Greater Fool's Day

Usually, the "Greater Fool Theory" applies to fools chasing the momentum of a hot stock. They bid it up, hoping to unload it onto a "greater fool" at a higher price, sometime in the near future. This same process is currently playing out again though, in this case, the fools are short and the instrument is silver.

I cannot stress strongly enough the unprecedented quality of what we are seeing. Nearly two months ago, on February 5, the price of silver closed at $31.94. On that day, a Commitment of Traders survey was taken and it showed that the Large Speculator (managed money, hedge funds, HFTs) category was:

Long 42,449 contracts AND

Short 6,588 contracts.

This gave us an unusually high and bearish LSpec net long ratio of 6.44:1.

So here we are, seven weeks later, and a new CoT was released back on Friday. With price last Tuesday night at $28.68, the new Large Speculator breakdown was:

Long 37,548 contracts AND

Short 26,144 contracts.

Immediately, you should notice three things:

  1. The Large Specs have reduced their net long position by 24,457 contracts.
  2. The Large Spec net long ratio has fallen to a remarkably bullish 1.44:1.
  3. In just seven weeks, the gross amount of Comex contracts that the Large Specs are short has quadrupled, from 6,588 to 26,144. 

It is in point #3 where we will find the fools and the greater fools.

And what have the banks, pit locals and Silver Cartel members been doing over these same seven weeks? Buying longs and covering shorts, that's what.

Seven weeks ago, the silver commercials were already gross long a record amount of contracts at 46,293. As of last Tuesday, that amount had grown to 55,564. Up another 20%. And the Forces of Darkness were gross short 98,239 contracts on 2/5/13. As of last Tuesday, that number had declined to 79,605. A reduction of 19%. And all of this buying and covering has dropped the all-important Cartel net short ratio back to an extremely bullish 1.43:1. 

The only other time I can recall seeing that ratio lower was on 12/27/11. With price near $26.50 and on its way to $37 over the next two months, the Silver Cartel net short ratio was 1.34:1.

So, how does The Greater Fool Theory end? How does this play out? It's simple, really. Eventually, you run out of fools. And we are very, very close to that point in silver. 

And keep this in mind: At price tops, when The Cartel is short a massive amount of contracts, they at least have the ability to lay their hands on some physical silver to deliver into the market. The Large Specs have very little, if any, physical silver. When they are short, they really only have one option: Cover.

In the end, The Silver Cartel and commercials win once again. They have managed to buy all the way down, while painting the tape and sucking into the short side an extraordinary amount of spec shorts in an unusually short period of time. The silver market (and also gold) is primed for another exceptionally strong rally. Though picking the absolute bottom is nearly impossible, buying silver and buying time here is an almost-certain winning trade.

As predicted on Thursday, we are seeing quite a bit of price shenanigans today. Expect this to continue. In fact, even though I just laid out for you the extraordinary case for buying silver, I will not be surprised one bit if price falls toward $27 sometime this week. If silver can be jammed down and closed below the $27.92 low of March 1, more weakness will materialize as a new crop of even greater fools parade into the short side. Given the near certainty of the impending, sharp rally, perhaps we should all be rooting for this to happen. I mean, buying at $27 is even better than buying at $28, right?

So, go forth, relax and be happy. April is going to be a very exciting and fun month. It's now springtime and though last summer was HOT, it wasn't nearly as HOT as I'd expected. And, of course, like any other forecaster, I can't control the weather, I'm just the weatherman. That said, the forecast for April is HOT, leading to an even HOTTER May. So, grab your sunscreen and your Speedo. The party is about to begin again.

TF

260 Comments

Turd Ferguson's picture

Hat Contest Winners

MODERATOR

The latest Hat Contest concluded back on Friday (gold 1597.60 and silver 28.30) and the winners are:

In gold, with a guess of $1600, "menudotigre".

In silver, with a guess of $28.25, "ghent".

Winners, please email me your shipping info. Use tfmetalsreport at gmail dot com.

Turd Ferguson's picture

Long holiday weekends...

MODERATOR

...make for lots of fun in the comments. However, it's back to business today. Please keep the discussion on topic regarding the metals. Kindly take the religion, chemtrails, Illuminati, etc stuff to the forums.

Thank you.

tyberious's picture

First

First

prius_driver's picture

It mut be a bottom

I am nearly losing my mind.

dnlward's picture

Technically thurd

I will not believe anything I read on the interwebz today.

