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XMFSinchiruna (26.57)

The Presidents' Day Silver Short Squeeze



February 22, 2011 – Comments (40) | RELATED TICKERS: SLW , GPL , EXK

In case any of you were wondering why I posted nothing on my blog before this hour with respect to the incredible developments in the silver market over the weekend, it's because I was busy preparing the following discussion for distribution to a broader audience. If any of you have questions about the holiday short squeeze and what it means, I hope this article helps to provide some useful context.

The Presidents' Day Silver Short Squeeze

I encourage Fools to pay very special attention to the present circumstances of the silver market. The metal's pricing strength might be 'business as usual', but I submit that these market conditions are anything but normal.


Silver futures have entered a very severe form of a rare condition known as backwardation. Simply stated, backwardation occurs when spot prices represent a premium over prices for long-dated futures contracts, and in commodity markets significant backwardation generally underscores a state of undersupply in the market. After humble but poignant beginnings, this silver backwardation has intensified in recent days, to the point where traders are willing to pay $1.25 more to hold an ounce of physical silver today than they are to hold it in the form of a December 2015 futures contract.

When a futures market enters severe backwardation as silver has done, the incentive for long-side market participants to stand for physical delivery rises (partly because those with access to the metal can execute profitable arbitrage plays against that inverted futures curve). Already standing at a four-year low at just over 100 million ounces, silver stockpiles at the COMEX futures exchange appear set for an imminent drawdown.


Silver market expert James Turk prepared investors for additional strength in silver prices after bringing attention to silver's emerging backwardation earlier this month, advising: "Look for a short squeeze in silver already under way as evidenced by the backwardation to intensify as we move toward silver option expiry at the end of this month, and silver delivery on March futures contracts in early March. In a short squeeze, what matters is ownership, not price."


If present market pressures continue unabated, the world may soon discover just how small the available silver supply truly is in relation to the scale of total contractual obligations written against it. My long-standing $50 price target has never felt more easily attainable, nor conservative. I consider a confirmational breakout by gold above its prior high of $1,432 as the final key ingredient needed for silver to retain momentum, since the lowest gold-to-silver ratio of this entire bull market is already stretching the silver slingshot. Conversely, I would view any failure by gold to retake that level in fairly short order as a potential threat to silver's near-term strength.


For investors considering fresh exposure to silver, I stand by my prior $100 share-price prediction for Silver Wheaton, as well as my call for the Global X Silver Miners ETF (NYSE: SIL) to outperform the S&P 500 by 200%. I have documented many of the noteworthy achievements by two of the silver industry's more promising small cap growth opportunities -- Endeavour Silver (AMEX: EXK) and Alexco Resource (AMEX: AXU) -- and the addition of my top-10 pick Great Panther Silver rounds out a powerful trio for Fools to examine.

40 Comments – Post Your Own

#1) On February 22, 2011 at 7:19 PM, XMFSinchiruna (26.57) wrote:

Please see also:,_Manipulators_Getting_Overrun.html

With gold and silver pulling back, King World News interviewed John Embry, Chief Investment Strategist at Sprott Asset Management.  When asked about the move in gold and silver Embry stated, “We have been anticipating this for some time which is why we have had such high price targets for both gold and silver.  Without exception everybody is saying that demand is off the charts for both metals.”

“There is a tremendous bid in the gold and silver markets at a time when the market is tight in these metals and there is a concentrated short position in both gold and silver.  The Middle-East crisis has come out of left field and this is creating additional bidding in the precious metals markets.  To be bearish gold and silver is to be bullish paper currencies and in view of QE and sovereign risks, that is a terrible bet.”

When asked about silver Embry remarked, “Eric Sprott and I have always contended that in silver if you get some serious physical buying in the absence of above ground inventories that are available for sale, that the paper manipulators would basically get overrun.  Right now we are in the process seeing that unfolding.

I definitely think a short squeeze is underway in silver.  The evidence will be if the price of silver moves sharply higher from here.  I think you will know if you have a real short squeeze if this thing starts piling on gains in the next week.

