Posts Tagged ‘silver’
There’s a local bakery near my office I try to get to at least once a week. Sam and his wife own the bakery, and Sam is usually the one there serving espressos and cappuccinos to the many small business owners who meet there early in the morning to talk about business and the economy.
My problem is that I never pay for coffee at Sam’s bakery. “Don’t worry Michael, it’s been taken care of” is the standard line Sam usually gives me. Either Sam is giving me free coffee or one person is buying for everyone in the bakery.
But I think my free coffee streak is about to end.
Kraft Foods Group, Inc. (NASDAQ/KRFT) recently raised the prices of its Maxwell House and Yuban coffee brands by 10%. This is after another company called The J.M. Smucker Company increased its prices. (Source: Bloomberg, June 8, 2014.)
But it’s not just coffee prices that are moving up. Even the government itself is now predicting food prices will rise at an accelerated rate this year.
According to the U.S. Department of Agriculture, inflation in food prices in the U.S. economy will be between 2.5% and 3.5% in 2014. This is compared to just a 0.9% increase in prices in 2013. Inflation of meat prices is expected to be much higher. Beef and veal prices are expected to increase 5.5% and 6.0% respectively this year. (Source: U.S. Department of Agriculture web site, last accessed June 10, 2014.)
I believe food prices will rise much faster than what the government is predicting; I’m talking real inflation of five to eight percent per … Read More
Is silver presenting an even greater investment opportunity than gold bullion?
It’s been well documented in these pages that demand for gold bullion is increasing and supply is declining due to lower prices. The silver market is going through the exact same thing.
Last year, the Indian government decided to curb demand for gold bullion in that country by increasing the duty on gold imports. This resulted in a significant decline in gold bullion imports. But what went unsaid was that silver demand skyrocketed as gold bullion demand fell. In 2013, silver imports into India almost tripled to 5,478 tonnes. (Source: Reuters, March 4, 2014.)
Demand for silver is increasing here in the U.S. as well. The table below shows demand for Silver Eagle coins sold at the U.S. Mint in the first four months of each year since 2011.
U.S. MINT SALES OF SILVER EAGLE COINS
Data source: U.S. Mint web site, last accessed May 1, 2014
From the table, you can easily see that the demand for silver coins in the first four months of 2013 and 2014 was greater than it was in 2011 and 2012. 2011 was the year silver prices were reaching $50.00 an ounce. In 2012, silver prices were relatively flat. In 2013 and this year, as silver prices declined, we saw more buying of silver coins; silver prices are bringing more buyers.
On the supply side, there are constraints in the … Read More
Quite a bit of speculative fervor has been zapped out of this market, which is helpful for the longer-run trend.
With the exception of biotechnology stocks, trading action has softened in initial public offerings (IPOs), 3D (three-dimensional) printer stocks, cloud software stocks, and even a lot of restaurant stocks that only recently were very hot.
The stock market is just a continuing cycle of fluctuating investor sentiment. Valuations among junior energy producers got really excessive last year and the entire group now seems to be in consolidation.
Gold and silver stocks appear to have been toast for a while. As is always the case in resource investing, even the best growth stories can’t generally get their share prices moving if the underlying commodity price is stagnant. Precious metals stocks have always traded in manias, and this is not likely to change.
In a slow-growth environment, dividend income is key. And after an exceptional year like 2013, it may just be the only rate of return to be had.
But like so many large-cap stocks last year, some of the best dividend payers have already gone up tremendously. There isn’t a lot of value for an equity buyer these days.
One specific sector that continues to be relatively hot is the master limited partnerships (MLP) of energy companies. There is very good yield to be had from this sector in addition to the potential for capital gains. There have been countless new listings of these securities, and the North American production boom is the reason.
One firm that illustrates the combination of capital gains and income that can be found … Read More
Is it just me, or are the banks, who’ve never really cared about the direction of gold bullion, turning outright negative on the precious metal?
