Posts Tagged ‘silver bullion’
Keith Neumeyer: The Silver Market Lacks Integrity
The Hera Research Newsletter (HRN) is pleased to present an incredibly powerful interview with Keith Neumeyer, Chief Executive Officer, President and Director of First Majestic Silver Corp. (TSX:FR / NYSE:AG). Mr. Neumeyer began his career at the Vancouver Stock Exchange and worked in the investment community for 26 years beginning his career in a series of Canadian national brokerage firms including McLeod Young Weir (now Scotia McLeod), then Richardson Greenshields and then Walwyn Stogell McCuthchen (which became Midland Walwyn).
Mr. Neumeyer moved on to work with several publically traded companies in the natural resource and high technology sectors. His roles have included senior management positions and directorships in the areas of finance, business development, strategic planning and corporate restructuring. Mr. Neumeyer, who has listed a number of companies on the Toronto Stock Exchange, has extensive experience dealing with financial, regulatory, legal and accounting issues.
Hera Research Newsletter (HRN): Thank you for joining us today. Let’s begin by talking about silver supply and demand.
Keith Neumeyer: Silver mine production was around 736 million ounces in 2010. Demand was around 1 billion ounces. Scrap silver recycling and some government sales filled the gap. We’re at historic lows in terms of above ground silver. Eric Sprott recently said there are 1 billion ounces of triple nine silver left aboveground. Unlike gold, silver gets used. We’re at historic highs in supply when it comes to gold, but the exact opposite is true for silver.
HRN: Is there a deficit in terms of mine supply?
Keith Neumeyer: We’ve had a supply deficit for the past 13 years. 2009 was the first year we created equilibrium. We only went into a surplus in 2010, in terms of industrial and jewelry fabrication demand. The surplus mine supply was purchased by investors, obviously. A lot of mining companies are showing lower production because a lot of silver comes from base metals and, with lower base metals prices, it’s becoming more difficult. I don’t see any major supply drivers for silver in the next several years.
HRN: Do you expect more scrap silver to enter the market?
Keith Neumeyer: That’s what happened in 2009 when gold rallied over $1,200 and then corrected to below $1,100. It was primarily caused by scrap gold entering the market. I believe the same thing was happening for silver. We’ll see that again as the metals make new highs. It’s the same as a stock. You replace part of the shareholder base at different levels.
HRN: Are you optimistic about future demand?
Keith Neumeyer: Yes, I’ve been optimistic about silver since 2002 because silver is a strategic metal. I think it’s more important than gold.
HRN: Are there new applications that could increase demand?
Keith Neumeyer: We’re seeing all kinds of new applications. A recent report by Barclays forecast that 120 million ounces of silver will be used for solar power generation in 2012 versus 40 million ounces in 2009. The battery industry is growing as well. Zinc-silver batteries provide very stable capacity—their output doesn’t degrade like lithium batteries—and they deliver 40% more energy compared to nickel metal-hydride batteries. They’re safer than water-based chemical batteries because they don’t heat up or explode. They’re also mercury free and 95% recyclable. Lithium-ion batteries in cell phones, for example, need to be replaced after 12 to 18 months. I’m very optimistic about battery technology. There are also robotics and other applications on the horizon.
HRN: What’s your long term price target for silver?
Keith Neumeyer: Silver will reach a value based on its natural ratio of 15:1 with gold. I expect to see at least $2,000 gold and most likely $3,000 in the next 3 to 5 years, so silver will be between $130 and $200. It’s a big number from where we are today but that’s where I think we’re headed. We’re dealing with a market that needs to be corrected.
HRN: Isn’t the price of silver set by supply and demand?
Keith Neumeyer: I don’t think supply and demand has anything to do with the price, unfortunately. The world we live in today is a paper environment where silver is priced by financial circumstances. Banks, traders and investors around the world move markets to where they want them to be. Governments and commercials—big banks like HSBC and JP Morgan—all have a piece of the action. They alternately work together or sometimes against each other. All these forces price the metal. That’s one reason we’re seeing the volatility that we’re seeing today.