The price of silver has been held back for so long and this is not something that can be cured with existing mine production because mine production has been sticky.  People are coming after silver as a monetary asset because it’s so much cheaper than gold and this is creating an explosive situation.”

When asked about gold specifically Embry commented, “The Asians are looking at the new budget proposal from the US and saying, “Get me out of the dollar.”  The other thing that is amazing to me is the sentiment is so bad in gold.  There is remarkably little interest in gold, it is almost surreal.” 



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#2) On February 22, 2011 at 7:24 PM, XMFSinchiruna (26.57) wrote:

And this is kind of fun. For the first time my TMF article has been carried on Kitco's news feed, meaning it will reach a huge and very targeted audience of precious metal investors.

If you would like to see more of my articles distributed on that site, please consider dropping Kitco a quick note to let them know you were glad to see them carry my article.

If you do, please consider providing for their convenience this link to my article feed:

Thanks so much!



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#3) On February 22, 2011 at 7:25 PM, XMFSinchiruna (26.57) wrote:

Here's the Kitco news feed that includes a link to my silver discussion.

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#4) On February 22, 2011 at 7:32 PM, Valyooo (37.56) wrote:

You da man Sinch

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#5) On February 22, 2011 at 7:45 PM, ChrisGraley (28.60) wrote:

It gets really interesting now! 

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#6) On February 22, 2011 at 9:20 PM, XMFSinchiruna (26.57) wrote:

It is a VERY ominous sign for the USD that it dipped lower on such a key "flight to safety" day. The dollar is quickly shedding that role, which is likely to hasten the inevitable flight from Treasuries.

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#7) On February 22, 2011 at 9:20 PM, catoismymotor (< 20) wrote:

Congrats on being picked up by Kitco.

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#8) On February 22, 2011 at 11:33 PM, HansHauge (44.55) wrote:

Submitted feedback to Kitco "Holla Back" =D

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#9) On February 23, 2011 at 7:23 AM, XMFSinchiruna (26.57) wrote:


Thanks Hans!! Much oliged!

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#10) On February 23, 2011 at 7:40 AM, XMFSinchiruna (26.57) wrote:

And here is the bass-ackwards explanation from GFMS:

Walker said there was no cause for concern about supply shortages.

A strong recovery in industrial demand for silver, record U.S. coin sales, strong investment demand for silver-backed exchange traded funds, and a surge in demand from mining companies to borrow the metal for hedge programmes have led to a squeeze in the physical silver market recently.

This has caused backwardation, where cash or near-term delivery prices are higher than the price for delivery dates further in the future.

"It's a natural consequence of a good demand side story, a lot of silver stock being neutralised in ETFs, and investment flows pushing the price higher. But I wouldn't read too much into this backwardation as being some evil squeeze," Walker said.

"There is, without a doubt, plenty of above-ground stocks of silver available. It's just a question of willingness of people to lend that stock to the market," Walker said, adding that while this situation may remain for some time, he would not expect it to last long.

Okay, maybe he got one statement correct (in bold above). At some price, those with the silver will probably resume lending or selling their supply. At what price? That will be fun to discover in time.

All the official market figures that have suggested a market in surplus have been dead wrong lo all these years. There has not been a silver surplus because all those contractual promises to deliver silver floating around out there could never possibly come even come close to making good on their obligations once people wake up and make a resolute distinction between physical silver and a piece of paper that one is led to believe represents silver.

There are reports recently that some exchanges are offering a cash premium if investors standing for physical delivery will change their mind and accept cash settlement.

It took Sprott more than 2 months to procure 22.3 million ounces ... a relative pittance in relation to annual mine output. If this were a market in surplus, he would have encountered no such delay.

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#11) On February 23, 2011 at 7:52 AM, XMFSinchiruna (26.57) wrote:

 #6) On February 22, 2011 at 6:40 PM, EKC10 (< 20) wrote:

I too am relatively new to the world of silver miners. I started off with HL at 6.49 last Oct and also bought EXK at about 6.40.  I acquired Great Panther today and US Silver Corp  a few days ago at 0.53. I firmly believe that silver has a long way to go yet this year, although I am not inclined to believe the parabolic hype that many speak of on other fora. That being said,  it is disconcerting and worrying to see spot silver rise so aggressively over the last few days and yet to see the above stocks barely stand still or, worse still, fall. There is much commentary of market manipulation by the shorts which is clearly evident but would welcome the thoughts of more knowledgeable folk on the prospects for the above.