• A research paper by Canadian Imperial Bank of Commerce (NYSE/CM), known as CIBC for short, said “Gold has been dented in recent quarters by an absence of inflation, greenback strength and investors’ rotation into stocks to capitalize on an expected pick-up in growth… As implied by our 2014-end target of $1,000 per ounce, we nonetheless continue to feel the metal still has further to fall in the next year or so.” (Source: CIBC, “Commodities: Warmer Growth to Heat Up Resources Next Year,” December 2, 2013.) In other words, CIBC’s opinion is similar to that of analysts at Goldman Sachs Group Inc. (NYSE/GS), who also believe gold bullion prices will fall to near the $1,000 level this year.
• A forecast from Bank of America Merrill Lynch (NYSE/BAC) said, “Gold values will be hurt by Fed tapering, a resurgent U.S. dollar and a lack of investor interest in the metal. We expect gold to drop to $1,100 an ounce at some point in 2014…” (Source: Bank of America Merrill Lynch, “BofA Merrill Lynch Global Research 2014 Year Ahead Outlook,” December 10, 2013.)
• UBS AG (NYSE/UBS) cut its 2014 gold bullion forecast from $1,325 to $1,200 an ounce. The bank said, the “struggle for gold not only rests with the predominant selling, but with limited positive catalysts looking forward, gold is unlikely to regain its former appeal.” (Source: Market Watch, “UBS cuts 2014 forecast for gold and silver,” December 3, 2013.)
I believe these … Read More
Despite all of the talk about China and India buying lots of gold (high demand) and how the precious metal is a limited resource (limited supply), I still do not like the commodity as a buy-and-hold investment at this time.
Yes, China and India love their gold, which is used for jewelry and prestige. But unless the speculators and traders jump aboard, I just don’t see why anyone would want to buy right now.
As I said in previous commentaries (see “Should Investors Hold Out for $1,300-an-Ounce Gold Before Investing?”), gold, in my view, isn’t an attractive buy-and-hold investment at its current levels around $1,235 an ounce; to me, the yellow metal looks interesting as a buy on a decline to the $1,200-an-ounce level or below, when traders can enter and sell on rallies.
The key driver of prices—inflation—is not an issue at this point, so this precious metal becomes a less interesting buy with no real reason to hedge.
Global inflation continues to be benign. In China, inflation is hovering around the three-percent level. India is experiencing inflation above seven percent, but its impact on the global economy is minimal. In the eurozone, inflation came in at 0.8% in December, according to Eurostat, which is well below the two-percent target.
The volatile Middle East is also absent of any major geopolitical risk at this time, which drives down the demand for safe haven assets such as gold.
Until we see a rise in global risk and inflation, I doubt any upside moves in the yellow metal will be sustainable.
Even with the low relative value of the … Read More
This past year will be forgettable for those investors who stayed loyal to the metals: gold, silver, and copper.
Gold lost its luster with very little as far as global inflation, no major uprising in the Middle East, and the stock market delivering impressive returns. At this juncture, despite gold’s recent bounce to the $1,240-an-ounce range, I continue to advise looking elsewhere at this time, as I doubt gains will be sustainable. Traders could buy on weakness down to $1,200 and sell on rallies towards $1,240. That’s the only way you’re going to make money in gold at this time. (Read “Should Investors Hold Out for $1,300-an-Ounce Gold Before Investing?”)
Silver followed gold lower, but could rally should the economic renewal continue to pick up steam. Trade silver if you feel the global economy is recovering. The same goes for copper.
In contrast, the big winner in the stock market this year was the solar sector, which surged about 164%, according to data from Barchart.com. Yet while the gains have been impressive, you don’t want to be chasing the gains higher, due to the extreme volatility of solar stocks in the stock market at this time.
If you are looking for solar opportunities in the stock market, stick with companies in the United States and Canada. The “Best of Breed” in this sector is probably large-cap First Solar, Inc. (NASDAQ/FSLR), a developer of solar hardware that converts the sun’s rays into electricity. But if you are searching for smaller companies, consider checking out SunPower Corporation (NASDAQ/SPWR) on the mid-cap side and Canadian Solar Inc. (NASDAQ/CSIQ) on the small-cap … Read More
Those interested in the oil business will know that smaller stocks in the sector have mostly been doing very well, even as the spot price of the commodity dropped below $100.00 a barrel.
