users who moved to China for security of supply, will be internally consuming most of the countries rare earth production by about 2014.

Rare earth demand is driven by several global macroeconomic trends:

  • Miniaturization
  • Environmental protection
  • Increasing demand for energy, power and fuel efficiency

The highest demand growth is expected for magnets and metal alloys – hybrid and electric vehicles along with wind turbines (also High Speed Rail) will compete for the essential materials and there are no substitutions for the REEs used in these applications. An increased use of energy efficient fluorescent lights and growing demand for LCDs, PDPs will increase the use of phosphors.

The French Bureau de Recherches Géologiques et Minières rates high tech metals as critical, or not, based on three criteria:

  • Possibility (or not) of substitution
  • Irreplaceable functionality
  • Potential supply risks

It’s very obvious REEs are critical metals and that the west is going to need a secure, long term supply of Rare Earth Elements completely independent of Chinese control.

There are a lot of junior companies in this space competing for investor attention.

Wilderness of mirrors

“Wilderness of Mirrors” is a phrase coined by the 1950s era counter-intelligence chief John Foster Dulles to describe the intelligence game. In particular, the phrase refers to the difficulty of separating disinformation from truth.

One of the world’s foremost REE geologists and mineralogists Anthony “Tony” Marianno says each REE deposit, assuming a favorable political climate and good logistics, will need certain conditions present:

  • Favorable mineralogy and lanthanide distribution
  • Necessary grade and tonnage
  • Mining and mineral processing at low costs
  • Successful chemical cracking of the individual lanthanides for their

isolation and eventual recovery    

  • Low values of thorium, uranium and other deleterious impurities
  • Minimum environmental impact

Dudley Kingsnorth of Industrial Minerals Company of Australia (IMCOA) outlines the necessary steps to take a REE deposit all the way to production:

  • Prove resource: grade, distribution and understand mineralogy
  • Define process and bench scale – each ore-body is unique. Because of this uniqueness a new separation process has to be developed for each individual deposit
  • Conduct pre-feasibility study
  • Demonstrate technical and commercial viability of the process
  • Obtain environmental approval
  • *Publish Letters of Intent  – marketing is customer specific. The main value added from Rare Earths is not in the mining and extraction, so it is necessary to either develop your own supply chain or gain access to an existing supply chain
  • Complete a bankable feasibility study
  • Effect construction and start-up

There are significant barriers to entry into the Rare Earths market:

  • Developing a rare earth mine and processing plant is capital intensive. Capacity costs are high – plus US$30,000 per tonne of annual separated capacity versus less than US$3500.00 for an open pit mine in the US. History shows that the development time can be very long at 10-15 years
  • Operational expertise is very limited outside of China – limited technical expertise on mining, cracking and separating
  • Major mining companies, and institutions, are put off by investments in such a tightly focused market – this leaves juniors with potential development issues

REE Minerals

There’s a saying regarding the search for economic quantities of rare earths:

You are not looking for a REE deposit, you are looking for a Bastnaesite deposit.” anon

Practically all light REE are extracted from bastnaesite and monazite, while the heavy REE comes from xenotime and ionic clays. The process of extracting REE from these four minerals has not changed over the last two decades. When you review these four minerals chemical compositions you will see they are not complex. The more complex, the harder it is to extract what you want and get the ultra high purity oxides, metals, alloys and powders required.

Mineralogy is mineral composition, metallurgy the process of extraction. Complicated mineralogy can mean complex, expensive, power intensive, time consuming metallurgy.

Bastnaesite: REE CO3F, LREE dominant.

Monazite: REE PO4, LREE dominant.

South China Clays: Ion-adsorbed REE+Y in Clays

Xenotime: Y,HREE PO4, HREE dominant, one of the best sources for Y and HREE. Usually found in small quantities associated with monazite.

Ancylite: (Ce) SrREE(CO3)2(OH)·H2O, LREE dominant.

Eudialyte: Na15Ca6(Fe2+,Mn2+)3Zr3(Si,Nb)(Si25,O73)(O,OH,H2O)3(CL,OH)2, HREE dominant, name derived from the Greek phrase Εὖ διάλυτος eu dialytos – “well decomposable” alluding to its ready solubility in acid. Colloidal silica makes it difficult to isolate the REEs but Eudialyte ores are among the most promising sources of rare earth mineral raw material.

Britholite: (REE,Y,Ca)5(SiO4,PO4)3(OH,F), a phosphate so should be able to crack it.

Allanite: (Ce) (Ce,Ca,Y)2(Al,Fe2+,Fe3+)3(SiO4)3(OH), LREE dominant but with low quantities of REE+Y compared to bastnasite. Refractory in nature.

Zircon: ZrSiO4, Zircon is often the major heavy mineral in beach sands and river placers. It is also a byproduct of Sn, Ti and Au mining. Strong refractory nature and resistance to chemical dissolution. Zircon is the main raw material needed for value-added zirconium chemicals production.