Joe Dokes's picture

Second

Wow!

Edit: Dang it, too slow but furth is okay with me.

meddle magic's picture

man I was way over

on my guesses.

wildstylechef's picture

Fifth of gin please

US Dollar is way down today and with more bad news from economics because of sequester and the influence of reserve currency losss lets hope for a huge drop in the US  dollar aka aug 2011 and our long wished for gold to 2000!

Your welcome Turd

sengfarmer's picture

tenth?

happy days

R man J's picture

Sorry But I had to repost re: David Morgan

Today I had to #unfollow David Morgan on twitter. I can't remain strong and continue to read the negative silver links he posts.

The latest tweet by David Morgan, which I will not post a link to, is yet more negativity for silver. He links to a bank analyst "expert" in Chinese silver inventory, saying that the Chinese have a vast surplus of silver, and the long term price target for silver should be about $20.   Of course David does nothing to refute this claim. I have found David to be mostly about paper and negative towards the future price target of physical Silver.

Since he is the foremost "expert" I bow to him and admit that my physical silver investment is toast.

I often go away from his stuff discouraged about my physical silver investments.

Magpie's picture

Shameless repost

http://hat4uk.wordpress.com/2013/04/01/global-looting-monte-paschis-flying-circus-2/

Panos Kostopoulos of AMP Gold Bullion Merchants Ltd. in Nicosia says that before the bailin, everyone in Cyprus argued against buying gold bullion. Now he gets kilos per day of enquiries for the shiny yellow metal. He thinks the government will close down gold selling to the public within a few days.

¤'s picture

Cyprus Framework Prepared For Long Ago

April 1, 2013, 9:39 a.m. EDT

Cyprus terms rooted in secret letter from ‘70s

Commentary: Draghi recalls Germans invoking secret escape clause

By David Marsh, MarketWatch

LONDON (MarketWatch) — The Emminger letter forms one of the more obscure parts of the history of the German Bundesbank, the country’s vaunted central bank. It is also one of the most chillingly controversial. And, in the hard-line negotiations over the latest Cyprus bailout package, 35 years after it was written, it has just made a singular re-entry.

The document, drawn up in secret in 1978, gave the German central bank the power to sidestep formal obligations to support weaker countries via foreign-exchange intervention during European currency turmoil. Otmar Emminger was one of the most influential figures rebuilding German post-war central banking from the 1950s.

He was a member of the board of the Bundesbank and its forerunner, Bank deutscher Länder, for 26 years, finishing as Bundesbank president for 2 1/2 years, from 1977 to 1979. Emminger died in 1986. But his spirit lingers on.

The European Central Bank ultimatum delivered to Cyprus on March 21, giving the country until the following Monday to agree a lending deal with the International Monetary Fund and the European Union or risk bankruptcy, bore the Emminger hallmarks. In a classic pincer move, the ECB governing council said its emergency liquidity assistance (ELA) to Cyprus would not be renewed unless an official program was in place — sparking frantic diplomatic action that led finally to a deal a week ago closing down the island’s second biggest banks and imposing swinging writeoffs on large depositors.

The ultimatum marked a dramatic change of ECB tactics.

In previous action over the past few years, the ECB had maintained generous liquidity assistance for Ireland and Greece, under lending that is deemed semiautomatic unless the governing council (currently 23 people, all men) decides with a two-thirds majority to close it down. The lending has attracted great displeasure in Germany and other current-account surplus countries.

With Cyprus, the hard-currency central banks behind the ECB, led by the Bundesbank, decided they had had enough. By ensuring that its habitually tough line unreservedly became ECB policy, the Bundesbank — without needing to act in public — strode to the front line of the debate over the future of economic and monetary union (EMU) and the euro EURUSD +0.38% .

The Emminger episode is an almost-exact parallel. In the 1960s and 1970s, the Bundesbank was perennially haunted by the fear that its efforts to control the German monetary base and hence German inflation would be compromised by commitments to take in large volumes of foreign currencies to maintain exchange-rate stability. These obligations were imposed first by the Bretton Woods fixed-exchange rate agreements and then by various European currency arrangements.