The run-up has been pronounced in a number of companies, likely in anticipation of third-quarter earnings. Oil stocks advancing on declining spot prices is a very unusual development in the resource sector. But there is definitely an appetite out there among institutional investors for junior oil and natural gas producers.
One company we looked at previously is Kodiak Oil & Gas Corp. (KOG). This Bakken oil play reports tomorrow, and expectations are high.
Wall Street consensus is for Kodiak to generate sales growth of around 150% in its upcoming quarter. Earnings have the potential to double over the third quarter of 2012.
Company management recently announced its full-year 2013 average daily production will be approximately 30,000 barrels of oil equivalent per day (boepd). This compares to an average of 14,000 boepd in 2012. This year’s exit production rate is currently estimated at 42,000 boepd.
So, there’s definitely economic growth in the domestic oil and gas business due to new technology and the willingness of investors to finance junior companies.
Kodiak is trading right at its all-time record high after experiencing a meaningful consolidation throughout 2012 and the first half of this year. The stock is fully priced, which is no surprise. If oil prices were to reaccelerate, this position would be even higher.
Also reporting tomorrow is ConocoPhillips (COP), which is outperforming other big oil companies on the stock market.
ConocoPhillips spun off Phillips 66 (PSX) last … Read More
While the financial media tends to prefer doom and gloom, genuine opportunity in the stock market is rarely in the headlines. The focus needn’t be on what is wrong with the world; we already know that. What’s lacking is how you can profit from it.
Precious metals stocks are becoming more and more attractive these days, but I don’t think we’ve seen a bottom yet in gold and silver stocks.
Currently, some of the best risk-capital opportunities in the stock market are U.S.-listed Chinese stocks. It’s a sector that’s pretty much been abandoned by the marketplace.
The reasons why the marketplace is no longer interested in Chinese stocks are obvious, but at the height of disinterest comes the best prices. By the time interest hits and the story is in the newspapers, most of the money has already been made.
One company that’s experiencing a genuine stock market turnaround is China Ceramics Co., Ltd. (CCCL). And it’s doing so ahead of its financial turnaround, which indicates that investor sentiment is warming to the story.
China Ceramics manufactures and sells ceramic tiles to both residential and commercial customers in China. The company stumbled both operationally and on the stock market due to China’s planned real estate restraint. The position then met the same fate as virtually all other U.S.-listed Chinese stocks that imploded on the stock market because of the plethora of accounting frauds.
But the tide is slowly turning for many of these … Read More
If there ever was an environment illustrating how risky and tough resource investing can be, the current conditions for gold stocks are the textbook example.
Resource investing is a risk-capital only endeavor. When it comes to equities, resource-related stocks should never make up the core of a long-term investment portfolio. In almost all cases, even the fastest-growing, best-managed gold stocks still perform commensurately with the underlying spot price.
One of the best junior gold mining companies I know of is Argonaut Gold Inc. (TSX/AR). The company has growing production, but the stock is way down and can’t generate any momentum.
One of the best silver companies I know of is Endeavour Silver Corp. (EXK). In the second quarter of 2013, the company’s revenues grew to $71.1 million, compared to $40.4 million. Total silver production was up 48% to 1.5 million ounces in the most recent quarter, with gold production up 159% to 19,914 ounces.
Like Argonaut, Endeavour Silver is trading near a multiyear low on the stock market. It’s followed the spot price of silver almost exactly, falling consistently in value since the beginning of 2012.
While both companies don’t seem to be doing so well on the charts, they are both good mining companies. They have growing production, are keeping cash costs below industry growth rates, and their stocks are very reasonably priced.
The problem is they will stay reasonably priced so long as the spot price of yellow precious metal either remains flat or goes down. That’s the way it works in the gold mining business. The entire industry comes down to one financial metric—the spot price.