Loparite (Ce) (REE,Na,Ca) (Ti, Nb,Ta)O3 Alkaline igneous massif

Uraninite: REE and Y – Released as dissolved elements in rafinates from uraninite

Fergusonite is a mineral comprising a complex oxide of various rare earth elements. Fergusonite occurs in many geologic environments and has attractive chemistry. Unfortunately it isn’t found in exploitable quantities.

Mines to Magnet

Mining REEs is fairly straightforward but separating and extracting a single REE takes a great deal of time, effort and expertise.

Rare Earth Ore: the ore is ground up using crushers and rotating grinding mills, magnetic separation (bastnaesite and monazite – are highly magnetic, they can be separated from non-magnetic impurities in the ore through repeated electromagnetic separation) and floatation gives you the lowest value sellable product in the Rare Earth supply chain – the concentrated ore. The milling equipment; crushers, grinding mills, flotation devices, and magnetic, gravity, and electrostatic separators all have to be configured in a way that suits the type of ore being mined – no two ores respond the same way.  

Concentrated ore: chemically extract the mixed rare earths from the concentrated ore (cons) by chemical processing. The cons have to undergo chemical treatment to allow further separation and upgrading of the REEs.  This process – called cracking – includes techniques like roasting, salt or caustic fusion, high temperature sulphidation, and acid leaching which allow the REEs within a concentrate to be dissolved. This separates the mixed rare earths from any other metals that may be present in the ore. The result will be still mixed together rare earths.

Rare Earth Oxide (REO): the major value in REE processing lies in the production of high purity REOs and metals – but it isn’t easy. A REE refinery uses ion exchange and/or multi-stage solvent extraction technology to separate and purify the REEs. Solvent-extraction processes involve re-immersing processed ore into different chemical solutions in order to separate individual elements. The elements are so close to each other in terms of atomic weight that each of these processes involve multiple stages to complete the separation process. In some cases it requires several hundred tanks of different solutions to separate one rare earth element – HREEs are the hardest, most time consuming to separate.

The composition of REOs can also vary greatly – they can and often are designed to meet the specifications laid out by the end product users – a REO that suits one manufacturers needs may not suit another’s.

In this authors opinion a few junior REE miners will be able to produce oxides but the product will not be more than 98% pure and command, as of April 11th 2011, US$38kg. The cost to increase the purity to the 99.999% required by most end users – and the technical knowhow and operational expertise – will be beyond the capabilities of almost every junior miner. The 98% oxide will still have to be sent for further refining.

Very few REE miners will ever get paid for producing a 98% oxide (Molycorp does, their average price for a kilogram of oxide product in the first quarter of 2011 was US$38) let alone a 99.999% pure oxide (average LREE oxide price US$197kg June 11th) – it seems very likely that most REE juniors will end up selling a mixed rare earth solution – a concentrate comparable (place in the supply chain) to what a junior copper miner would sell.

Others further up the REE value added supply chain will turn the concentrate into high purity rare earth oxides and continue the process of making the high purity metals, alloys and powders.

Demand is growing for rare earth metals.

A common technique for producing metals from REOs is metallothermic reduction. The oxides are dispersed in a molten, calcium chloride bath along with sodium metal. The sodium reacts with the calcium chloride to produce calcium metal, which reduces the oxides to rare earth metals.

Sorption is a combination of the two processes – absorption, in which a substance diffuses into a liquid or solid to form a solution, and adsorption, in which a gas or liquid accumulates on the surface of another substance to form a molecular or atomic film.

Other extraction technologies include; vacuum distillation, mercury amalgamate oxidation-reduction, high-performance centrifugal partition chromatoagraphy and Sl-octyl phenyloxy acetic acid treatment.

The continuing miniaturization of electronic devices – such as disk drives and micro motors – is possible because of the ability of rare earth magnets to combine high magnetic strength with a small size and weight.

Magnetic powders are produced by processing specific combinations of elements that result in distinct magnetic and physical characteristics. These powders are the primary material used in the manufacture of rare earth permanent magnets. The main elements consumed in the manufacture of Neo and samarium-cobalt permanent magnets are; neodymium, samarium, some dysprosium and praseodymium.

Neodymium is alloyed with iron and boron as well as other elements (like cobalt). In order to produce neo powder for the manufacture of bonded (highly shapeable) Neo magnets, the alloy is melted and then rapidly solidified to produce Neo powders with the desired characteristics.

The flow of electrical signals on every printed wiring board used in electronic devices is regulated and controlled by the use of dielectric chips known as multi layer ceramic capacitors (“MLCC’s”). Many use rare earth formulas containing lanthanum and neodymium of high purity and with precisely engineered physical properties.

All the above complex metallurgical technologies have taken decades to evolve, the methods of manufacture and compositions of metals, alloys and powders used are all proprietary methods developed over years of trial and error – they are not common knowledge, exactly the opposite, they are tightly held secrets that very few know. Lack of access to proprietary information about complex physical and chemical processes will severely restrict companies from climbing the value added chain.

