The Golden Truth: The Chinese Are Hoarding Silver...

Tuesday, October 19, 2010

The Chinese Are Hoarding Silver...

"Jesse" of Jesse's Cafe Americain link brought the article below to my attention. Silver exported from China has declined 40% this year because of the strong internal demand:

“The demand is coming from all areas, including jewelry, investment and fabrication and this has resulted in a physical market shortage in the Far East...” “There are Chinese investors now hoarding silver, along with other resources, amid anticipation of higher inflation,” Feng said. “China is short of resources so these investors believe the metals will be more valuable in the future.”

Here's the link to the news report: China hoards silver.

Not much commentary is needed to highlight the implications of that report. I will, however, point out a couple of things: 1) the Comex paper short in silver is absurdly several multiples higher than the ability of those who are short (JP Morgan, HSBC mostly) to deliver actual physical silver if the buyers make that demand; 2) The gold/silver ratio is currently around 56; historically this ratio has been fixed as low as 8 (ancient Rome) and usually reverts down to its long term historical ratio of approximately 16 from time to time; 3) It is clear that even if gold were to remain at the current price level, the "poor man's gold" is rediculously cheap in relation to golden gold.

The best way to play this out is to keep accumulating physical silver, especially on price corrections - my preference is 1 oz. silver eagles in sealed mint boxes - and invest in high quality silver stocks (HL, SLW, SVM) and mix in well-researched junior exploration stocks. I will point out that Silver Dragon (SDRG, I own this stock and so does the fund I manage) is sitting on several properties in the heart of China's silver mining district (Erbahuo), one of which (Dadi) is being developed in partnership with Shengda (China's largest silver mining company). It has been determined that the size of the silver mineralization of Dadi is quite prolific. The 43-101 is available on the Company's website: SDRG.

In addition, the Comany has announced its intent to file for a listing on Toronto Stock Exchange (most of the conditions for this have already been met) and it will be filing a 43-101 on its second largest property, Laopandao, sometime this year. If you are interested, please spend ample time with the Company's website. In addition, CEO Marc Hazout is one of the few corporate CEO's who promptly and personally returns all investor phone calls or email inquiries. For rediculous regulatory reasons, a lot of valuable information is posted on the website which the Company is not permitted to announce with press releases (don't ask, it's a b.s. NASD regulation). My view is that once the Chinese have trouble satiating their demand for physical silver, they will turn their attention to investing in local silver mining stocks and SDRG will be get a lot of capital attention when this occurs.

10 comments:

AnonymousTuesday, 19 October, 2010
I own a boatload of Silver Dragon and like what they're doing, but I'm a little surprised that the locals haven't started to get interested in this stock yet.
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Dave in DenverTuesday, 19 October, 2010
The Shanhai stock exchange fell 30% last year. That tends to wring out and scare away a lot speculative players in any market. Granted it has rallied back quite a bit, but just like here, I'm sure the small penny stock plays have been largely ignored over there. In good time SDRG will explode with a vengeance. Between Mexico and China they have an unbelievable amount of untapped silver resource.
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AnonymousTuesday, 19 October, 2010
The chart is actually shaped like a dragon.

Just squint your eyes and back-up from the screen a little to see the outlined image.

Go to the stockwatch 1 year.
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BillTuesday, 19 October, 2010
Thank you for the TIP Dave...just bought 10,000 share of SDRG...Much appreciated.

Bill
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AnonymousTuesday, 19 October, 2010
What about resource nationalisation? Do you think the Chinese government might confiscate it?
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Dave in DenverTuesday, 19 October, 2010
Anonymous, China has a more free economic system than the U.S. does now, for the most part. I think there's greater chance of nationalization here than in China.
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AnonymousTuesday, 19 October, 2010
Dave, yes at the moment China does seem to have a more free economic system, but I wonder how bad things are going to get. Charles Hugh Smith has an interesting take http://www.oftwominds.com/blog.html
I'm not sure, I own Prophecy in Mongolia, which doesn't have such a free economic system.
If we are about to descend into anarchy, then resource nationalisation has to be considered, if we aren't, then more risk is ok. It's a tough call though!
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Dave in DenverTuesday, 19 October, 2010
Anonymous, at "the end of the day," the true cold-blooded 100% correct goldbug would say, and always has proffered, that the ONLY way to truly protect yourself from the system is avoid all paper and own only physical gold/silver in YOUR OWN possession.

I can't live that way and part of the thrill of living for me is adrenaline I get from trying to outsmart the markets. There will be a period of time that mining stocks will substantially outperform the metal. The "trick" will be to have enough discipline to fold up that tent before the system totally descends into the kind of totalitarianism we all know is coming.

Until then I'm pressing my "living life" accelerator to the floor and taking what's still available while it lasts.
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AnonymousFriday, 10 December, 2010
Did you get the letter from Minority shareholders? What is going on?
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Dave in DenverFriday, 10 December, 2010
What letter?
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Add comment

Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.