Report this comment #7) On February 23, 2011 at 7:51 AM, TMFSinchiruna (99.09) wrote:


Yesterday's stock action requires no such speculative interpretations to understand. 

1. The major indeces experienced a powerful reversal of sentiment and active selling activity in a familiar "flight to safety". What they were flying to doesn't yet seem clear, since the dollar fell as well as gold and silver on the day. But the salient part was a flight from equities, and in their earliest stage those flights always fail to discriminate logically between those stocks like gold and silver miners that would best be maintained as part of that flight to safety they seek.

2. The professional money was likely the main driver there. After a lengthy run of positive momentum play on the markets, they were no doubt repositioning in droves during yesterday's market. Raise cash, and redeploy ... that is their mantra every time momentum shifts.

3. There are a lot of uninformed folks out there who may have seen red on the gold and silver charts Tuesday morning, and not even realized what had transpired the day before. Mark Hanes on CNBC was confused about gold yesterday, for example, remarking that his chart indicated it was down, and wondering why people were referring to it being up. I've seen that before, where U.S. holidays lead to funky action in pms and pm stocks.

4. Don't worry ... these stocks will have their time to shine. :)

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#12) On February 23, 2011 at 9:30 AM, Jbay76 (< 20) wrote:

Hey Chris,

Congrats on making it to the bigger big time :)  I checked Kitco and couldn't find an article by TMF listed at the link you provided.  Was it listed under a different source?

Keep up the good work and thanks for the insight!!  I was planning on holding off from buying more GPL , EXK and AXU until taxes were payed off, but if the government does not shut down, I'll just have to make those purchases sooner rather than later.



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#13) On February 23, 2011 at 11:46 AM, reinman60 (< 20) wrote:


Just wanted to say thanks for your fantstic work in the precious metals space. Although I'm an experienced investor, I had never done any PM investing until I started reading your pieces.  I'm a  former trader for a large global bank (which will remain nameless, but is one of the major culprits in gold and silver manipulation) and my area was FX and govt. bond derivatives.  Coming from that backgroud, I've always kept a sharp eye on  the macro situation, and what I see unfolding is indeed as scary as anything I've seen in the last 30 years. 

About 6 months ago, I decided to get up to speed on gold and silver, and discovered your work while doing my research.  Thanks to your keen analysis, I've been building positions, on weakness, in SLW, EXK, TGB, CPFXF, RDY, BRD, and AUY.  Needles to say, they've been working out extremely well.  My position in SLW is up some 70% since I started accumulating in late August.  Again, thanks for your help.  It's been invaluable to me, both in terms of specific recommendations and in learning how analyse mining stocks.

By the way, I completely agree with your comment in #6.  To me, the most significant event of the last several days, and you're about the only one who has mentioned it, is that the dollar didn't catch even the slightest flight to safety bid.  I've never seen that before in this type of situation.  The ramifications are enormous, and don't bode well for the once and not future reseve currency.





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#14) On February 23, 2011 at 12:13 PM, XMFSinchiruna (26.57) wrote:


Thank you so much for your kind comments! I'm very happy that those positions are working out well for you, and that you've moved into pms at an auspicious moment within the multi-year trend (i.e. just in time for the mining equities to make up for lost time).

If you have any insight whatsoever into the behind-the-scenes action in pms by a major investment bank, please don't hesitate to contact me personally at sinchiruna@cox,net, as I would be very much interested in anything you might have to say off the record. :)

TGB and RBY are both at important crossroads at the moment. I was surprised by the distinct lack of interest Canada's prime mininster conveyed with respect to the updated Prosperity proposal. That impacts my degree of wishfullness for Prosperity. Also, copper may come back to test $4 or thereabouts (perhaps even $3.80) on all these macro revisions for the global outlook. I took a little off the table from my Taseko position last week.