This author believes no junior REE miners will be able to produce a rare earth permanent magnet – or the high purity metals, alloys and powders used in manufacturing high tech devices.

What to Watch For

When I evaluate a REE junior’s project I want to see one mineral hosting as much of the REE as possible, not three or more. I want that mineralization large grained and non-interlocking and I want road, rail and access to the power grid close.

Each deposit will have its own unique mineralogy – this has to be determined. A company has to concentrate its recovery efforts on the REE’s – whether LREE or HREE – that are going to be easy to recover in an inexpensive uncomplicated circuit, they have to work with what nature has given them in order to be competitive in the market. Watch for how many different types of minerals the REE are hosted in.

Work index

When we talk about a grinding or crushing circuit the terms Bond Equation and Work Index come into play. The term Bond Equation measures work done or work that has to be done while the Work Index is defined as the power consumption necessary to accomplish the work.

If REE host minerals have large distinct grains (the larger the grain the easier the extraction of REE) and very little intergrowth (there’s always some) the REE is easy to extract and there is very little crushing involved. The amount of work needed to be done, the Bond Equation, and the amount of power needed, the Work Index, is very low. Some deposits host mineralization whose grain size is measured in millimeters, low Bond Equation = low Work Index = lower power consumption. Therefore electrical power and other associated costs (maintenance and replacement) are low – power consumption costs for grinding and crushing are major costs for miners, especially deposits far off the grid requiring diesel to generate electricity.

If mineralization is smaller grained and interlocked it is very hard to extract the REE. In this scenario the Bond Equation is very high because of all the work necessary – some deposits ore has to be crushed down to the micron level (dust) for REE extraction. The Work Index, the power required to grind and crush to so fine a product is immense.

An extremely high Work Index to prepare ore can make or break a deposits economics, especially when poor infrastructure is considered – no rail or road for transport, no access to the power grid and a high Work Index are all potential deposit killers when it comes to competing in the market place.

Silica (Si) does not dissolve in acid easily and being sand is very hard on grinding and crushing equipment. Silica will actually wear on ball mills and that adds contaminants.

Company metallurgical reports can show up to 98% average recovery rates for all REES listed in their assay tables – but this is lab testing, crushed to dust, roasted and acid leached for hours times three – we could get that kind of recovery from the asphalt out in front of my house if it had any REE in it. In 2010 SRK Consulting studied 18 years of annual performance data and six months of operational data between 2001 and 2002 (after implementation of improvements) from Molycorps existing mill. The average recovery rate was 63%. SRK suggested that a mill recovery of 70% is possible when the mill is operated on a sustained basis and with further improvements.

We’re told the value of the ore is based on – converting the individual REE percentages to oxide, times the current selling price per kilogram, add them all together. The problem is the company will never get paid 98% oxide prices for all those different REEs – let alone get paid for a 99.999% pure oxide which is the price many are using.

Does a company have high levels of uranium or low levels of thorium in it’s deposit? If you’ve got thorium where does it report to? If its recovered as thorite you can extract and deal with it separately – it doesn’t have to go into a tailings pond. Look very closely at the drill tables companies publish on their websites. Ratios of thorium versus REEs usually remain constant – if you see a spike in thorium levels you will almost always see a spike in REE levels. If there’s a spike in thorium without a spike in REEs then your thorium might be recovered as thorite.

How radioactive is the concentrated ore and waste? Will the company be classified as mining radioactive material if it gets that far? Over a certain rad count in British Columbia – in many other places as well – and you start playing in a whole different ballpark as far as mining and the environment are concerned.

Three Hour Tour

A few analyst reports have been published that say the REE market will be saturated within a few years because of a huge increase in production expected from new mines coming on stream. As of yet none of these mines are on stream – some have been going into production next year for the last several years – and are today still raising money for “production”, still haven’t done a preliminary economic study (PEA), a pre-feasibility or feasibility studies, have no economic reserves, have no permits and have published no realistic estimates of mining costs or even a metallurgical report.

Many of the deposits being counted on for near and mid-term supply simply don’t, in this authors opinion, have the mineralogy and/or the necessary close by infrastructure to compete in the market.

The Future

The future for some of our junior company’s REE deposits (the ones with the right mineralogy and that are of sufficient tonnage) will be end users securing off take agreements or buying a company’s REE deposit outright to have security of supply.

Spending 200 or more million dollars for outright ownership of a deposit, or doing a strategic financing to get the deposit into production for an off take agreement is very little money upfront to take so much security of supply risk off the table for a major high tech manufacturing company or a value added rare earths producer.

Conclusion

The opportunities in the junior REE sector are significant. But the junior population is quite large – there are literally hundreds of stocks to choose from that want your dollars.