In … Read More
Major cities across the U.S. economy are struggling. Yes, we saw great cities like Detroit go bankrupt. But don’t for a second believe it’s all over. The reality is we will have more situations like Detroit.
Take the City of Los Angeles, for example. In his budget proposal to the city council, the mayor of the city, Antonio Villaraigosa, said Los Angeles will have a budget deficit of $216 million in the current fiscal year. (Source: City of Los Angeles, April 20, 2013.)
But Los Angeles isn’t the only problem city in California. When I look at San Francisco, it shows even more trouble for the municipal bonds market. The city’s controller says the budget deficit will increase from $283 million last year to $829 million by fiscal 2015/2016. (Source: City of San Francisco, Office of the Controller web site, last accessed September 16, 2013.)
Minneapolis, Minnesota was downgraded by Moody’s Investors Service recently. This puts the city’s $679 million worth of general obligation municipal bonds on the line. (Source: Moody’s Investors Service, July 29, 2013.) A couple of the reasons for the downgrade by Moody’s were that property values in the city have declined and it has a pension liability of 4.3 times the operating revenue it received in fiscal 2012!
Risks are growing in the municipal bonds market. Let’s not forget: in Detroit, over 100,000 municipal bond investors were told, “Sorry, we can’t pay you.”
What we are seeing with U.S. cities sinking in debt should alarm us, but just like other crisis situations, like auto loans and student debt, no one wants to talk about it.
Municipal … Read More
Last week, I attended the Toronto Resource Investment Conference, which is organized by Cambridge House International. This annual conference features companies involved in the resources sector, mainly gold bullion and silver explorers and producers.
To say the very least, the sentiment at the conference was dismal, and the “hope factor” just wasn’t there. After attending this annual conference for a few years, you tend to get an idea about what you will see and what kinds of opinions you will hear. This time was different. Attendance was way down, as were the number of gold companies exhibiting.
Those who pitched gold explorers, and gave their tips, were saying, “But you have to be really careful.” The “feeling” was gold bullion producing companies, be they senior miners or junior miners, face an anemic future ahead. And for those companies that explore for the precious metal, the “feeling” was that they will have trouble raising money.
But one thing all the speakers did agree on was that demand for the precious metal is increasing. I heard China is buying gold bullion; demand for the precious metal in India is robust; production at mints around the world is in overdrive mode; and so on. This is what I have already been writing about in these pages.
It was unusual to see the regular gold bugs actually being cautious on where the gold prices are going next. They were very clear that the damage that took place in the most recent sell-off would take some time to recover. They were concerned the price of gold bullion is being manipulated.
To me, all of this … Read More
As gold bullion prices declined in the period from April to June of this year, so did silver prices. And just like gold bullion, the bullish case for the white metal’s prices continues to build.
Demand for the white precious metal is not just robust; it is rising. The chart below compares sales of silver coins at the U.S. Mint in the months of January to July of 2012 and 2013.
The demand for the precious metal is strong, having risen by 50% in the first seven months of this year compared to the same period a year ago.
Last week, Chris Carkner, the managing director of sales for bullion, refinery, and exchange-traded products at the Royal Canadian Mint, said, “Year-to-date, after the second quarter, we’ve had record (demand) volume for silver Maple Leafs, the greatest we’ve had in the over 25 years that we’ve produced them…” (Source: “INTERVIEW: Gold, Silver Product Demand Is ‘Very Strong:’ Royal Canadian Mint,” Kitco, August 14, 2013.)
Data Source: U.S. Mint web site, last accessed August 23, 2013
Looking at the technical picture, the chart below clearly shows the bottom in silver prices and the new upward-moving price trend.
Chart courtesy of www.StockCharts.com
Yes, prices for the white precious metal are down for the year, but after breaking below $19.00 an ounce, they quickly recovered and found support, as shown in the chart above. Unlike gold, silver prices tested the same support level ($19.00 an ounce) on several occasions, and they always bounced above that level whenever it was tested.