In EMU, the Bundesbank is highly wary of the risks caused by the buildup of its assets with the ECB reflecting the ECB’s lending to hard-hit peripheral countries, which includes borrowings under the ELA. The Bundesbank’s assets under the so-called Target-2 system for short term liquidity transfers were 613 billion euros as of end-February, up from 547 billion euros in February last year, making up roughly two-thirds of the Bundesbank’s balance sheet. The Target-2 total has declined by around 140 billion euros since the peak in August last year, but greatly exceeds the Bundesbank’s gold stocks worth 132 billion euros as of end-February as well as its 29 billion euros of foreign exchange reserves.

The significance of the Emminger letter is that he wrote it at a similarly fraught time of skirmishing with France and other neighbors over Europe’s monetary framework. Emminger sent the missive to Helmut Schmidt, then West German chancellor, on Nov. 16, 1978, to register the Bundesbank council’s approval of most of the elements of the prospective agreement setting up the European Monetary System (EMS), which developed later into EMU.....(cont.)

http://www.marketwatch.com/story/cyprus-terms-rooted-in-secret-letter-from-70s-2013-04-01?link=home_carousel

tyberious's picture

Morgan

"the long term price target for silver should be about $20". At that price there will be no silver miners, as it cost about $ 25+ to mine. Plus how does he come to that valuation, with the dollar losing its purchasing power? Nope, something is not right in that analysis!

beinki's picture

Poking fun at Big Pharma

Road_Scholar's picture

Comex & LBMA Default

someday.  Who knows.  These A-Holes are blatant thieves and no one does a thing about it.  Does it really matter what a COT says?!  Why isn't that report total crap too- hell, they rig every other aspect of the "markets"?  (Turd, no offense to you or your hard work and Ted too- it's just so damn frustrating)

Sorry, I'm more cynical and bitter today than normal.  Maybe it's that I hate all of mindless contrived "Hallmark" holidays like Easter.  Aaaagh.  Even the schools are shut today for Cesar Chavez day...

alan2102's picture

Things that did NOT happen, Q1 2013

To review, here are a few things that did not happen this first quarter. Note that, although these things did not happen, any one of them, or a number of them, or all of them, COULD happen at any moment.  So stay on your toes.

...............................................................

The derivatives bubble did NOT implode, and the E.U. did NOT collapse, precipitating a domino-effect panic and total meltdown of the global financial system.

Gold and silver did NOT get spectacularly revalued overnight, and physical gold and silver did NOT suddenly become completely unavailable at any price, rendering goldbugs and silverbugs instantaneously rich beyond their wildest dreams.

A manufactured crisis did NOT result in a domestic financial collapse, bank holiday, and major currency devaluation or currency crisis, followed by government seizure of all businesses, equipment, capital and durable goods, personal automobiles, and food supplies.

The infrastructure did NOT collapse, supply chains did NOT break down, store shelves are NOT empty, and available goods are NOT priced at many multiples of prices just a few weeks ago. As a result, the nation is NOT enduring mass starvation, breakdown of public health and medical services, rampant plague-like infections and infestations, unimaginable suffering, and mega-deaths.

Marshal law was NOT declared, the nation's cities did NOT descend into anarchy, chaos and wanton bloodshed, the streets were NOT patrolled by heavily-armed infantry, tanks and armored personnel carriers, and urban areas were NOT reduced to bombed-out and smoking rubble, like Beirut.

Hordes of inner-city savages and crack addicts [of you-know-what hue], in a blind fury at the failure of their food stamp cards, did NOT stream out into the suburbs and beyond, raping and pillaging all in their wake.

Communist China did NOT launch a ground war on the U.S., landing 100,000,000 troops and countless armored divisions on the West coast, cutting eastward, with the goal of anihilating Western civilization and destroying freedom forever.

Obama did NOT annul the entirety of the Constitution, declare himself absolute monarch and dictator, and command his Inner Circle of fanatical loyalist military police to seize and imprison anyone in high position uttering a peep of objection.

Rogue elements from North Korea, Zimbabwe, and other places that all good Americans hate did NOT launch a successful EMP attack, dealing a crippling blow to the North American power grid, and with that, to the possibility of recovery from the economic and infrastructure collapse already underway.

The DHS, with the cooperation of U.N. and Russian troops, and bought-off local authorities, did NOT undertake door-to-door searches and seizures of all guns, survival supplies, precious metals, and bibles.

Crazed America-hating Islamic Jihadists did NOT infect the nation's water supply with a weird, super-infectious and unstoppable new ebola-pox strain, causing 14th-century-like mass deaths in a matter of weeks.