There is a steep learning curve and there are serious risks – great rewards come hand in hand with great risk. You must be prepared to do your own due diligence and uncover the opportunities.

You must be able to evaluate these opportunities, pay regular attention to your portfolio, manage the risk and take responsibility for your own decisions.

Fish, in their album “Vigil in a Wilderness of Mirrors” sang:

I keep a vigil in a wilderness of mirrors
Where nothing here is ever what it seems

Good advice.

Is the REE junior resource sector, with its immense opportunity, on your radar screen?

If not, maybe it should be.

Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com

If you’re interested in learning more about the junior resource, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership, and our AOTH newsletter, are free. No credit card or personal information is asked for.

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, 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.

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Richard Mills owns no shares of any companies mentioned in this report and none are advertisers on his site aheadoftheherd.com

Not Enough Silver?

In my article “Silver is too bulky” 

We examined a hypothetical look at the average baby boomer placing ten percent of their net worth into the precious metals, split 50/50 gold and silver. Since publishing that article silver has traded near $50 and is now trading around the $35 level.

Many in the mainstream that understand portfolio diversification, true diversification as outlined in the Ibbotson Study, which states that precious metals are the only asset class that truly moves opposite to stocks and bonds. Now let us look a little deeper into what a ten percent allocation to precious metals would mean. First, we examine just how many boomers exist in the United States. The statistics vary and for our purposes we will use 75 million baby boomers in the U.S.A.

If just ten percent of the baby boomer population were to allocate five percent of their net worth into silver could it be accomplished? This might seem like a totally absurd question, yet the answer may begin to sink into the collective unconscious of today’s investor. When the Secretary of the Treasury uses the words “Financial Crisis” over five times in a recent speech, the attraction to precious metals becomes more urgent.

In the Silver is too bulky article; we found the medium net worth of the boomers was about $180,000. So ten percent of this would be $18,000 but remember for the purposes of this discussion we are going to divide our ten percent allocation to both silver and gold on a fifty-fifty basis. This means $9000 into gold, and $9000 into silver!

If ten percent of the boomers allocated $9000 to buy silver, we would have 7.5 million (ten percent of the boomer population) times $9000. Pretty simple arithmetic the product is $67.5 billion. Now wait just a moment! Something must be erroneous the amount of investment grade silver (bullion and coins)* is about one and a half billion ounces.

At our $35 per ounce that is obviously $52 billion to purchase the entire silver supply, including all .999 fine bullion and silver coins! Perhaps now you can appreciate why the most enlightened financial planners talk in gold terms only, either they know the silver market is pitifully small (unlikely) making it extremely attractive or they feel safer with gold because it is much more mainstream.

Consider that boomers are defined as being born between 1946 and 1964. During that entire time frame each and every boomer had a form of money that is far different from today. The United States of America was using dollars backed by silver.

Take a look at the Silver Certificate below

 

Notice that this is a certificate and not a “note” many of you have recently asked about taking your stock certificates as a precaution to the possibility of further financial problems.

This certificate represents that there was a dollar * on deposit in the treasury of the United States of America. Additionally this dollar was payable to the bearer of this certificate on demand. In 1964 the M1 money supply was 153 billion. This would represent a silver supply of 153 billion Dollars  (371 4/16 grain (24.1 g)) pure silver. In familiar terms 371.25/480 = 0.7734 troy ounces. In 1964 the United States held 1.2 billion ounces of silver, not counting the 139.5 million ounces held as a strategic stockpile. Source: The Silver Institute and Silver Bonanza page 89.

What kind of silver wealth would that represent? Approximately sixteen ounces of silver for every boomer born, that is correct each boomer had 16 ounces of silver. However, that was then and here we are today, the official silver holdings of the United States Treasury is gone, even the strategic stockpile is gone.

Along the road from a Silver backed currency to today’s electronic miracle money a funny thing happened. Nearly one-hundred percent of these very same boomers believe with all their might that not only is silver not money, most do not even know that at one time (during their birth and prior) the only lawful money was silver.

This is changing now with the newly passed law in Utah that allows transactions in gold and silver and was addressed here earlier. For the upcoming Morgan Report I interviewed the author of the Bill. The big question remains –Will this catch on? and Will other states adopt similar legislation?

Silver Coins

The Set of Coins can be broken down into several subsets and for the purposes of this article some of the major broad categories will be examined not all categories.

One of the main subsets are bullion coins, these are comprised mainly of silver coins struck by government mints around the world. These include Silver Liberties (U.S.), Silver Maples (Canada), Silver Pandas (China), and some other lesser-known bullion coins. Most of these coins are tightly held and many are dispersed so far and wide that bringing them back to the market is a fantasy. As an example some percentage of these coins are held as single pieces, where a single coin was given as a gift of some type. In those instances it is very unlikely that these single unit holders are waiting for the day to cash in on their silver investments.