HRN: How can supply and demand be irrelevant?
Keith Neumeyer: In short term trading, the price is financially driven. Eventually, markets do correct themselves over time. In the long run, supply and demand does have influence. That’s why the price will ultimately return to its natural ratio of 15:1.
HRN: How is the price of silver financially driven?
Keith Neumeyer: It has to do with the financial instruments that we trade in and with the fact that silver trades a billion ounces per day on the COMEX alone when there are 26 to 30 million ounces of silver available for delivery. With that kind of leverage, you just don’t have a proper market.
HRN: It has been reported that there are 100 ounces under contract for every ounce in the COMEX warehouse.
Keith Neumeyer: The governments, regulators and bullion banks have let the silver market get more and more leveraged. We’ve seen a lot of wealth destruction as a result of this leverage and we’re going to see a lot more until, finally, the governments decide to change the system.
HRN: Isn’t the COMEX guaranteeing market integrity, by raising margins, for example?
Keith Neumeyer: I don’t buy the argument on margin hikes at all.
HRN: Don’t margin hikes prevent dangerous asset price bubbles?
Keith Neumeyer: It’s not up to them to decide what is parabolic. They’re not investors themselves. They don’t have money in the market. They decide a bubble is going to happen if they don’t raise margins but no one knows when a bubble is forming. It is only apparent after it’s already happened. By hiking the margins, they create the appearance of a bubble bursting. They create the bubble. They create the proof that it was a bubble. If they let it alone, the market would stabilize by itself.
HRN: What should the Commodities and Futures Trading Commission (CFTC) do?
Keith Neumeyer: The job of the regulators is to protect the retail investor. That’s their only job. It’s not to protect the banks or the brokerage firms. The little guy is the primary taxpayer. Why were the Securities and Exchange Commission (SEC) and the CFTC put in place? They were put in place to protect retail investors. Prior to regulation, the banks controlled the market. Today, the banks control the market again. Who should control the market? Retail investors. Who’s protecting them? No one.
HRN: Are you saying that the CFTC does nothing while the COMEX caters to banks and brokerage firms?
Keith Neumeyer: Yes.
HRN: And the COMEX doesn’t serve retail investors?
Keith Neumeyer: No. Absolutely not.
HRN: Do you foresee a return to a free market in the future?
Keith Neumeyer: I’m an optimist. I believe one day that governments will rewrite the rules and force the regulators to protect investors. That’s where we were back in the ‘70s and that’s where I think we have to be again to correct the problems that have arisen over the past 40 years. Silver is being revalued. It’s going to affect a lot of people along the way and it will change the financial system. Ultimately, we’re going to have a new financial system and, hopefully, we’ll go back to natural markets, completely driven by supply and demand. It may take another 20 years but I think it will happen.
HRN: A new financial system?
Keith Neumeyer: If I’m wrong, the banks will run the world, even more so than they do today, 10 or 20 years from now. God forbid that we ever get there because that’s a one currency, one government world that would absolutely be a disaster for the human race. There would be no freedoms at all to move or to invest. It would be like having shackles on our ankles. There is a movement to go in that direction, unfortunately. There are a number of very wealthy people that want to see that. I hope that we can find the politicians to prevent that type of world from coming to pass.
HRN: Thank you for your time and for your candor.
Keith Neumeyer: It was a pleasure.
After Words
Keith Neumeyer, Chief Executive Officer, President and Director of First Majestic Silver Corp. (TSX:FR / NYSE:AG) is an industry leader who analyzes the silver market with the gloves off. In the wake of the failure of commodities trading firm MF Global, Mr. Neumeyer’s lack of confidence in the CFTC and in the integrity of the COMEX appears to be justified.