I am hopeful that Rubicon being forced to defend methodologies employed within their F2 technical report relates only to relatively minor issues, but until furthyer information is forthcoming investors are a little in the dark on that. I still have enormous faith in the scale and quality of the project, though, and their estimate was a huge upside surprise that leaves some room for revision without causing me to reverse my stance in any way.

Expect a positive development from Endeavour Silver shortly. ;)

I'm glad you picked up on comment #6. I agree that's one of the more troubling indicators I've seen in quite some time. But then again, I've already sounded the death knell for the dollar.

Good luck, and please continue joining the dialogue! :)


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#15) On February 23, 2011 at 12:18 PM, XMFSinchiruna (26.57) wrote:

P.S. I've been receiving quite a volume of e-mails lately. I try to respond to all, but please be patient if it takes me a few days. :)

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#16) On February 23, 2011 at 1:33 PM, CMFSoloFool (61.48) wrote:


Thanks for this insight. This post and a few others you have written have convinced me I need to take a position in Silver. It seems you recommended Silver Wheaton as the best individual company and SIL as an ETF choice. However, the 200% prediction you made was back in May, about 9 months ago. Between these two, which is the best positioned for appreciation in the next 24-36 months?

Usually I prefer company stock over Funds because it's easier to track their performance and their financials in one place, and there is just one leadership team to worrry about. Whereas with funds the holdings and ratios can change over time at the whim of the manager, so you get more of an index like performance in many cases. But you were very complimentary of SIL, so I wonder if your current thoughts on these two options are still unchanged and equally favorable as 9 months ago.


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#17) On February 23, 2011 at 1:38 PM, XMFSinchiruna (26.57) wrote:


Let me get back to you on those thoughts a little later. :)  Please check back.

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#18) On February 23, 2011 at 4:23 PM, XMFSinchiruna (26.57) wrote:

Hey Fools .. did you see Gammon is preparing to restart El Cubo??


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#19) On February 23, 2011 at 4:38 PM, Speed03 (< 20) wrote:

saw that.....sweet news!!!

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#20) On February 23, 2011 at 4:56 PM, jtnrt330 (< 20) wrote:


 You the Mannnnn!!!!  You have helped me invest in silver and in silver minners and i appreciate all the info. 

Questions:  Why are some of the miners dragging during this up swing - BRD, NXG????  Also on MNOCF, why is this company volume so low?  It should be trading about $6.12. 

My favorite from you has been GPL - just going lights out, thanks for this.  Also, SLW has been a big hit, waiting for the big rise.

My surprise today was from AUNFF - you working it all.

 Waiting on NOMNF to catch that wave also. 

 Thanks Chris - you the man....

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#21) On February 23, 2011 at 5:17 PM, TheLastYetti21 (29.93) wrote:


 I wanted to let you know I have really enjoyed reading your blogs. Your knowledge of the PM market is exceptional and your track record impressive.

On an unrelated note, do you have any thoughts on TGB's new proposal for prosperity I was surprised to see you did not blog about it. Do you think the project has a high probablity of passing now that they have amended some of the environmential concerns and won't be destroying fish lake.

 Thanks in advance.


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#22) On February 23, 2011 at 5:33 PM, jtnrt330 (< 20) wrote:

Forgot to ask:  What price point do you want gold to go to?  Also, are you concerned with the down turn of copper?


Thanks for helping....

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#23) On February 23, 2011 at 5:35 PM, kdakota630 (29.10) wrote:


Thanks for the info about Taseko.  I knew they were going to resubmit for Properity Mine, but didn't know when until now.

Also, sorry to hear that you're the last Yeti. Must be lonely for you.


Another shout-out on Copper Fox and Great Panther Silver, particularly after today.

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#24) On February 23, 2011 at 5:41 PM, kdakota630 (29.10) wrote:

That's supposed to read Prosperity Mine.

