Sunday, November 27, 2011

Keith Neumeyer: The Silver Market Lacks Integrity

The Hera Research Newsletter is pleased to present an incredibly powerful interview with Keith Neumeyer, Chief Executive Officer, President and Director of First Majestic Silver Corp. (AG). Mr. Neumeyer began his career at the Vancouver Stock Exchange and worked in the investment community for 26 years beginning his career in a series of Canadian national brokerage firms including McLeod Young Weir (now Scotia McLeod), then Richardson Greenshields and then Walwyn Stogell McCuthchen (which became Midland Walwyn).

Mr. Neumeyer moved on to work with several publically traded companies in the natural resource and high technology sectors. His roles have included senior management positions and directorships in the areas of finance, business development, strategic planning and corporate restructuring. Mr. Neumeyer, who has listed a number of companies on the Toronto Stock Exchange, has extensive experience dealing with financial, regulatory, legal and accounting issues.

Hera Research Newsletter (HRN): Thank you for joining us today. Let’s begin by talking about silver supply and demand.

Keith Neumeyer: Silver mine production was around 736 million ounces in 2010. Demand was around 1 billion ounces. Scrap silver recycling and some government sales filled the gap. We’re at historic lows in terms of above ground silver. Eric Sprott recently said there are 1 billion ounces of triple nine silver left aboveground. Unlike gold, silver gets used. We’re at historic highs in supply when it comes to gold, but the exact opposite is true for silver.

World Silver Supply
(Click to enlarge)

HRN: Is there a deficit in terms of mine supply?

Keith Neumeyer: We’ve had a supply deficit for the past 13 years. 2009 was the first year we created equilibrium. We only went into a surplus in 2010, in terms of industrial and jewelry fabrication demand. The surplus mine supply was purchased by investors, obviously. A lot of mining companies are showing lower production because a lot of silver comes from base metals and, with lower base metals prices, it’s becoming more difficult. I don’t see any major supply drivers for silver in the next several years.

HRN: Do you expect more scrap silver to enter the market?

Keith Neumeyer: That’s what happened in 2009 when gold rallied over $1,200 and then corrected to below $1,100. It was primarily caused by scrap gold entering the market. I believe the same thing was happening for silver. We’ll see that again as the metals make new highs. It’s the same as a stock. You replace part of the shareholder base at different levels.

HRN: Are you optimistic about future demand?

Keith Neumeyer: Yes, I’ve been optimistic about silver since 2002 because silver is a strategic metal. I think it’s more important than gold.

HRN: Are there new applications that could increase demand?

Keith Neumeyer: We’re seeing all kinds of new applications. A recent report by Barclays forecast that 120 million ounces of silver will be used for solar power generation in 2012 versus 40 million ounces in 2009. The battery industry is growing as well. Zinc-silver batteries provide very stable capacity — their output doesn’t degrade like lithium batteries — and they deliver 40% more energy compared to nickel metal-hydride batteries. They’re safer than water-based chemical batteries because they don’t heat up or explode. They’re also mercury free and 95% recyclable. Lithium-ion batteries in cell phones, for example, need to be replaced after 12 to 18 months. I’m very optimistic about battery technology. There are also robotics and other applications on the horizon.

World Silver Demand
(Click to enlarge)

HRN: What’s your long term price target for silver?

Keith Neumeyer: Silver will reach a value based on its natural ratio of 15:1 with gold. I expect to see at least $2,000 gold and most likely $3,000 in the next 3 to 5 years, so silver will be between $130 and $200. It’s a big number from where we are today but that’s where I think we’re headed. We’re dealing with a market that needs to be corrected.

HRN: Isn’t the price of silver set by supply and demand?

Keith Neumeyer: I don’t think supply and demand has anything to do with the price, unfortunately. The world we live in today is a paper environment where silver is priced by financial circumstances. Banks, traders and investors around the world move markets to where they want them to be. Governments and commercials — big banks like HSBC and JP Morgan — all have a piece of the action. They alternately work together or sometimes against each other. All these forces price the metal. That’s one reason we’re seeing the volatility that we’re seeing today.