First Majestic Silver, which is one of a small number of primary silver producers, has consistently increased its production, cash margins and mineral resources while lowering production costs. With three operating mines and a fourth mine under construction, the company is growing steadily from a junior producer to a mid-tier producer that expects to produce 10 million ounces of silver in 2012.
Editor’s Note: Hera Research, LLC or its Directors are shareholders in First Majestic Silver Corp.
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Hera Research, LLC, provides deeply researched analysis to help investors profit from changing economic and market conditions. Hera Research focuses on relationships between macroeconomics, government, banking, and financial markets in order to identify and analyze investment opportunities with extraordinary upside potential. Hera Research is currently researching mining and metals including precious metals, oil and energy including green energy, agriculture, and other natural resources. The Hera Research Newsletter covers key economic data, trends and analysis including reviews of companies with extraordinary value and upside potential.
Silver Outweighs Gold
By: Peter Schiff, CEO of Euro Pacific Precious Metals
In the world of precious metals, silver spends a lot of time in the shadow of its big brother gold.
Gold, with its high price-to-weight and distinctive yellow tint, has always occupied a special place in the human psyche. To many people across many ages, gold is simply the ultimate form of money – and, as a long-term, stable store of value for one’s personal wealth, I agree it’s hard to beat.
However, rare circumstances are aligning today that I believe will make silver the true champion of this bull run.
WHAT’S DRIVING PRECIOUS METALS?
Gold and silver are both benefitting from a perfect storm in the sector.
Dollar devaluation means that much of the ‘gains’ we see are really just losses by people holding dollars. In other words, if your dollars lose 50% of their value, it’s going to take twice as many of them to buy the same ounce of gold.
But the rally is based on more than simple inflation. Precious metals are regaining their role as the ultimate reserve asset. That means many, many more people are buying and holding these metals than at any time in the last thirty years.
Another factor is the rise of emerging markets and decline of developed markets. As billions of poor Asians, Africans, and South Americans lift themselves out of poverty by embracing the free market, the US is plunging itself into poverty by rejecting it. This means there are a mind-boggling number of new customers for jewelry, savings, and industrial products that require precious metals – and that we are becoming less and less able to outbid them for these resources with our dollars.
SILVER’S DRIVING FASTER
If the world were going to hell in a hand-basket, then I would expect gold to outperform silver. However, it is only the developed economies that are on the rocks – and only the US that faces true catastrophe. Thus, we have seen silver outperform gold for the last eight years.
The market is telling us that while uncertainty reigns supreme, the global economy will prosper in the years ahead. While gold most effectively insures the investor against economic devastation, silver offers both a shield against monetary turmoil and exposure to market growth.
THE KEY: INDUSTRIAL DEMAND
This is because silver is both a precious metal and an industrial metal. Gold is mostly precious, copper is mostly industrial, but silver strikes a fine balance between the two. And it seems as if this moment in history is perfectly suited to this balance. We are facing not only the prospect of the collapse of the international monetary order, but also the largest industrialization process the world has ever seen.
While in a past era, wood, steel, or oil would have been the most critical commodity, today silver is used in everything we hold dear: iPhones, flat-screen TVs, batteries, solar panels, etc. Asia – the new heart of the global economy – is accumulating gold, but they’re consuming silver. That makes both metals good bets, but likely gives silver the edge.
It’s safe to say the future depends on a steady supply of silver. This burgeoning demand is reflected in the latest figures: global demand for silver is about 890 million ounces a year, while global mine production is about 720 million ounces a year. We’re actually consuming scrap to make up the difference. And unlike gold, which tends to remain in a recoverable state as coins or jewelry, a large quantity of silver is ending up in trash dumps – where it is essentially lost forever.
As long as the emerging markets continue to trend toward freer markets, and consumers the world over continue to demand computers, electronics, and green tech, silver should only become more scarce – and thus more valuable. I think these assumptions are pretty safe to make.
CAN THE WORLD THRIVE EX-US?
