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XMFSinchiruna (26.56)

5 Imminent Catalysts for Gold Stocks, Part II



February 11, 2011 – Comments (18) | RELATED TICKERS: PSLV.DL2 , SLW , SVMLF

As promised, here is Part II of my discussion of 5 looming catalysts for gold mining stocks.

Thanks as always for reading, reccing (at the article here, if you'd be so kind), and for sharing your Foolish thoughts on the topics discussed.


3. Silver's slingshot effect slings both ways
Gold and silver, as the world's foremost monetary metals, are inextricably linked to each other in their own complex web of interconnection. As I have done for some time now, I like to visualize the two as being tethered together by the flexible cord of a slingshot. Near-term market conditions can permit either metal to stretch out ahead of the other, but ultimately the energy stored by that stretching tends to snap the two back into relative equilibrium.

Typically, gold has tended to play the role of the trailblazer, while silver has tended to lag gold's major movements before ultimately snapping into larger percentage moves. More recently, however, silver has grasped the precious reins and charged boldly from behind gold's shadow. In his recent analysis, "Silver Breaks its Golden Shackles," Adrian Douglas visually illustrates the dramatic way in which silver appears to have embarked upon a brand new price relationship to gold relative to that which held sway for the preceding seven years. We would have to sit down over a very large coffee to cover all the causes I ascribe to these developments, but suffice to say I believe that persistently acute tightness in physical silver supply gives silver the potential to further hasten the upward trajectory of both metals and their relevant stocks.

When hedge fund manager Eric Sprott launched the Sprott Physical Silver Trust ETF (NYSE: PSLV) in late 2010, the significant difficulty his company experienced in securing timely delivery of silver bullion offered a visceral illustration of the degree of undersupply. Incredibly, the trust's initial silver purchase of a modest 22.3 million ounces -- or slightly less than the estimated 2010 haul for Silver Wheaton (NYSE: SLW) -- required more than two long months before full delivery was made. Sprott grew "concerned about the illiquidity in the physical silver market", and added: "We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver."

China ranked third among global silver producers in 2009, with a reported 89.1 million ounces of output. Miners such as Silvercorp Metals (NYSE: SVM) have pursued ambitious production growth, yet demand has far outpaced production gains and caused China to transition from a net exporter to a net importer of silver. China's net silver imports reportedly quadrupled in 2010 to reach 112 million ounces.

Acute physical tightness and reported illiquidity in the silver market -- further corroborated by the rare condition of backwardation observed within the COMEX silver futures market -- point strongly to the potential for silver to continue its dramatic upward charge. Sprott's chief investment strategist, John Embry, recently observed: "There is infinitely more demand for physical silver than there is supply. I mean, all of this stuff coming out of the ground is long since spoken for by traditional industrial and medical uses." My own assessment of the silver market affirms this view, and in a noteworthy departure from the preceding dynamic, I see gold and gold mining stocks riding a wave of silver's momentum in addition to its own unique catalysts.


After attempting herein to convey as many timely observations of this gold market as I could condense into a single 2-part series, I have this odd sensation like there's little left to say. I guess that's my cue to shut down this computer and go enjoy life for a few days. Have a great weekend, Fools.


18 Comments – Post Your Own

#1) On February 11, 2011 at 3:50 PM, Jbay76 (< 20) wrote:

Hey Chris,

I commented on the original artilce, but for the sake of promoting discussion on this thread and getting a lot of education, I will re-post my original comment, hope you don't mind...


I have been waiting all week for part about suspense. So how big a coffee do you want and from who? How about beer instead :)

I was expecting to see fiscal policy as a catalyst, but suffice to say, the info is well appreciated as always! I wonder how long before someone tries to acquire RBY. And, one thing that's been on mind is;;;where is Freeport Mcmorran in all of this? They mine Au and Cu, so I would expect them in on this stuff, but I don't recall you mentioning them. Are they just too big? Their P/E of 14 and change seems to suggest they're a good buy...



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#2) On February 11, 2011 at 4:58 PM, JimisJim (33.53) wrote:

Does MF have a ticker yet for NAI.v (NOMNF)?

In the real world, been long NAI since 14 cents.



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#3) On February 11, 2011 at 5:32 PM, XMFSinchiruna (26.56) wrote:


Me too! :) That's among my top ten largest holdings. I had some encouraging communication with the CEO recently, which further bolstered my confidence in their outlook. The resource estimate will go a long way toward grabbing the market's attention.

No CAPS ticker yet ... it hasn't reached the minimum mcap threshold yet.

Excellent find, JimisJim ... how did you discover that little gem? It's not a well known nor widely followed company.

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#4) On February 12, 2011 at 1:45 AM, Bays (29.21) wrote:


I didn't know you dabbled in the nano caps.  

What is your prediction for their resouce estimate? With a market cap of only $18m, doesn't seem like the market is too optimistic on the upcoming NI 43-101 report.

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#5) On February 12, 2011 at 2:28 PM, XMFSinchiruna (26.56) wrote:


The market hasn't even looked at Northern Abitibi. The CEO believes that to be a function of geography -- i.e. that the market has tended to ignore regions like Newfoundland in favor of more established gold districts like Ontario. He thinks that may begin to change after the resource estimate comes out.