Another subset is loosely defined as “coins” these are known in the trade as medallions but have all the characteristics of coins but are minted privately and often carry the name “silver rounds”. Many of these “rounds” are nothing more than a convenient way to invest in silver and sell for very close to the spot price of silver. However, there are also many that carry very large premiums as they are low mintage and used in many instances to signify a certain group, club, event, historic moment or what have you, these are normally keepsakes and in most instances will not be coming back to the marketplace.

The junk silver market is another arena of silver coins. These are coins that were minted by various governments around the world that trade for their silver content. The amount of “junk” silver is small at this point because much of this silver has been melted down and refined into silver bullion for industrial purposes. However, there is an active market for this type of silver and is usually is the lowest premium form of silver available for investment. Almost all of this silver is marked as “investment” and willing to come back to the market at some price.

The last subset we will discuss is the Numismatic Market, which is the rare coin market. This is the collector market and is certainly part of the overall picture but these coins will not come back to the market for their silver content. They will continue to trade among silver coin collectors and investors but this subset does not represent any significant amount of silver rushing back into the marketplace, in fact the opposite is true this silver (admittedly small) is not coming back to the market to fill industrial demand. 

*We are not counting silverware, jewelry, or art objects just silver bullion and silver coins of all types.

The Credit Crisis and Upside Down Gold

John Exter was an internationally known banker and a gold bug in the true sense of the word. He graduated from Harvard and was present when Keynesian economics first came to the fore. He lived through World War I, witnessed the founding of the Federal Reserve, the Great Depression, and the establishment of the International Monetary Fund (IMF). He also presided over the New York Federal Reserve Bank. Mr. Exter’s work can be found on the Internet with a simple Google search.

One of his most famous quotes is, “The U.S. and world economies are on the threshold of a deflationary crash that will make the 1930s look like a boom. Gold will be the single best investment to own. Buy it now while it’s still cheap.”

A pyramid is one of the most stable structures ever envisioned by humans. However, Mr. Exter is perhaps most famous for his inverted pyramid of how a debt-based monetary system is constructed.

See below:

Logically, an up side down pyramid implies one of the most “unstable” structures one can imagine.

Mr. Exter believed there would be a deflationary collapse rather than an inflationary blow-off. He stated that creditors would move down the pyramid out of the most illiquid debts. Looking at the pyramid, we almost have to hold back some amuse­ment, from the standpoint of what was known in his day as “illiquid” compared to the casino fiasco, presently.

When Mr. Exter constructed his model, the top of the pyramid had junk bonds, failing banks, failing insurance companies, and, we might add, failed investment banks/brokerage houses. Creditors will get out of weak debts and move down the debt pyramid, to the very bottom! Near the bottom we find currency (dollar bills), even though they pay no interest. Next above currency are Treasury bills, issued by the government and backed by the Federal Reserve. They are almost as safe as currency notes, plus they pay interest. However, you have to liquidate the bills to get money of some sort to buy something.

The higher debtors sit in the pyramid, the less liquid they are, and this is why the Fed has become the “buyer of last resort.” No one wants to buy any of these toxic assets, and furthermore, no one really can price many of them, because in fact some are truly worthless. According to Mr. Exter, this explains why we are headed for deflation.  Creditors will move out of debts high in the debt pyramid as many of them will fail through defaults & bankruptcies–that is deflationary.

At the bottom of the debt pyramid sits gold, the asset that needs no bank, Fed, or human “blessing” of any kind to be valued by both the individual and the banking system (although they hate to admit it) alike.

Has the rush to gold started? Yes, but barely, because only recently have we seen a nation admit they are moving into gold. China and of course the gold bugs have been buying since the recent bottom in 2000, but this pales in what this writer sees ahead; now that the structure is failing, more and more nations, institutions, and individuals will be heading to the bottom for safety and liquidity (gold).

A new e-book titled The Great Credit Contraction has been written by a friend named Trace Mayer, J.D., and it gives us more insights into the current situation.

As can clearly been seen from a more modern form of the debt pyramid below, the broadest and most unstable “asset” class is the derivatives at the top. This is what is causing the current worldwide financial adjustment as the central banks continue to assure the markets that everything is going to be just fine, and they pump “money/credit” into the system until …??

CREDIT CRISIS AUTOPSY

The Great Credit Contraction is fine analytic work from Trace. He comes to the gold community with a different slant and background. He is a legal scholar with an empha­sis on the Constitution, focusing on gold and currency issues. In his e-book, one can read about the historical significance of a crisis that will surely reshape the world. The global economy is built on an illusion currency that is evaporating before our very eyes. This book is an autopsy of the current worldwide systems and begins with financial history, discusses the current great deflationary credit contraction, projects the future environment, and concludes with suggestions on how to protect, preserve, and generate wealth in this challenging time.

