Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
In a recent report from the VM Group, the consultancy expects prices of silver to remain firm and possibly advance going into Q4. The report mentions that Chinese imports of silver, have risen year-on-year in each month since November 2009, although the figures are skewed because of the deep recession that year.
May’s imports were 482.9 tons, up 72% on the same month in 2009. They are also up on the same month in 2008 – before the full extent of the financial crisis became apparent. China’s imports serve both industrial and jewellery demand and ought to be price supportive. The same holds true for Indian silver imports, which were US$309.8 million in June 2010, up 854% on the year. And, in the first six months of 2010 they are up 579%, at $1.69 billion.
Even though there is an increase in demand for physical silver, the prices remain suppressed. One of the main reasons for this has been the constant manipulation of the silver prices by the bullion banks especially JP Morgan. These banks use the US futures markets to create an “artificial supply” of silver by using massive short positions. In the Commitment of Traders reports (COT), it is clear that less than 8 bullion banks (commercials) hold the greatest percentage of open short positions. And, whenever the price rallies, they cap the price by selling into the market. While analysts such as Ted Butler have accused these banks of price manipulation, the regulatory body has tended to ignore his allegations. But, thanks to people such as Ted Butler, the authorities may be finally listening. Recently, the Commissioner of the CFTC, Bart Chiltern spoke about the Financial Regulatory Reform Bill. In his speech he made mention of the imposition of trading limits. If the CFTC follows through with this, it will ultimately prevent the likes of JP Morgan and the other bullion banks from holding such massive short positions in silver. They may even find themselves having to close some of these short positions. If this happens, we could see prices adjust to more realistic price levels.
Historically, gold and silver have traded lower during the northern hemisphere summer months hitting the lows in August. It this cycle repeats this year, then, I believe silver prices could move substantially higher during the second half of the year. With less price suppression from the bullion banks, increasing demand both from investors and industrial users and tightening supplies, there is only one way for silver to go and that is upwards.
TECHNICAL ANALYSIS
While silver remains trapped in a trading range between $17.50/oz and $18.50/oz, The key support level of $17.50/oz has been tested numerous times since the break to the upside in late March this year. This is illustrated above with the circles. I believe that this support will continue to hold even if we see a temporary break to the downside. And, as we approach the cyclical lows which normally end during August, we are likely to see prices test the resistance level.
About the author
David Levenstein is a leading expert on investing in precious metals .He brings over 30 years experience in futures, equities, forex and bullion.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.