FEMA forces did NOT round up 2.8 million good Christians, gun owners and Glen Beck-listeners and pack them into railroad cars, headed for Hilary's death camps deep in the outback.

All-out nuclear war with Russia, resulting in 170,000,000 immediate domestic deaths, and another 100,000,000 deaths in the ensuing weeks or months (starvation and disease), did NOT break out.

Planet X or other comets/asteroids did NOT crash into earth, precipitating multiple tsunamis, windstorms, earthquakes and volcanic eruptions of biblical proportions with, ultimately, over 6 BILLION casualties.

Shari'a law was NOT instituted in America's kindergartens and middle schools, and the U.S. Congress and Senate were NOT compelled by Obama's radical muslim core group to bow in the direction of Mecca, five times daily.

The armies of the Kings of the North, with all their horsemen and chariots, did NOT march into the valley of Megiddo and clash with vast armies from the East in the great battle at the end of time -- Armageddon.

The Green Manalishi's picture

Speedos

I'm never wearing them again, the last time I wore them the S fell off and caused a rather distressing incident during a Mother and Baby swimming lesson.

Mickey's picture

the cyprus confiscation of business accounts

and application here.

just thinking. If you have a nice sized private business, and are sell funding, you have cash in business checking accounts. Even if sweeped everyday where does it go-the banks overnight rate or in treasuries earning nothing?

anyway lets say your business has 2 mil cash and 1.5 mil accounts payable coming up--

one day the confiscation is enacted and you do not get any heads up--your business is in deep trouble.

So what do you do--open a bitcoin account and sweep to that--maybe a goldmoney account?

How can you keep a good chunk of cash needed short term  really safe? Of course if we ever have confiscation like cyprus here-the system is probably going dormant for a while. Either way, you do not want cash in banks.

I am thinking a stock pile of PM somehow but in order to pay bills when they come up you have to have some sort of flexible transaction method.

just thinking-this could be a great business-provide this "sweep service" with PM.  get i's dotted and t's crossed.

a few years ago I spoke with James Turk at a GATA meeting  and he was trying to get a debit card for gold money accounts. Don't think that worked out.

just thinking aloud. Where does a business stash excess cash.

Mad5Hatter's picture

Who they foolin?

Its a Swap, and nothing more

Peter A. Grant ‏@USAGOLD 2h
#QE4: New York Fed purchases $3.181 billion in Treasury coupons.
Retweeted by Jim Rickards

Derrick Michael Reid ‏@DerrickMReid 2h
@JamesGRickards you mean FED swapped 3.2B FED coupons for Treasury Coupons.

Old version of credit default swaps.

Alex Stanczyk ‏@alexstanczyk 3h
And so it begins. Depositors with > than €100k insured are trying to figure out where to put it. Longest standing answer in history is #gold

 

off to vegas for a couple of days. I here street burglars are selling eagles at 10% discount to spot. :)
 

Xty's picture

Brics dumped euro in 2012

BRICS dumping euro amid simmering EU banking crisis

Published time: April 01, 2013 08:35

Brussels has been forced to eat a generous slice of humble pie: A massive sell-off of the euro is underway in the wake of a persistent financial crisis, as holdings in the European currency by emerging economies were slashed by almost 8 percent last year.

Emerging economies – including Brazil, Russia, India, China and South Africa (BRICS) – are dumping the euro, having sold €45 billion of the currency in 2012, according to data gathered by the International Monetary Fund.

The euro represents just 24 percent of their reserves, the lowest level since 2002 – the year when euro coins and banknotes first entered circulation – and down from a peak of 31 percent in 2009. At the same time, the euro's share of total global reserves has also fallen. This change of fortune for the euro is blamed on several factors, including sovereign debt crises and rapid growth by BRICS nations.

...

This ‘euro flight’ is disturbing news for Brussels and the eurozone: The euro's challenge to the international status of the US dollar has been “set back a generation,” as new data show developing countries dumping the European currency from their official reserves, FT reported, citing IMF data.

...

The euro may regain its shine if Europe moves towards “fiscal union and a single sovereign bond market,” FT noted. However, the EU may have missed its chance to act as “big shifts in the global economy boost new emerging market currencies,” such as China’s renminbi, presenting a bold challenge to both the euro and the dollar.