Go here to purchase…
https://www.e-junkie.com/ecom/gb.php?cl=48745&c=ib&aff=55828″target=”ejejcsingle

 David Morgan

Monitoring XLF Prevented a Potentially Devastating Trade in the S&P 500

 My most recent analysis regarding the S&P 500 has been proven to be inaccurate as a failed breakout has transpired on the S&P 500 this past week. While there is no such thing as a perfect analyst, I will openly admit that my most recent article proved to be wrong. After I watched as the S&P 500 broke out above the upper channel resistance area I was expecting continuation. What transpired the following day was absolute carnage in the marketplace.

Immediately after breaking out to the upside, the S&P 500 sold off sharply and by the end of the day on Wednesday a failed breakout was obvious. The failed breakout trapped momentum traders as well as those watching and waiting for the breakout to occur. The chart below illustrates the failed breakout and the subsequent sell off that transpired the rest of the week.

 

Most readers likely believe that I went long when the breakout was imminent before Tuesday’s close. However, over the years I rarely chase breakouts unless I see multiple days of price stabilization above breakout levels. Generally a consolidation zone above a key breakout level is bullish. However, in recent months it seems that standard technical patterns have not been working well. In fact, chasing breakouts over the past few years could have produced some ugly losses depending on the underlying and the timing of the breakout.

Armed with recent price action and concern for the S&P 500 giving back gains, I did not get long the S&P 500 for members of my service at OptionsTradingSignals.com. On Wednesday morning, I was leaning long because price action overnight was confirming the breakout. However, when preparing my morning post for members I noted the apathy in the financial complex.

I am constantly monitoring price action in the XLF and Wednesday morning was no exception. The ugly price action in XLF kept me from getting involved in a long S&P 500 trade for members. By late in the day Wednesday, the XLF ETF had proven to be accurate and prevented losses for myself and for members of my service. The chart of XLF at the close on Wednesday looked like this:

The point of the article is not to pat myself on the back for avoiding catastrophe, but to illustrate to readers how important it is to monitor various aspects of the marketplace. I generally focus on the S&P 500, the Volatility Index (VIX), the financial complex (XLF), Russell 2000 (IWM), and the Dow Jones Transports (IYT). Generally speaking a trader can learn a lot about the broad marketplace by monitoring the price action in the underlying assets mentioned above. Often times the Russell 2000 or the financial complex will throw off clues about which direction price action favors.

At first glance, we could see the S&P 500 bounce higher in coming days as it is coming into a key pivot low that dates back to April 18th. I am expecting some buying support to step in around that price level as it also corresponds with the lower bound of the recent descending channel the S&P 500 has been trading in.

While we may see further downside, the April 18th pivot low should offer a solid risk definition area for traders. If prices push lower, a short trade using a stop somewhere around or above the key 1,295 price level would make sense. Those looking to take the S&P 500 long could place a stop order below the key 1,295 price level to define risk.

Regardless of where one believes the S&P 500 is headed, using a key support/resistance level to place trades with limited risk makes a lot of sense currently. I will be patient and wait for the market to throw off clues as to which direction it favors before accepting additional risk. The primary focus for traders during periods of wild price action should be to concentrate on reducing risk and allowing others to do the heavy lifting. A trader or an investor can learn a lot about the strength of an underlying asset or index by simply watching the price action while sitting on the sidelines. The daily chart of the S&P 500 Index below illustrates the key pivot level:

Obviously the S&P 500 is coming into a key support zone, but another factor which cannot be ignored at this point in time is the U.S. Dollar Index. On Friday, the U.S. Dollar pushed significantly lower and most of the key commodities such as gold, silver, and oil all closed the day near day highs and well off of intraday lows. The U.S. Dollar Index looks vulnerable currently as its recent rally seems to be short lived and it appears to be poised to retest the recent lows. The daily chart of the U.S. Dollar ETF (UUP) is shown below:

The first 2 – 3 trading days of this week should provide us with clues in terms of price action in the S&P 500 and the U.S. Dollar. If the U.S. Dollar continues to weaken it should help support the S&P 500 and the commodity complex. For right now I’m going to sit on the sidelines and wait for the price action to setup before taking on additional risk. The key level to watch is the 1,295 level on the S&P 500 and recent lows on the U.S. Dollar Index.

With QE II winding down and price action starting off the month relatively ugly, June could shape up to be a very interesting month for investors and traders alike. I will be out later this week with an updated analysis after I see the price action the next few days. Until then, I would keep positions smaller than normal and protect capital using stop orders. Anything could happen, but this is the closest we have been to rolling over in the S&P 500 for months. I do not have my helmet on yet, but in a couple of weeks depending on price action I might have to wipe the dust off of it.

If you would like to be informed several times per week on SP 500, Volatility Index, Gold, and Silver intermediate direction and option trade alerts… take a look at www.OptionsTradingSignals.com/specials/index.php today for a 24 hour 66% off coupon, and/or sign up for our occasional free updates.

JW Jones

Market Sentiment and Volume Reach Extreme Panic Levels

It was a crazy session as the stock market slid over 2% on heavy volume. This type of price action means fear has taken control of masses and they are unloading (selling their stocks) in anticipation of much lower prices.