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#25) On February 23, 2011 at 8:49 PM, XMFSinchiruna (26.57) wrote:


Please see comment #14 above for my reaction to TGB's reworked Prosperity proposal. Basically, Stephen Harper's very public slamming of the project on the same day they file their updated proposal is not a good sign from a political perspective. I'm not saying it can't win, but rather that it appears to be shaping uyp as more of an uphill battle than I had previously anticipated. The government report denying the permit did not appear to me to reflect irreconcileable issues, but Harper's reaction conveys an entrenched opposition. That's my $0.02.

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#26) On February 23, 2011 at 9:05 PM, XMFSinchiruna (26.57) wrote:


I totally agree that MNOCF should be well above $6 already. The fact that it's under $4.50, rather than causing concern, is among the greatest value opportunities available anywhere in the gold patch. Volume is low because it's an unsponsored ADR trading on the pink sheets. The company did not issue shares of MNOCF ... some mystery entity that not even the transfer agent seems capable of identifying has issued this and many other unsponsored pink sheet listings. MNOCF has no connection to the underlying company, except that some NY entity has effectively pledged Toronto-listed Primero shares for each MNOCF security that one holds. Volume on the Toronto-listed security is just fine.

Now, as for Aurcana, credit where credit is due. That stock was brought to my attention by this community's very own speedybure (now Hyperinflation on Seeking Alpha). I had honestly never heard of it until I saw his mention of it, and I'm grateful that he brought it to my attention. 

Disclosure: I own Aurcana and Primero.

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#27) On February 23, 2011 at 9:07 PM, XMFSinchiruna (26.57) wrote:

Please see my coments from yesterday on BRD and NXG: 

Let me start with BRD. This is a turnaround story (like CDE and GRS, for example), and all turnaround stories are very difficult to time with precision. I spent years underwater with Apollo Gold (precurser to BRD), but held the small stake stubbornly because I believed in the potential at Black Fox. I increased my stake after doing DD on the merger, and now I sit back and wait patiently for the market to recognize the value in the shares, while crossing my fingers that the company continues to improve operations to tune the engine of its future growth. A big part of the attraction, too, is the relative lack of small-scale producers for acquisition-minded mid-tiers to focus on. I consider BRD an solid takeover candidate.

NXG was a growth powerhouse right up until that ugly 1-year gap appeared in its production timeline between the Kemess South closing and the start of Young Davidson.For me personally, my investment in NXG, even going back to 2007, was always about Young Davidson. The market is short-term focused, and is failing to account for the earnigns that will flow the moment that mine gets cooking along. Like the huge run-up we saw in shares of Osisko well in advance of their first pour, though, one can expect that those expectations will get baked into the shares sometime between now and commissioning. I could easily see a $5 handle by the start-up date, and $8-$10 thereafter (comfortably) as the company builds out its potential elsewhere.

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#28) On February 23, 2011 at 11:42 PM, magnetpal (< 20) wrote:

Wow, very nice and happy to see you are getting recognized more and more by broader audience. Much deserved. Kudos Sinch!

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#29) On February 24, 2011 at 12:09 AM, XMFSinchiruna (26.57) wrote:


You have asked an excellent and difficult question. I needed a little time to think about it. :)

You are right, SLW still retains my vote as the highest-quality name in silver even after the incredible run it has had. Its fixed cost structure, and its diverse stream portfolio highlighted by world-class operations, make it virtually unrivaled in terms of low-risk exposure to silver.

By the same token, SIL represents a great risk-reducing mechanism via the basket approach. I'm not normally that complimentary of ETFs, that is true, but imagine my surprise when along came an ETF that mirrored so many of the holdings I had amassed individually over the past five years or so. I presently own 13 of those 26 holdings in the ETF. Like all ETFs, though, it has its drawbacks. The clearest one to me is the heavy weighting in large-scale operators, some of which are non-U.S. listed companies like Fresnillo and Penoles that I for one do not follow as closely as I would have to if I owned the ETF. Those are fine operations by all accounts, but I would want to complete very substantial due diligence on those two in particular before relying heavily upon the ETF. SLW is the largest holding, just as in my own portfolio, but by picking individual stocks I've been able to pair that uberstock with a similar weighting in Great Panther Silver, which in my opinion has a very strong potential to outperform even SLW going forward.