"The dollar is holding its own for now, and we are moving towards a multicurrency system," Edwin Truman, senior fellow at the Peterson Institute think-tank in Washington told the UK business paper.

...

http://rt.com/business/eu-banking-crisis-imf-euro-brics-141/

daveyboy's picture

Sorry guys, but it does not

Sorry guys, but it does not cost $25 to mine, this is not true whatsoever.

That statement is not my opinion, I will paraphrase Eric Sprott from a recent interview some miners mine for $10, some for $20

That 20 dollar target is hopefully way off the mark, otherwise I am going to be counting the cost of a heavy investment gone south eeek.

tyberious's picture

Prepare for QE5: The Road to

Prepare for QE5: The Road to Financial Purgatory
By Joshua Enomoto, Founder of ContangoDown.com and FutureMoneyTrends.com contributor
 
Like a well-tuned Swiss watch, the financial media behemoth has been squarely focused on the sudden rise of the equities sector, in particular, the record shattering move of the Dow Jones Industrial Average. Thursday, March 28th added yet another milestone to the American bull market, with the S&P 500 index closing at 1,569 points, a session-finishing number that hasn’t been seen since…well, it hasn’t been seen at all, such being the way of the record break. But another bull market has also emerged (…and no, I’m not talking about Japanese stocks…), one that rarely gets mentioned because of its illogical nature.
 
I am referring to the US dollar.
Before the cries of hyper-inflationary policies by the inept Federal Reserve start pouring forth, let’s review the facts: while the Dow Jones rose over 16% from mid-November of 2012, the US dollar saw a lift of 5% in a two-month time frame between early February and late March of 2013. While that doesn’t sound like a whole lot, in the currency market, where volatility is measured in fractions, five percent might as well be a “two-bagger.” Over the last three years, the spread between the dollar’s absolute peak and valley measured 22%; for the Dow Jones, the spread is nearly 52%. From a simple ratio perspective, the dollar has had every bit of an impressive bull market as the Dow or the S&P500.
 
But how can that be?
 
This is where things start to get a little strange, with the present market behavior perhaps acting as a harbinger of a deflationary cycle. First, let’s consider the technical chart (6-month daily) for the US dollar index:

The current level of the index has retraced nearly 84% of the July 2012 peak, suggesting that this price action is no fluke. Something has energized the paper bulls, with a rising level of support ready to catch any downside risk at the upper 80’s. Also, a six month period where the faster 50 day moving average was below the 200 finally came to an end in late March 2013. Frankly, if we were discussing gold bullion, the gurus and experts would have jumped out of the woodwork with new calls of excessively dizzying heights, yet because this is merely a “worthless fiat currency,” the fervor is nonexistent.
 
Still, such a dramatic rise is hard to ignore. Despite one’s personal bias that would argue for the contrary, the actual data points to strength in the dollar. But can such a scenario be possible given the quantitative easing programs of the Fed? Let’s consider another technical chart for the Dow Jones (3-year daily chart):

The green line represents the price action of the dollar index, which starkly demonstrates the dichotomous relationship between the currency and the equities market. However, in late February, the inverse alignment came to an abrupt end, with the dollar and the Dow making near-term highs. Dollar strength is logical at this time, given the weakness in commodities and foreign currencies, particularly the Yen and Euro pairings with the greenback. But it does necessarily imply that equities are tremendous value plays, as each successive move higher in the stock market is accompanied by an equally higher moving currency: to put it bluntly, we have entered an arbitrage condition where hedging is no longer required.
But as with any pure arbitrage movement, such circumstances rarely sustain themselves: somewhere along this journey, a turning point will emerge. Back in late 2007, when the equity indexes were also breaking records prior to the financial collapse, the dollar index was roughly around the 82 level, but making its way sharply lower, at one point getting down to 71 in the spring of ’08. Immediately after the collapse, the dollar index shot up over 14% to nearly hit the 90 mark, which was reflective of the mood at the time: undervalued equities, low cost of goods, and an extremely strong currency.
The conclusion? Either the equities or the dollar moves higher from here, but not both. Forecasting the correct path, however, would inevitably lead to long-drawn debates, as no politician has the heart or the conviction to lead the country down to a deflationary cycle. Such being the present psychology, it’s hard to argue against the idea that the Federal Reserve is fully committed to prevent deflation and this could very well lead to QE5.
 
