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GATA extends condolences to Jim Sinclair and his family
By Ted Butler
September 29, 2004
Once again the COTs correctly depicted the market
structure and foretold the price direction in silver.
Following the tech fund long liquidation and sharp
selloff, the silver market rallied smartly once the
tech funds were cleaned out, as suggested in last
week's article, "The Setup?"
While it remains to be seen if this move turns into
the "big one," where the dealers don't sell short
and we hit a selling vacuum to the upside, we will
know soon enough.
It is encouraging that the 10 percent rally from the
lows, so far, does not seem to be attracting big
tech fund buying and, therefore, dealer short selling.
Of course that can change in a heartbeat, but daily
volume and open interest changes suggest no
worrisome buildup of tech fund longs and dealer
shorts to date. This will remain good news as long
as it continues. While this has nothing to do with
real developments in the world of silver production
and consumption, it is what moves prices. It is
manipulation, but it is also reality.
Somewhat unusual in the encouraging lack of tech
fund buying and dealer selling in silver, is that the
tech funds have been buying in gold, with
commensurate dealer selling. Therefore, the risk of
a selloff is growing in gold but not yet in silver.
Perhaps, just perhaps, this might be signaling the
certain coming divorce in the price action between
gold and silver. Please be sure that this COT
structure can change quickly and must be monitored
daily.
Not surprisingly, it appears that the silver mining
companies -- specifically Pan American, Coeur
d'Alene, Hecla, and Apex -- have missed a wonderful
second chance to step up to the plate and buy some
real silver on the telegraphed recent selloff. At the
very least they could have used the occasion to speak
out against the increasingly obvious silver
manipulation.
I'm afraid that the managements of these companies
just don't get it. The feedback I get is that the vast
majority of their shareholders are disappointed that
management does nothing and pretends that all is
well with how the price of silver is set on the COMEX.
While the shares of these companies should move in
the same direction of silver itself, especially
considering how few choices are offered to investors
interested in silver mining equities, managements'
blind eye to the shenanigans in silver can have
long-term negative results. One of the key concerns
for equity investors is confidence in management. It
may prove hard for confidence in management not to
be undermined given their current refusal to address
the issue. Nothing is more important to the
profitability of a resource company than the price
of the resource.
Shareholders know this simple fact, but it appears
that management has other thoughts.
While silver mine managements continue to
under-appreciate the true value of their resource,
they appear to be increasingly isolated. Others are
coming to recognize just how valuable industrial
resources will be in the future.
Just this week the state-owned mining company
of China, Minmetals, announced it was interested
in buying all of Canada's largest mining company,
Noranda, for roughly $7.5 billion (including existing
debt). Make no mistake; this is a very significant
acquisition. Noranda is a large world producer of
base metals, including copper and zinc, as well
as silver. China is, or soon will be, the largest
consumer of these and other commodities. China
has also been on a shopping spree for Canadian
energy supplies and other world producers of
natural resources.
I would like to make a couple of observations and I
would ask you to use your common sense to judge
if my thoughts are on the mark.
First, it should be clear that China sees that it will
need increasing amounts of raw materials for a long
time. While we in the United States fret about the
current economic status and micro-analyze the
latest statistics, China is putting vast amounts of
cash on the table, betting in the strongest possible
terms on continued world economic growth and
long-term demand for all industrial commodities.
Second, China is now buying resource producers
or resources in the ground, because they have
reached the limit for buying the resources
themselves. They know they will need industrial
commodities of all types, and while they certainly
have the money to buy these commodities, they
know they have a problem.
There are not enough available raw materials
compared to Chinese buying power. China could not
buy $7.5 billion of any commodity, because that
dollar amount of any commodity simply does not
exist. Further, even though China buys very large
amounts of all commodities, to aggressively
purchase more would drive prices even higher,
definitely counterproductive from China's viewpoint.
Buying producers and resources in the ground would
appear to be their only alternative.
I find it interesting that China is attempting such a
large acquisition of a Canadian producer. I think this
has to do with the strong rule of law in Canada,
compared to other areas. I think China is taking a
very long-term view and has thought-out the issue
of nationalization or confiscation, in what may be a
future world free-for-all for vital natural resources.
I think China is smart to choose Canada rather
than Peru or Bolivia, for example.
Sometimes messages are delivered in a plain, blunt
manner. I think this acquisition of Noranda by China
is such a blunt message. There will be a struggle
over scarce and vital industrial resources from now
on. No resource is more scarce or vital than silver.
No resource is more "buy-able" than silver. No
resource is cheaper.
China has too much money, as do very many
entities, to buy a significant chunk of real silver
without sending the price skyward. Unless you
have hundreds of millions or billions of dollars to
invest, you won't get a clearer message for what
to buy -- real silver.
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NEWS AND ANALYSIS
Free sites:
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http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kuik.com/KH/KH.html
(Korelin Business Report -- audio)
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Eagle Ranch discussion site:
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Ted Butler silver commentary archive:
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