So whereas SLW is as close to anything I've seen to a perfect company in a rising silver price environment, I can not say the same about the SIL ETF. Like all ETFs, it's unpredictable in its make-up (as you point out), and its holdings in some of the industry's prime growth machines may well be too small to keep the vehicle apace with the outperformers of the bunch.

If I had to pick just one of the two, SLW probably still wins out, though the ideal silver exposure in my opinion would comprise at least a handfull of silver equity holdings.

With all five of the aforementioned silver standouts firmly entrenched among its primary holdings, the newly launched Global X Silver Miners ETF is like a one-stop shop for highly prospective names in the silver mining industry (names that this Foolish early bird had to select a la carte). I've been investing in this sector for quite a few years now, and for all my exhaustive research, I've gained little advantage over the late-coming Fool who grabs some shares of this top-notch ETF. 

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#30) On February 24, 2011 at 12:27 AM, XMFSinchiruna (26.57) wrote:

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#31) On February 24, 2011 at 3:20 AM, mhy729 (30.41) wrote:

Is anyone else seeing a yellow frog in an ice cube for Sinch's last image embed?

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#32) On February 24, 2011 at 6:52 AM, XMFSinchiruna (26.57) wrote:


Dude ... you ate from the wrong batch of brownies!  :P

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#33) On February 24, 2011 at 9:46 AM, kdakota630 (29.10) wrote:

Hate to pester you, but what do you think is the better play at their current valuations?  Primero or Northern Abitibi?

Personally I think I like Primero because in the last little while N.A. seems a little volitile.

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#34) On February 24, 2011 at 10:45 AM, CMFSoloFool (61.48) wrote:

Chris, thank you for your informative feedback. I will be seeking to open a position in SLW. Meanwhile, I've opened a small position in Goldcorp, which also produces a sizable amount of silver. I posted my research of GG on the Fool forum here:

I believe you stated before you have GG in your own portfolio, so I would very much appreciate your feedback on my research of GG. 


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#35) On February 24, 2011 at 11:51 AM, golfer121501 (20.88) wrote:

Hello TMFSinchiruna,

Thanks for all of the hard work you do and great info you share.

I was wondering if you have looked into YNGFF at all?

They have some recent finds at Ketza River.  Have you done any research on this company? 

Mariusz Skonieczny at Classic Value Investors likes them a lot.
Here is a link to his article:

Any insight would be helpful.


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#36) On February 24, 2011 at 12:11 PM, rfaramir (28.70) wrote:

"But I wouldn't read too much into this backwardation as being some evil squeeze" --Walker, CEO of metals consultancy GFMS

If he thinks that squeezing shorts is 'evil', he is betraying which side his bread is buttered on. (Or perhaps his audience's.)

Congrats on getting wider recognition. I think you deserve it!

One question. You mention above that the record gold price was "1,432" but the highest I find is on Jan 11, 2011 a price of 1,422. Where do you find record high prices? is where I saw 1422, but only on its charts, not a statement saying it was the highest.

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#37) On February 24, 2011 at 12:13 PM, mhy729 (30.41) wrote:


Haha...I wish.  :)  No joke, I see a pic of a yellow frog inside an ice cube with the message "Domain Unregistered. To view, register at:".  Might have to do with my location in Asia.

What is the image of, btw?

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#38) On February 24, 2011 at 4:56 PM, XMFSinchiruna (26.57) wrote:

It was the homepage of a silver site called, where my article was featured.

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#39) On February 24, 2011 at 4:58 PM, XMFSinchiruna (26.57) wrote:


I own YNGFF. And has it been a painful ride for longtimers like me. I may never get back to even on that one after selling some for a loss last year, but I have noticed their fortune apears to be reversing at long, long, long last. 

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#40) On February 24, 2011 at 5:09 PM, XMFSinchiruna (26.57) wrote:


I watch gold every day in real time, and I'm in the habit of committing peaks and troughs to memory, so I just happened to know what the high was. 

I just Googled it to make sure I had it right:

This gives you historical am and pm London fixes, but that won't show intraday highs:

Same goes with the Kitco charts, which only measure those fixes.

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