However, the Fed is running out of ways to inflate the currency without inflating real prices (balance sheet inflation vs. street inflation). Thus, any additional loosening programs could seriously undermine the stability of the financial system, further underscoring the importance of real assets. While limiting exposure to commodities may be wise during transitional cycles, an investor should be careful in cutting exposure altogether: with so much hanging on a delicate balance, even a small investment in tangible assets could pay off exponentially.
cpnscarlet's picture

Remembering the Summer of '12

Was told that the summer would be hot and wild. That didn't happen either. Now April is supposed to be very exciting and "fun". I just hope Turd's idea of fun and mine are somewhat aligned.

28 days and counting.

tyberious's picture

Submitted by SRSrocco MY

Submitted by SRSrocco

MY BALLPARK FORMULA FOR CALCULATING COMPLETE MINING COSTS FOR SILVER

Last year, I wrote an article titled THE COMPLETE COST OF MINING SILVER.  In it I used a quick formula to figure what a more true cost would be for an ounce of silver than the CASH COST.

This is an update of the complete cost for mining silver in 2011.

Miners use the CASH COST to compare just how cheap it is to mine silver.

They arrive at their CASH COST by adding all the by-product revenue against an ounce of silver.  For example, if a miner has some Gold, Lead and Zinc in a ton of ore, they take the revenue received from those by-product credits and get an INSANELY LOW CASH COST.  In 2011, HECLA had a CASH COST of only $1.15 an ounce for silver.  To the layman they would think that they would have all this wonderful profit – but they don’t.

Hecla actually had TOTAL REVENUE of $477.6 million with a NET INCOME of only $151.1 million.  You would think with such a low CASH COST that they would be making nearly $350-$400 million.  That is why I came up with my COMPLETE COST for getting a truer figure.

Before I put out the CHARTS… let me give you my DISCLAIMER.  After I came out with the article last year, I had several emails telling me why my formula was incorrect.  While it is true, that my COMPLETE COST is not the best way to get a accurate estimation, it is the simplest way.  I like KEEP IT SIMPLE STUPID — KISS.

First, this is last year’s formula for getting the Complete cost from HECLA’s 10-K:

And this was last year’s COMPLETE COST CHART for (4) primary silver miners:

I did the calculations for 2011, and this is what I found to be the COMPLETE COST PER OUNCE for mining silver at this time:

The RED LINE is the CASH COSTS put out by the Mining companies.  The BLUE LINE is my COMPLETE COST that I arrive by dividing the NET INCOME by the TOTAL REVENUE… this gives me a percentage of PROFITS.  I then take that percentage and times it by the average price of silver in 2011 which was $35.12 oz.  That figure is the PROFIT PER OUNCE for each mining company.

First hand, we can see that actual CASH COSTS for two of the mining companies in the United States (US SILVER-REVETT MINERALS) is actually very high at $17.50+.  I will take US SILVER for an example:

US SILVER CORP:

Total Revenue = $93.4 million

Net Income = $21.3 million

$21.3 mil / $93.4 mil = 22.8%

$35.12 X 22.8% = $8.00 PROFIT PER OUNCE

$35.12 – $8.00 = $27.12 COMPLETE COST PER OUNCE

————————————————————————————–

Now if the AVERAGE PRICE of SILVER had fallen below $27.12, US SILVER CORP would have started to get into what I call the BREAK-EVEN area.  I would imagine if we had $20 an ounce silver in 2011, US SILVER CORP would have had a NET INCOME LOSS.

Again, this is a BALL PARK WAY of getting to a TRUER figure.  As for by-product metals… we must remember, all mining companies are selling their by-product metals at market value.  Some have used hedges, or have a certain contracted rate (such as Silver Wheaton)… but they all do this.

If the price of Silver falls, so does the price for Lead, Zinc, Copper and Gold.  My method just makes calculating this figure simply.  I could spend hours comparing what the mining company PRODUCED and what it actually SOLD in metal ounces.  They always sell less than they mine, so to me it all evens out in the wash.

If the AVERAGE PRICE of SILVER keeps falling in 2012, but the COSTS for mining increase (which they have), these miners will make a lot less NET INCOME this year.

Big L's picture

dollar reserve status and silver prices

How will the loss of the USD's reserve status affect silver prices? I know we would have to assume the end of the daily/weekly/monthly manipulation. So lets assume for the moment that doesn't exist so we can separate out the fundamentals. Lets assume for the moment that the price of silver has been allowed to find it's natural and fundamental price levels and that is where we are now. Just assume for a moment.....