Trading off extreme levels of fear can be very rewarding if done right. That’s because fear is the most powerful reaction we as humans have and it’s somewhat predictable. Fear can make people do crazy and or stupid things and it’s these extreme reaction which investors do in the market that lead to great trading opportunities. Buying into fear and selling into greed is what I focus on.

Gold and Silver Showing Greed and Fear

For example, if we take a look at the 4 hour chart of gold and silver you will see how investments which have a large amount of speculation like Silver move the opposite to what other related investments like gold are doing.

The first chart which is gold, shows how today’s fear had investors moving into this shiny safe haven. Silver on the other hand has been the investment of choice for every Tom, Dick and Harry trying to play the popular headline investment. So on a day like today when prices start to slide in the stock market these speculative holders of silver get scared and dump (sell) their position in stocks and silver. The problem with silver is that the market is still small and its does not take many people hitting the sell button to send it 5% lower which is what took place today.  This is one sign which is telling me traders are getting scared of a market selloff.

 

Evidence #2 Showing Signs Of Fear

These data points below clearly show sellers were in control today. I like to look at the NYSE because it holds all the big brand name stocks which the masses like to buy when they feel lucky. So when I see this many traders selling and so few buying I know the masses are dumping shares and going to a cash.

The NASDAQ had 10 shares being sold to every one share being bought which is half the fear level of what the NYSE and that makes good sense. The NASDAQ has many smaller companies which the masses just don’t know about or own so there was not as much selling taking place on that exchange. So brand name stocks getting dumped all at once is another sign of extreme fear hitting the market.

Evidence #3 Showing Signs Of Fear

This chart below provides the momentum of the market. I think of it as the rubber band effect. If the market selling momentum is strong enough then it pulls this indicator down to a level which it cannot go much further before it gives way and moves back a neutral or positive extreme level. This little hidden gem of an indicator can help time entry and exit points with ease once you understand it. Currently its telling us that a pause or bounce is likely to happen tomorrow.

 

Evidence #4 Showing Signs of Fear and an Oversold Market Condition

Take a look at the 10 minute SPY (SP500) chart below. Simple visual analysis shows that today’s strong selling which has brought the market down into a support zone should provide a pause or a bounce very soon. The question is how big will the bounce or rally be?

Given all the confirming is looking ready for a bounce and I feel we could be nearing not a bounce but an intermediate bottom and higher prices going forward. But if we break strongly below this support level then all bets are off and much lower prices should occur.

  Mid-Week Trading Conclusion:

In short, today’s sharp move lower has put the market in a short term oversold condition. Meaning, a bounce is very likely to take place within the next 1-3 sessions. With the masses selling all their positions in stocks and commodities it generally takes 1-3 days after a day like this for the selling pressure to dissipate and for value buyers to step back into the market providing support.

I think both stocks and commodities will strengthen in the next few days and we will see if the market can get some traction and start a new rally. But until everyone has sold out of the market giving their shares to the big money (smart money) at a sharp discount I feel we have a rough road ahead.

Get these trading reports free each week here: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

Excerpt from the June 2011 Morgan Report

We find this month’s report challenging because there are now so many writers in the silver space, and this was not the case a decade ago. So much information has been spread on the Internet since the rise and fall of the silver market that we are compelled to give you our insights to separate some of the fact from fiction. Also, before moving on, we have obtained and read both of the new silver reports that are published annually. 

One is from the CPM Group in New York, titled, The CPM Silver Yearbook 2011, and the other is from the Silver Institute, titled, The Silver Institute World Silver Survey 2011.

Your publisher has subscribed to both of these publications every year from the time of their initiation. Although the data can be disputed (we ourselves have raised questions), it is a starting point and we can quote, cite, and oftentimes verify the data ourselves. What we find fascinating is how many writers in the silver space take information from some Web site and run with it. In other words, “somebody” said (fill in the blank) and they make their whole discussion about what someone else published without even knowing how the data was obtained, let alone verifying any of the information.

We do not want to give the impression that we “know it all”; in fact, quite the opposite. You might take the attitude of questioning everything we write or state either for our paid members or in public. Being able to think critically is vitally important and a very rare commodity these days. However, we do our best to cite our work; when we use “facts,” we so state, and when we are providing opinion, we also do our best to let everyone know that as well.

The CPM Silver Yearbook $150
See: http://store.cpmgroup.com

The Silver Institute World Silver Survey $225
See: http://www.silverinstitute.org/publications.php

As you can see, to subscribe to both publications costs $375 per year. Consider that we comment on the most important points each year for our members, and a full year of our basic service is only $130 per year.

Both of these books on the silver market overlap on several important points. First, the fact that INVESTMENT DEMAND is crucial to the higher silver price. Both also call attention to China’s importance as a major global silver consumer. As we have mentioned many times, much of solar panel production comes out of China, and this area is growing rapidly and will continue, regardless of recession or not.