Have silver prices hit a bottom? Price manipulation aside, fundamental demand and technical analysis … Read More
Precious metals stocks have been slammed by the weakness in spot prices for gold and silver. The strongest sector for resource speculation remains oil. Oil prices are firmly holding above $100.00 a barrel; profitability among junior producers is solid.
In virtually all cases, resource stocks move with spot prices. Many junior oil stocks are trading right near their highs, but they aren’t accelerating with spot prices in consolidation around $105.00 a barrel for West Texas Intermediate (WTI) crude. But the numbers are still good, and it’s not just those companies with exposure to the Bakken oil region; many junior producers are posting solid production and financial growth, and should continue to be good investments.
One company doing well in Colorado is Synergy Resources Corporation (SYRG). This growing oil and gas producer has assets mostly in the Wattenberg Field in the Denver-Julesburg Basin, northeast Colorado.
Currently, the company is operating 218 wells and has ownership interests in 273 gross (219 net) wells. Synergy’s latest quarterly revenues grew 64% to $12.3 million. Average daily production increased to 2,256 barrels of oil equivalent (boe), a sequential increase of nine percent and comparable quarterly increase of 66%.
Being a junior producer, earnings were modest at $3.6 million, or $0.06 per diluted share, but this was a solid gain of 49% comparatively.
A Bakken producer that’s highly liquid on the stock market is Kodiak Oil & Gas Corp. (KOG). This growing company operates in the Williston Basin of North Dakota and Montana, as well as in the Green River Basin of Wyoming and Colorado. (See “How Rising Oil Prices Can Help Your Portfolio… Read More
As readers of Profit Confidential already know, I have been bullish on both gold bullion and silver prices. I believe these two precious metals have great futures ahead of them, in spite of all the negativity about them in the mainstream media and their recent price slump—especially silver.
According to the mainstream media, that’s because the Federal Reserve is about to stop pumping money into the economy. The U.S. economy is getting better, and the global economy isn’t doing as poorly as many thought it would. Under those conditions, metals like gold bullion and silver would not be wise investments.
But what many don’t realize is that those conditions are not prevailing. In fact, the fundamentals for increases in the value of gold bullion and silver are actually very strong. And that has reinforced my original belief that increases in silver prices will outperform gold bullion prices.
Here’s what you need to know: silver prices will see an uptick because of the most basic of economic reasons—demand will outstrip supply.
Take a look at the chart below. It shows the number of one-ounce silver coins sold at the U.S. Mint this year compared to the same period last year. Clearly, demand from investors appears to be robust and growing.
As silver prices declined, investors bought more than 25 million ounces of it in the first half of this year, compared to just 17.3 million ounces in the first half of 2012—an increase of almost 44%.
Keep in mind that the people who buy physical silver are generally not speculators looking for a quick buck. Instead, they buy when the silver … Read More
As we approach the mid-point of the year, U.S. stocks continue to fare well with the annualized return of the Dow at 42% and the S&P 500 at 39%. While I have long been skeptical of the idea of stocks continuing at their current pace, you never know, as trading can be irrational, based on my stock analysis. Just think back to late 1999 and early 2000, prior to the technology implosion.
As my stock analysis suggests, you know things may be irrational when the Nikkei 225 in Japan is up over 70% during the last six months prior to a more than seven-percent correction on May 23 and 3.2% on May 27. Japanese stocks could further correct, as I’m not convinced the economy in Japan is guaranteed to grow consistently, despite the steady injection of easy money, based on my stock analysis. (Read “Japan Not Home-Free Despite Strong GDP.”)
A closer look at some of the sector performances so far this year shows gold and silver mining investments are faring the worst, with the gold mining sector down nearly 33% this year and its silver counterpart down a whopping 38%, according to data from Barchart.com. At this time, based on my stock analysis, I’m still not that anxious to play a bounce in gold and silver, as there are opportunities for making much better returns elsewhere.
The top-performing sector so far this year is the solar energy sector, which is up a staggering 89.7%, according to my stock analysis. And while the advance has been impressive, be aware that this sector is high-risk as far as volatility … Read More
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