IF we were dealing only with fundamentals, it's safe to assume silver prices would rise as the value of the dollar starts to drop?

And what other effects would we be able to clearly see? Exactly, what ' mom and pop', 'joe sixpack' pocketbook and chain wallet effects can we expect with the loss of reserve status?

Loss of purchasing power? Especially for gas and imported goods? How about food?

Fewer goods in the stores?

Failed treasury auctions? Or just more frantic 'printing' and QE.

Rise in bond rates? Will the bond markets start to fail?

And interest rates? Would they start to rise (in a non manipulated system?)

What can we expect to SEE as this process continues? What can we point to, as we try to bring people on board?

In other words.... what are the 'tells'.

I'll appreciate your thoughts, and please hold the metals manipulation comments. This is a thought experiment and I like to assuming a specific scenario in order to simplify the mechanics and cause and effect.

I hope this lies within the parameters of this thread, if not, please ignore.

Antony von Clearwell's picture

First!....

...of April wink

now back to read the post...

tyberious's picture

operations In 2012, Hecla's

operations
In 2012, Hecla's Greens Creek mine produced 6.4 million ounces of silver at an average total cash cost per ounce of $2.70(1). Hecla currently produces silver from two silver mines, Greens Creek and Lucky Friday. During 2012, the Lucky Friday mine conducted rehabilitation work with operations and production resuming as expected in early 2013.

(year ended December 31)

  Silver Ounce Production
(in thousands):
   
2009
 
2010
 
2011
2012
  Greens Creek Unit
Lucky Friday Unit (1)
Total silver ounces
 
  7,459
3,530
10,989
7,207
3,359
10,566
6,498
2,985
9,483

6,394

      - -

6,394

  Gold Ounce Production:  
  Greens Creek Unit
Total gold ounces
 
  67,278
67,278
68,838
68,838
56,818
56,818

55,496

55,496

  Average cost per ounce
of silver produced: ($/oz)
 
  Total cash cost per ounce (2)
 
  $  1.91 $ (1.46) $  1.15
$2.70

(1) During 2012, the Lucky Friday conducted rehabilitation work with operations and production resuming as planned in early 2013.

(2) Total cash cost per ounce of silver represents a non-U.S. Generally Accepted Accounting Principles (GAAP) measurement. A reconciliation of total cash cost to cost of sales and other direct production costs and depreciation, depletion and amortization (GAAP) can be found in the legal page of this website.

http://www.hecla-mining.com/operations/

tyberious's picture

Finding a Floor for Silver &

Finding a Floor for Silver & Silver Miners

Since silver reached our target of $50 last year it has been in a treacherous downhill descent. The depth of the decline in precious metals is approaching 2008 levels, and many mining stocks are at 2009 price levels. While it has been painful for bullion investors, it's been even more disastrous for silver miners and their investors. Now we must revisit our analysis to determine if silver and miners are near their trading floor.

We've seen a lot of bearish reports on silver including a comparison to the Nasdaq bubble crash, which overlays a projection of silver to continue falling to the $6-$8 range. Is it possible for silver to reach or hold at those levels?

Using earnings data for PAAS, SSRI, EXK, and AG from the first quarter of 2012, we divided earnings by actual silver produced, giving credit for gold and other base metals, in order to determine the actual break even cost of production. Gold sales averaged $1,700 and silver averaged $33 for the first quarter. Despite this SSRI wasn't profitable. EXK had the lowest breakeven point of $14.68 per ounce of silver, followed by AG at $18.33 and PAAS at $23.87. The average breakeven production cost was exactly $24 per ounce. Even excluding SSRI, the average was $21.50. Over the past 11 years, silver has risen by nearly 10 fold; however production costs have almost risen just as much. Silver's price is approaching its long term cost of production level, and given the depletion of silver stockpiles of the last 3 decades, we don't anticipate silver's price holding below that level for long – if at all. If you're somehow able to buy silver for less than $21.50 to $24 an ounce we'd argue that miners are literally paying you to buy it. Given that over the long run miners need a healthy profit margin as an incentive and buffer against their depleting resources, we'd argue that $26 to $30 is the long term nominal floor for silver.

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daveyboy's picture

Straight from Sprott, please

Straight from Sprott, please listen from 1 minute onwards

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