The CPM Group said it developed better estimates of silver use in China and developed what it feels are sufficiently reliable statistics on Chinese silver mine production, scrap recovery, and fabrication demand. We will not dispute this. We also know from our strong relationship with the Silver Institute that a delegation from the Silver Institute meets with the Chinese every year for the same purpose.

Again both studies indicate that China’s silver demand has grown perhaps 300%–400% over the last decade. Remember in the year 2000 the Silver Institute estimated that Chinese consumption of silver was 1/70 that of North America. So, if we use the current forecast number, the Chinese are using something like 1/20 the amount now. Obviously huge growth, but in our view the growth could continue for quite some time as China continues to grow in the technological arena.

Of course we have maintained from the beginning that it is investment demand that is the key to higher silver prices (industrial demand is important), so let’s pause and look at the latest information about Chinese silver investment demand.

The following is from Shi Heqing, a silver analyst at Beijing Antaike Information Development Company.

Silver trading in Shanghai jumped 65 percent in terms of volume last month (April), and will continue to increase on demand for a safe-haven investment, even as the government moves to curb volatility and speculation.

Chinese investors have piled into silver as one of the investment choices to hedge against rising inflation. The government’s move to increase margins in an effort to curb volatility won’t affect buying interest in physical material,” Shi said.

Volume on the Shanghai Gold Exchange rose to 33,293 metric tons in April, up from 20,206 tons the previous month, according to data from the exchange, the main bourse in China for trading silver. The central bank raised reserve requirements a day after reports showed inflation and lending exceeded economists’ estimates in April, with consumer prices rising more than 5 percent. China turned to a net importer of silver in 2010, a situation that has not changed this year, according to Antaike.

CPM predicts Chinese silver fabrication demand will rise 15.6%, to 177.2 million ounces this year. Chinese consumer demand for jewelry and silverware has been strong, CPM noted. “Silver jewelry demand remained steady because it is comparatively more affordable than gold or platinum jewelry. In addition, many Chinese consumers are said to prefer the white color of silver jewelry to the yellow color of gold.”

As we all know, silver was up 78 percent in 2010 and silver posted an average price of $20.19 in 2010, a level only surpassed in 1980, and a marked increase over the $14.67 average price in 2009. Ed. note: nominal price—not inflation adjusted!

According to the Silver Institute, world investment demand rose by an impressive 40 percent last year, to 279.3 million troy ounces, resulting in a net flow into silver of $5.6 billion, almost doubling 2009’s figure. This of course is significant on relative terms looking at silver only, but so ridiculously small, relative to global financial markets. This is why we know silver has not made its final top.

The Silver Institute makes the point that exchange traded funds (ETFs) registered a huge performance in 2010, with global ETF holdings reaching an impressive 582.6 million ounces , representing an increase of 114.9 million ounces over the total in 2009.

In March, the Telegraph reported that holdings in the iShares silver trust (SLV), one of the largest silver ETFs in the world, increased by 179 tonnes on the back of increased interest in the metal. By the start of May, the situation had reversed and vehicles such as the iShares fund claimed record redemptions. CNBC reported that the ETF saw $1 billion redeemed by the 5th of May, which in turn helped to feed silver’s price fall.

What we find so interesting is that the SLV had no trouble bringing in new physical silver at the same time that the Sprott Physical Silver Trust (PSLV) had a very diffi­cult time. As we have all heard many times, a picture is worth a thousand words, and we thank one of our loyal members for sending the following . . .

Reserved for our paid members– you may be able to find it on the web!

The data in this chart is directly from the SEC, which states, “We cannot guarantee that the data will be posted by a particular date. We cannot guarantee the accuracy of the data.”

Remember a failure to deliver is recorded when a seller does not provide the shares of stock that were sold within the required three-day settlement timeframe. From the SEC: “Fails-to-deliver can occur for a number of reasons on both long and short sales. Therefore, fails-to-deliver are not necessarily the result of short selling, and are not evidence of abusive short selling or ‘naked’ short selling.”

“The values of total fails-to-deliver shares represent the aggregate net balance of shares that failed to be delivered as of a particular settlement date if the balance is 10,000 shares or more. Fails to deliver on a given day are a cumulative number of all fails outstanding until that day, plus new fails that occur that day, less fails that settle that day. The figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as existing fails.”

We know there is huge controversy surrounding the SLV and we have examined this in depth in our Master Mind series. We remain in the middle that much of the silver purported to be in the SLV is there; our main concern is whether or not it is totally unencumbered.

Recently the SLV claims to have 325 million ounces of silver, while the Comex has about 32 million in the registered category, which for all practical purposes is the only silver available to the dealers. In other words, the SLV is 10 TIMES BIGGER, purportedly, in physical metal. Which one do you think would have the greatest impact on the market—especially considering that we are becoming more and more of a physical market?

David Morgan

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