Silver Spot Price
(Click to enlarge)

HRN: How can supply and demand be irrelevant?

Keith Neumeyer: In short term trading, the price is financially driven. Eventually, markets do correct themselves over time. In the long run, supply and demand does have influence. That’s why the price will ultimately return to its natural ratio of 15:1.

HRN: How is the price of silver financially driven?

Keith Neumeyer: It has to do with the financial instruments that we trade in and with the fact that silver trades a billion ounces per day on the COMEX alone when there are 26 to 30 million ounces of silver available for delivery. With that kind of leverage, you just don’t have a proper market.

HRN: It has been reported that there are 100 ounces under contract for every ounce in the COMEX warehouse.

Keith Neumeyer: The governments, regulators and bullion banks have let the silver market get more and more leveraged. We’ve seen a lot of wealth destruction as a result of this leverage and we’re going to see a lot more until, finally, the governments decide to change the system.

HRN: Isn’t the COMEX guaranteeing market integrity, by raising margins, for example?

Keith Neumeyer: I don’t buy the argument on margin hikes at all.

HRN: Don’t margin hikes prevent dangerous asset price bubbles?

Keith Neumeyer: It’s not up to them to decide what is parabolic. They’re not investors themselves. They don’t have money in the market. They decide a bubble is going to happen if they don’t raise margins but no one knows when a bubble is forming. It is only apparent after it’s already happened. By hiking the margins, they create the appearance of a bubble bursting. They create the bubble. They create the proof that it was a bubble. If they let it alone, the market would stabilize by itself.

HRN: What should the Commodities and Futures Trading Commission (CFTC) do?

Keith Neumeyer: The job of the regulators is to protect the retail investor. That’s their only job. It’s not to protect the banks or the brokerage firms. The little guy is the primary taxpayer. Why were the Securities and Exchange Commission (SEC) and the CFTC put in place? They were put in place to protect retail investors. Prior to regulation, the banks controlled the market. Today, the banks control the market again. Who should control the market? Retail investors. Who’s protecting them? No one.

HRN: Are you saying that the CFTC does nothing while the COMEX caters to banks and brokerage firms?

Keith Neumeyer: Yes.

HRN: And the COMEX doesn’t serve retail investors?

Keith Neumeyer: No. Absolutely not.

HRN: Do you foresee a return to a free market in the future?

Keith Neumeyer: I’m an optimist. I believe one day that governments will rewrite the rules and force the regulators to protect investors. That’s where we were back in the ‘70s and that’s where I think we have to be again to correct the problems that have arisen over the past 40 years. Silver is being revalued. It’s going to affect a lot of people along the way and it will change the financial system. Ultimately, we’re going to have a new financial system and, hopefully, we’ll go back to natural markets, completely driven by supply and demand. It may take another 20 years but I think it will happen.

HRN: A new financial system?

Keith Neumeyer: If I’m wrong, the banks will run the world, even more so than they do today, 10 or 20 years from now. God forbid that we ever get there because that’s a one currency, one government world that would absolutely be a disaster for the human race. There would be no freedoms at all to move or to invest. It would be like having shackles on our ankles. There is a movement to go in that direction, unfortunately. There are a number of very wealthy people that want to see that. I hope that we can find the politicians to prevent that type of world from coming to pass.

HRN: Thank you for your time and for your candor.

Keith Neumeyer: It was a pleasure.

Wednesday, November 23, 2011

Pure Gold and Silver: Year of the Dragon 2012 1oz Silver Rectangle Four-Coin Set by Perth Mint Australia

  • Magnificent Year of the Dragon Tribute
  • Four 99.9% Pure Silver 1oz Coins
  • Unique Rectangle Shape
  • Cook Islands Legal Tender
  • Extremely Limited Mintage – 3,000
  • Numbered Certificate of Authenticity
  • Exciting Packaging – View From Both Sides

Celebrating the Year of the Dragon, this four-coin set is a prestigious and exceptionally limited offering from The Perth Mint.

In Chinese culture, people born in the Year of the Dragon - 1916, 1928, 1940, 1952, 1964, 1976, 1988, 2000 and 2012 - are regarded as confident, enterprising, independent, self assured, brave and passionate.