Of course, if everyone agreed with me, silver would already be worth hundreds of dollars an ounce and there wouldn’t be any profit to be made on the trade. Fortunately, there are a couple of bogeymen in the financial media scaring the majority of investors away from silver so far.
First, some analysts still believe – bless their hearts – that the US is really going to pull through this time into a sustainable recovery. After being duped by dot-coms and then housing, they are all aboard the Treasury Express back to Bubbletown. Unfortunately, as in the previous two cases, the current low interest rate environment is merely masking an underlying economy that is vastly more rotten than it was even a decade ago. The unemployment rate is a key signal that this time, Bernanke’s magic medicine won’t work.
A second cohort sees that the US is doomed, but still thinks we will drag the rest of the world down with us. This is the school that holds that despite our persistent current account deficits and monumental external debt, the world economy “needs” the US consumer to drive growth. As I alluded to in my book, How An Economy Grows And Why It Crashes, this is like a plantation master claiming his slaves need him around to consume the fruits of their labor, or else they wouldn’t have anything to do. Well, the results are in: after an initial panic rush into dollar-based assets, emerging markets are back at full sprint while the US is still limping along.
SILVER IN A DOLLAR COLLAPSE
Just like a Hollywood celebrity, we in the US spent our time at the top of the world – and soon let our status get to our heads. And like a celebrity, our adoring fans the world over will be quick to forget us as we fall from the limelight and deal with our powerful addiction to partying and cheap money. To survive the next decade in America, you are going to want an asset that is in demand globally, but is also free from counterparty risk here at home.
I recently did an interview with a group that is making a film about living in America in the year 2019. The premise is that inflation is rampant, the economy is in shambles, and groups are springing up that do all their trading in silver rounds. While I think their timeline is quite generous, this is a fairly accurate picture of what lies ahead.
Not only does silver appreciate while sitting in your safe due to overseas demand, but it also comes in units that are ideal for use as a common trade unit. Two or three ounces of silver can buy you groceries for a week. By contrast, just try to eat an ounce of gold’s worth of vegetables before they spoil. There are fractional gold coins and bars, but they carry very high markups.
None of us have had to think about these things in our lifetimes, but it is not abnormal in history. Soon, understanding precious metals will be as much a survival skill as knowing how to change a car tire.
THE GOLDEN RATIO
I always say that every investor should have at least 5-10% of his portfolio in physical precious metals. Of that, the proportion allocated to gold vs. silver depends mainly on risk tolerance. Silver tends to be more volatile than gold, so silver investors must have the discipline not to liquidate their stash at the first sign of a correction.
I generally advise a ratio of 2:1 gold-to-silver in the average portfolio. More aggressive investors can push it to 1.5:1 or beyond.
Year-to-date, silver is up 5 percentage points more than gold, and I expect that trend to continue. It’s important to understand that in this fast-changing world, silver is no longer runner-up.
For the latest gold market news and analysis, sign up for Peter Schiff’s Gold Report, a monthly newsletter featuring original contributions from Peter Schiff, Casey Research, and the Aden Sisters. Click here to learn more.
Silver Stock Report: Wisely Avoid Paper Silver Fraud
(if you didn’t lift it, you don’t own it.)
Silver Stock Report
by Jason Hommel, October 12th, 2009
Most silver investors are still deceived by “paper silver”. Over 99% of silver investments are paper silver, rather than real silver.
For proof, see
The Tiny Silver Market, IV October 8th, 2009
The Tiny Silver Market, III October 6th, 2009
The Tiny Silver Market, II October 1st, 2009
If the dollar amounts were represented 1 to 1 by people, then, very few silver investors (1%) have the discernment and wisdom to avoid the paper silver frauds. But fortunately, the wise investors are probably a bit more numerous, since many individual people are not “sophisticated” or rich enough to get trapped by the offers of paper silver.
I’ve had quite a few discussions with people about this, so let me see if I can help.
