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High Ho Silver!


Breadth has been bunk all day long.


Note: The following commentary is offered by soon-to-be Minyan professor Laurie McGuirk from HIS perch in Australia. As with all the content on Minyanville, nothing in his missive is intended as advice and we offer it with purely educational intentions.

"It may be possible to use fictitious arguments for or against a certain trend in a commodity market: but success will only be temporary, for in the end the facts are bound to prevail, so that a trader gets dividends on study and observation. In the long run commodity prices are governed by one law- the economic law of supply and demand."

--Reminiscences of a Stock Operator by Edwin Lefevre,1923.

And people wonder why silver is going up? Silver has been in a structural deficit for many years. The global stockpile has been dangerously and irreparably depleted over the past 30 years, demand outstrips supply and new supply won't come onstream for another few years (even with significantly higher prices). You can't just switch a silver/lead/copper/zinc mine on or off as it suits you. Mexico, with some of the best silver resources in the world, is some years away from significant production increases, mainly due to the past 20 year bear market for commodities in general. Diminished supply and greater demand...hmmm.

The COMEX has increased margin requirement for silver futures trading. It is also interesting to note that there have been some revisions to the warehouse stocks that are available or eligible for physical delivery. Down. The lease/borrowing rates for silver have risen substantially, as well. Something is cooking in the silver markets and it could get very interesting, very quickly I suspect. The current wild swings of 30 cents a day are here for a while it appears.

Gold has had a nice couple of days with the Bundesbanks Welteke coming out saying he wanted Germany to sell its Central Bank gold to fund some study or other.This is the fourth or fifth time this guy has spoken about selling German gold reserves in the last 18 months. Dunno what he has got against gold but it won't make any difference to the underlying conditions prevalent in the metals markets. Inflating currencies have never once sent commodity prices lower...EVER. Welteke backpedalled/clarified his position within 24hrs. Seems price action makes comment these days.

Seems we are in a narrow range of 430-418 and any attempts to break gold down in the paper markets has been met by solid physical buying. India's still importing here so demand isn't diminishing and the rest of Asia is still buying. Base metals are still solidly bid although off their highs in general. Crude still at $35. Commodities are alive and well.

It's interesting that some of the metals equities are trading at a 20% discount to where they were when gold hit $400??? Silver stocks the same.... just remember that the metals equity market is small in that every mine in the world is only worth about the same as half of Microsoft (MSFT:NASD). A small door with lots of dollars rushing it could be interesting viewing. Note the Rand weakening versus the USD has benefitted the prices of the most marginal South African miners.

I hear Mr Trichet from the ECB moaning about brutal currency moves and all that.Japan has spent 500 bazillion trying to weaken the Yen and Mr Snow at the Treasury tells us that the US dollar decline has been orderly and is of little concern. Even the Aussies were bitching in today's papers about the strength of our dollar and its deleterious effects. Wow, let's see what happens if it gets disorderly.

Competitive currency devaluations are all the rage these days. You can't devalue real money, you either own it or you don't.

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Laurie McGuirk has a position in gold and silver
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