 Poor man's gold
David Morgan
The
Silver Investor
Aug 3, 2004
It has been some time since I have written anything about the
economy, politics, gold, silver or athletic endeavors for the
public at large. There have been a few essays on the www.FreeMarketNews.com
website of which I am a director. Most of these essays were concerned
with China. The very fact that China is hosting the Third Annual
China International Silver Conference in late October this year
should give any thinking person pause for reflection. Go to http://www.silver-china.cn/en/
Another interesting point is
what I learned about the real Chinese silver views at the Silver
and Zinc conference early this year. It must be pointed out that
China is devoting a great deal of time money and energy to study
silver.
The Silver Institute has kept
us well informed about the real Chinese silver story, yet many
investors "feel" China is the exporter of silver at
all costs. Readers of the Silver Investor have a completely different
analysis - and sorry Internet readers these people pay us for
our research and we do not give it all away for free.
I will give you a hint however, just because a commodity lands
on the dock on a given day, it does NOT mean that the price on
that day is the price received.
Moving on to something interesting
about China I ran across in my research this past month. An article
titled: "The Chinese Silver Standard Economy and The 1929
Great Depression."
This paper was written by Cheng-Chun
Lai and Joshua Jr-Shiang Gau, Mr. Lai from the National Tsing
Hau University and Mr. Gau Directorate-General of Budget, Accounting
and Statistics-Taiwan. I will not go into any detail about this
report other than to paraphrase the authors, which state
the following.
It is often argued that
the silver standard insulated the Chinese economy for the Great
Depression that prevailed in the gold standard countries during
the period 1929-1935. The general argument that the silver standard
was a lifeboat to the Chinese economy remains defensible.
The Silver Investor has had
more questions about how silver does during a depression than
probably all other questions combined. Therefore, we suggest
that any serious silver student look up Blackwell Publishing
Asia and read the referenced article.
Have we done our job?
This is an exact excerpt from
our January Letter 2004.
What is our
view for the year 2004? As the precious metals markets continue
to gather momentum to the upside it becomes more difficult to
forecast the short term. First, recall several months ago, many
asked why is gold performing so well and silver doing nothing.
The answer was explained in the silver investor that the futures
market had congestion (many long contracts) in the near (spot)
month in gold and not in silver. In other words the threat existed
that enough gold buyers on the Futures exchanges would stand
for delivery, and this caused a mini short squeeze. Some may
remember that the Comex indeed increased the margin requirements
for gold contracts to cool off the gold market.
This is basically
what is taking place now in both gold and silver. CPM group put
out an alert early in the month stating that there could be considerable
pressure to the upside for both gold and silver throughout the
month of December, but warned that the markets could come right
back down just a quickly. The point was emphasized that the paper
or futures markets are volatile and move quickly in both directions.
At this point
in time, what we outlined last month is basically what we think
moving forward. Gold above $400 per ounce is profitable for many
mining companies. There should be some further upside pressure
into January but a short-term top is quite possible in the first
quarter of the New Year. Once the buying pressure in gold stops
the correction could take gold under the $400 level. If gold
were to consolidate around $390 U.S. it would be very bullish.
It would not
surprise us to see gold pullback to the $375 area. The kind of
pullback we perceive is one where the moves down are subtle and
plenty of up days are involved but the short-term trend is to
consolidate below the four hundred dollar level for several weeks
perhaps.
Silver has
a much different dynamic and is a much tougher to project. If
there is little pressure on the physical silver market as we
move into mid January 2004, other than Central Fund, then expect
silver to pull back in sympathy with gold. If there is strong
physical demand for silver however, look for silver to continue
to climb and gold to follow silver. Because the silver supply
is so tight and Buffett may indeed be involved in the current
silver situation at some level, we want to be cautious here.
(Ed. Note-this had to do with leasing as explained in the Silver-Investor).
End of excerpt;
Obviously we missed our call
by a few days; silver peaked a few days past the first quarter
of 2004. Silver did peak in early April. Our call that silver
would outperform gold from January did hold, but we began to
get cautious as early as March. We did an update for our email
subscribers see below.
Our primary advice for investors
was to BUY below 90 on the XAU. As can be seen from the above
chart courtesy of Stockcharts.com, this alert was sent in mid
April.
More specifically, we cautioned
our readers even earlier because by mid March we got concerned
that the BULL from April 2003 was running out of steam, so our
view was a bit cautious. Many have stated that technical tools
cannot work in the precious metals due to so much intervention.
It has been our view, that these tools do have merit, but must
be used along with independent fundamental analysis. This was
our primary reason for being so bold as to state gold had peaked
in January but silver would carry on upward. By technical analysis
alone, this would have been very hard to forecast.
Currently we are watching what
has happened following the break in the XAU and the HUI and gold
and silver. Gold being the stalwart, held much more firmly than
silver. Silver left two open gaps on the chart and it will take
some time for the market to consolidate and fill these gaps.
Our analysis remains that the
fourth quarter of the year 2004 will show significant improvement
in metals prices and the underlying shares. Additionally, we
are looking for significant upside price movement in the first
quarter of 2005. Right now, the dollar seems to be showing some
strength. The election has most of the attention focused away
from investments.
Like most independent research
people only my readers receive certain material while I do occasionally
post articles for the public at large. These public essays are
both promotional and historic. In other words our ability can
be measured by our calls. Certainly not perfect but in this business
or in any human effort that is impossible.
My reports are always closed
off with the following
Until next month,
Wishing you health above wealth and wisdom beyond knowledge,
 To get a bit philosophical wealth can provide a great
deal of freedom and security, but health has value that is difficult
to measure. In my view good health is priceless.
I made a commitment to train for a triathlon during the past
several months and have now completed my first two. Although,
these very demanding physical efforts proved to be tougher than
this 50+-year-old male thought, the intent was to gain better
health and this was accomplished.
Yes, just finished my lake swim, now all I had left was an eleven-mile
mountain bike ride and a 5-kilometer run.
 Coming into the finish of the run and yes,
the hat does say, Silver-Investor.com. Mission accomplished,
my training will be cut back for the next few months but I will
continue to exercise and may begin training for next year some
time in the late Fall.
It is difficult to summarize this essay since it certainly is
a hodge-podge of information. In fact you might state it is all
over the map. Which is how I have felt personally the past month,
taping eTV shows in Florida one week, running in Idaho the next,
and coming back to Washington state.
Let me finish by thanking all my loyal subscribers and many that
have sent me support for both my physical and intellectual pursuits. |
Aug 2, 2004
David Morgan
email to : silverguru22@hotmail.com
David Morgan has a weekly radio
show on the metals at http://www.netcastdaily.com/fsnewshour.htm,
additionally he can be viewed on eTV at www.freemarketnews.com.
Mr. Morgan
writes the Silver-Investor.com Newsletter. This e-mail
newsletter is issued on a monthly basis and includes economic
news, overall financial health of the global economy, and currency
problems ahead. Mr. Morgan reports on both silver and gold. Analysis
is usually top down from the commodity sector to the investment
process. The main focus for readers is to focus on Mining equities
that offer high leverage and substantial capital gains over the
next several years. Reports include current trends, long-term
fundamentals, and specific information required for any investor,
especially the serious silver or precious metal investor. E-Mail Price $99.00
per year or $149.00 for regular
posting.
______________
321gold Inc
|