Many people justify paper silver, saying, “it’s cheaper”. Sure it is. That’s the point! How else would they convince you to buy it? They can’t float on your money if they charge you higher than normal premiums! Look, I can sell you all the silver you like at 5% UNDER SPOT or even 10% UNDER SPOT, if you promise to never take delivery, and never sell. (NOT REALLY, because I’m honest!) What will it take for people to realize that such offers are totally fraudulent?
Many people justify paper silver, saying, “I’m only using it to gain more money, to be able to buy more physical silver”. Of course. That’s the plan of many. But to be able to get a mere 100% more silver, you’d have to expect that the paper silver market will double in size, from about $150 billion to $300 billion, (with no new paper silver investments pushing it up), while the $1 billion physical silver market stays the same, too. Is that realistic? I don’t think so.
Many people justify paper silver, saying, “I don’t have anywhere where I can take delivery, also, it’s too heavy, or I’m in another nation, or I rent, etc.” Sure. I fully understand. I have one question, if I may. If you refuse to take responsibility for providing for the security and safety of your own wealth, please tell me how you expect that your wealth will provide you with the safety and security that you expect from it?
Well, here’s the same question another way. If you knowingly give your money to corporations who have declared openly in their annual reports that they are technically bankrupt and could not possibly have the silver that they claim, due to the problem of the relative sizes of the markets, then why in the world would you expect to be paid off by them, when unsecured creditors do not get paid off in a bankruptcy?
You can’t possibly be protected by silver that does not exist, “held” in the hands of institutions who are technically bankrupt.
You would be better protected if you gave your money to a bum on the street, because at least a bum who has nothing typically does not have a negative net worth, or a short position in silver. Besides, if you give to a homeless man, you are at least lending to God.
[Proverbs 19:17] He that hath pity upon the poor lendeth unto the LORD; and that which he hath given will he pay him again.
But if you own paper silver, you are giving to the rich, who oppress the poor through usury, and whose lack of real silver and gold testifies against them.
[Proverbs 22:16] He that oppresseth the poor to increase his riches, and he that giveth to the rich, shall surely come to want.
James 5
Warning to Rich Oppressors
1 Now listen, you rich people, weep and wail because of the misery that is coming upon you. 2 Your wealth has rotted, and moths have eaten your clothes. 3 Your gold and silver are corroded. Their corrosion will testify against you and eat your flesh like fire. You have hoarded wealth in the last days. 4 Look! The wages you failed to pay the workmen who mowed your fields are crying out against you. The cries of the harvesters have reached the ears of the Lord Almighty. 5 You have lived on earth in luxury and self-indulgence. You have fattened yourselves in the day of slaughter. 6 You have condemned and murdered innocent men, who were not opposing you.
The wealthy bankers who oppress through usury have “rotted” gold; they issue more claims than gold exists.
Owning real gold and silver is not unwise, gold is a provision from God, and we are commanded to obtain the real stuff.
Rev 3:18 I counsel you to buy from me gold refined in the fire, so you can become rich; and white clothes to wear, so you can cover your shameful nakedness; and salve to put on your eyes, so you can see.
Here are my most important Bible based essays regarding the importance of obtaining real physical gold and silver money, and avoiding paper promises and usury:
- 666: Mark of the Beast 1998
- Gold and Silver in Bible Prophecy December, 2001
- The Great Harlot of Rev 17-18 is Jerusalem, & what that means. October, 2002
- Usury Enslaves Jan 19, 2004
- Freedom from Usury Jan 23, 2004
- Bible Verses on how to Manage Money November, 2005
- The Use of Paper Money Violates All of the Ten Commandments July 2, 2006
- The Stumbling Block of their Iniquity April 9, 2008
- Biblical Political Positions February 7, 2009
- The Pre-Rapture Gold Gathering August 17th, 2009
I strongly advise you to get real gold and silver, at anywhere near today’s prices, while you still can
Jason Hommel
