report
6th September 2010
Silver, Luxury Goods and Rare Earths
I can’t remember a time in my 23 years in the market when therewas so much confusion and uncertainty about the outlook. As themonetary catastrophe unfolds gradually, some days things looka little brighter, then the sheer enormity of the problem becomes
only too apparent once again. Sentiment keeps ipping between
optimism and pessimism, but the debt bubble just gets bigger!Noel Gallagher wrote “These are crazy days, but they make meshine”, and that sounds like a good enough motto for trying to
invest right now (ngers crossed).
“The players are under so much duress it’s like Duressic Park out there”
Quote: Darts commentator Sid WaddellThe silver price has started to trade differently and it appears
that BIG MONEY is moving in to the metal (at long last) andghting the Cartel. There is evidence that the supply of physical
silver is getting tight and it could be the beginning of a majorupward move in the price. In the more ephemeral world of luxury goods, if you’re following the emerging fashion trends,you’ll know that there are some seismic changes moving into theAutumn/Winter 2010 season. While not perfect, the link betweenchanges in fashion and economic prospects is long established,most famously via the “Hemline Indicator”. It’s not for everyone,but taken at face value, the current trends are overwhelmingly
bearish. However, there are also a few conicting signals, whichseems to sum up the state of nancial markets perfectly! Moving
Contact/additions to distribution:
Paul Mylchreestpaul@thunderroadreport.comThis issue:Silver - the Call to ArmsLuxury Goods, the “HemlineIndicator” and the stock marketRare Earths - going to warFREE Martin Armstrong
Imprisoned for nancial analysis
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© Thunder Road Report - 6 September 2010
on to rare earths, China (which supplies more than 95% of world production) has slashed export quotas.
Rare earths elements are used in iPods, mobile phones, laptops and clean technology (e.g. wind turbines
and hybrid cars) as well as being critical to the US military. This could set the scene for a very serious tradewar between China and US, but the potential implications remain poorly appreciated. Rare earth prices
have spiked and the share prices of rare earth mining companies are responding. I’ve added Great WesternMinerals and a few shares in Avalon Rare Metals since the last TRR.
Silver – the Call to Arms
The Achilles Heel of the Cartel in the gold and silver markets (i.e. the US government, Federal Reserve andtheir bullion banking agents) is almost certainly PHYSICAL SILVER BULLION. Just like gold, silver is money(as well as being a vital industrial metal) - which scares the Cartel to death and is behind its attempts tosuppress the price going back more than a decade. Gold and silver not only compete with at currency but
also against Government bonds – the market for which is developing into one of the biggest bubbles in the
history of nance. That assertion is refuted by the majority, which is another classic indication of a bubble.
But back to silver:
B
Unlike gold, silver is no longer held as part of central bank reserves to any signicant extent;
B
76% of newly mined silver is consumed in non-investment applications (industrial, photography, etc)
thus further depleting above ground bullion stocks,
B
US banks (primarily the one whose name begins with the letter between i and k) are short 21.8% of allof the outstanding contracts on the COMEX exchange in New York. These 26,855 contracts amount to134.3m oz of silver or 4,176 tonnes. This is equivalent to 19% of all the silver mined in 2009 and 15%of total silver production if we include the recycling of scrap. Let’s think about that a different way. If
one or two banks were long the entire annual oil output of Saudi Arabia and Norway combined, it would
be equivalent to 15% of the world’s 2009 oil production. Can you imagine the outcry from the public
and politicians about market rigging, greedy speculators pushing up the price of gasoline, etc? In terms
of wheat, it would be the same as a position in 100 MILLION tonnes, equal to the entire aggregateproduction of agricultural giants the US and France;
B
Silver forms little or none of the Yamashita hoard of treasure which is hidden/protected in the Philippines
to the best of my knowledge; and
B
Because silver is such a small market, if “big money” started to accumulate physical silver in an aggressive
way, the Cartel could get into serious trouble. This seems to be what’s happening.The silver price is just under US$20/oz so almost everybody (“tramps like us”) can afford at least a smallamount. I’ve bought a bit more physical silver from ATS Bullion which has an ofce next to the Savoy Hotelin London (you can just phone them up and take some id when you go to pick up your silver). I even had topay more than a 20% premium to spot plus VAT, but that’s going to be irrelevant if I’m right and the silverprice goes to US$50-100/oz (note: I deliberately avoid silver and gold ETFs). This is part of my “CascadingDefensive Strategy” in gold and silver, i.e. have a bit of physical CLOSE BY, buy some ALLOCATED bullionat closer to the screen price (e.g. from the likes of BullionVault or goldmoney.com – which can also storeit overseas) and have some exposure to the EQUITIES, both the MAJOR producers and a few JUNIOR
exploration plays.Buying some physical silver is an opportunity to send a powerful message to the corrupt interventionists
in the Cartel.
3
© Thunder Road Report - 6 September 2010
In my two-part piece “Silver – the best investment of all?” back in January and February of 2009, I
characterised silver investors as being like: “an underground movement – and one whose day in the sun is approaching” I’m even more bullish on silver than gold and have the balance of my portfolio set up accordingly. In fact,I sold some gold shares to buy the physical silver. My long-held view is that the gold/silver ratio will getback to 30 from the current level of 62 - that would take it back towards its lows in the post-Bretton Woods
world. The gold/silver ratio was 12.5 in 323 B.C. when Alexander the Great died, was 12 during the RomanEmpire and was xed at 15 during most of the 19th Century during the “golden era” of the Gold Standard.According to the gold-eagle website, the median ratio since 1687 is 15.7.
Gold/silver ratio since 1975
Source: goldprice.org
Importantly, the silver price has started to trade DIFFERENTLY in the last couple of weeks - as everybody
who stands shoulder-to-shoulder with GATA and Ted Butler in the precious metals markets has noticed.
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Thunder Road Report 21 6th Sep 2010
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