I've been watching these drill results come in one by one for a few years now ... I am very optimistic.


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#6) On February 14, 2011 at 1:26 AM, DarthMaul09 (29.10) wrote:

It seems that the real precious metals investors, those who are buying bullion and not paper have come to the realization that the physical silver market is the key to breaking the central banks control of the price of the precious metals.  On the KWN Metal Wrap, I believe it was Bill Haynes who noted that for every dollar that went into gold bullion he was seeing $10 go into silver bullion.  With the 100 oz silver bars becoming hard to find and back orders mounting, it will be interesting to see if the March COMEX problems result in a significant break out for silver.  This will also be about the time that SLW report earning, which may send SLW over $40 and possibly close to $50.

Guest Post: Strong Indications of Gold & Silver Shortages

Via Adrian Douglas Of Market Force Analysis

It seems that if silver can break $33 then the gravitation pull from the shorts will be gone and any short covering will only add fuel to rally.




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#7) On February 14, 2011 at 4:19 PM, silverminer (29.94) wrote:

Anyone happen to see Northern Abitibi was up more than 40% at the highest price of the day, before settling up 25% at $0.3033.

Go baby go!

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#8) On February 14, 2011 at 5:02 PM, Bays (29.21) wrote:


What was the catalyst??

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#9) On February 14, 2011 at 6:42 PM, silverminer (29.94) wrote:


Undetermined. There was no news out today. Presumably, investment interest is building in advance of the looming release.

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#10) On February 14, 2011 at 6:45 PM, kdakota630 (29.18) wrote:


How would you rate Northern Abitibi in relation to your top 10 list?

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#11) On February 14, 2011 at 10:39 PM, Bays (29.21) wrote:


When looking at these explorercos, how do you value them? I find it near impossible and very risky, which is why I invest in something like AAB.TO.  David Stein & co are much smarter than me and I feel safer in something like that.  

How much value would you give to grades, size of resource, open pit amenable, infrastrucutre near by, area play?, friendly government,etc...?

Were you a geologist? 

Maybe you've outlined your strategy before in a blog?

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#12) On February 15, 2011 at 12:34 AM, Ruhaan (92.92) wrote:


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#13) On February 15, 2011 at 12:48 AM, Ruhaan (92.92) wrote:

Did anyone see the story on RBY today.. They are being forced to review there NI 43-101 by British Columbia Securities Commission. I have used the word forced not the press release but there was no other explanation in my mind. Does not portend well. What are your thoughts on that Chris?

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#14) On February 15, 2011 at 8:26 AM, silverminer (29.94) wrote:


My eyebrow is raised, but I'm not overly concerned. I did want to get an updated perspective on insider ownership of shares. Morningstar indicates 0% insioder ownership, which can't be possible. If anyone has the time (I don't), perhaps they could check the filings directly for insider transactions. I sent the company a message requesting information on that and other topics, and will report back anything I find in a dedicated post.

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#15) On February 15, 2011 at 1:03 PM, Jbay76 (< 20) wrote:

I didn't know how to take that news when I first saw it.  I was only able to find and access RBY's 3rd quarter financial statement from 2010.  I was not able to access their NI 43-101.  But, in their 3rd quarter financial statement, they discusson page 8 that there woud lbe new accounting policies in effect as of January 1, 2011.  Not being an accountant, I don't know if the "request" to review RBY's NI 43-101 is as a result of those changes.

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#16) On February 15, 2011 at 1:37 PM, Jbay76 (< 20) wrote:

I have just perused part of the 170 page original NI43-101 that RBY submitted in January.  It can be accessed here.

From my understanding, and wiki web site, NI 43-101 have nothing to do with insider ownership or anything of that matter.  The NI 43-101 (National Instrument 43-101) is a technical and scientific document meant "to ensure that misleading, erroneous or fraudulent information relating to mineral properties is not published and promoted to investors on the stock exchanges overseen by the Canadian Securities Authority."

So, either RBY "mis-stated" something or GEOEX Limited, the company hired to write the original document,missed soemthing

Given this uncertainty, its interesting that the market is pushing RBY up....not complaining for the moment.  But damn, just when yo think you find a killer find, let your gaurd down and this happens..... 

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#17) On February 15, 2011 at 8:24 PM, silverminer (29.94) wrote:

JBay .. yeah the insider issue was a completely separate question from the technical report issue. When I see hints of trouble with a resource estimate, the first thing I want to see is the status of insider ownership to reassure myself that the issue is more likely to be minor and procedural in nature, rather than monumental or fraudulent in nature. I trust Rubicon management after years of owning the stock, but I wanted to be sure.

So I contacted their VP for investor relations today, who assures that the Morningstar data is completely wrong. Checking the sedi site for insider transactions, I see no exodus from insider holdings that would signal eroding confidence in the shares. In fact, insider ownership is quite strong.

The VP indicates the BCSC has certain questions regarding the procedures used in preparation of their technical report, to which Rubicon is presently preparing a timely response. More than that he could not say, but at this stage I am not terribly concerned by this development.


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#18) On February 16, 2011 at 12:50 PM, Jbay76 (< 20) wrote:

Sweet, thanks Silverminer.  How do you build rapport such that you can contact the VP of investor relations?  Is this via your employment with TMF?  In any case, thanks for the update with RBY!!!!!


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