Four 99.9% Pure Silver 1oz Coins

Each coin is struck by The Perth Mint from 1oz of 99.9% pure silver in proof quality.

Unique Design

The 2012 Dragon 1oz silver rectangle coins each feature a coloured dragon with a ‘pearl of wisdom’ set against a background depicting waves and clouds. As well as the Chinese character for ‘dragon’, The Perth Mint’s ‘P’ mintmark also appears on the reverse of all four coins.

Cook Islands Legal Tender

Issued as legal tender under the authority of the Government of the Cook Islands. The Raphael Maklouf effigy of Her Majesty Queen Elizabeth II, the 2012 year-date and the monetary denomination are shown on the obverse of each coin.

Extremely Limited Mintage

No more than 3,000 numbered sets will be released by The Perth Mint.

Numbered Certificate of Authenticity

The four-coin set is issued with a numbered Certificate of Authenticity.

Presentation Packaging

Accompanied by a numbered Certificate of Authenticity, the four-coin set is housed in a contemporary black framed clear display case, allowing you to see both the reverse and obverse of each coin. The set is packaged in an illustrated shipper.

Technical Specifications

Silver Content (Troy oz) 1
Monetary Denomination (AUD) 1
Fineness (% purity) 99.9
Minimum Gross Weight (g) 31.135
Maximum Diameter (mm) 47.60 x 27.60
Maximum Thickness (mm) 4.00

Year of the Dragon 2012 1oz Silver Rectangle Four-Coin Set by Perth Mint Australia

Australia Silver: Australian Sea Life II "The Reef" Surgeonfish 1/2 oz Silver Proof Coin Perth Mint Issue

The colourful Surgeonfish is found along the coast of Western Australia and throughout the waters of the Great Barrier Reef in Queensland to northern New South Wales. The most distinguishing characteristics of this marine species are its amazing ability to change colour and its extremely sharp scutes and fins – hence the name – Surgeonfish.

Proof Quality 99.9% Pure Silver
The coin is struck by The Perth Mint from 1/2oz of 99.9% silver in proof quality.
Coloured Reverse Design
The coin’s reverse depicts a Surgeonfish in colour and includes The Perth Mint’s ‘P’ mintmark. Incorporated into the design are the inscriptions AUSTRALIAN SEA LIFE II – THE REEF – SURGEONFISH.

Australian Legal Tender
Issued as legal tender under the Australian Currency Act 1965, the coin’s obverse depicts the Ian Rank-Broadley effigy of Her Majesty Queen Elizabeth II, the 2012 year-date and the monetary denomination.

Limited Mintage

The Perth Mint will release no more than 10,000 of these coins worldwide.

Numbered Certificate of Authenticity

Each coin is accompanied by a numbered Certificate of Authenticity.

Stunning Illustrated Presentation Packaging
The coin is housed in a display case with an illustrated coral reef shipper, and accompanied by a numbered Certificate of Authenticity. Each shipper joins with other shippers in the series to create a superb underwater scene.

•Proof Quality 99.9% Pure Silver
•Coloured Reverse Design
•Australian Legal Tender
•Limited Mintage – 10,000
•Numbered Certificate of Authenticity
•Stunning Illustrated Presentation Packaging

Technical Specifications
Silver Content (Troy oz) 0.5
Monetary Denomination (AUD) 0.50
Fineness (% purity) 99.9
Minimum Gross Weight (g) 15.591
Maximum Diameter (mm) 36.60
Maximum Thickness (mm) 2.30
Designer: Wade Robinson

Australia Silver: Australian Sea Life II "The Reef" Surgeonfish 1/2 oz Silver Proof Coin Perth Mint Issue

Monday, November 21, 2011

Silver to Surpass $50 in 2012

This past Wednesday night, experts met at the Silver Institute in New York City and speculated on the silver's forecast for the rest of this year through the end of next year. Bullish predictions ensued.

Yesterday's sharp price dip may be attributed to the fact that the SGE "announced an immient margin hike" overnight.

"The Shanghai Gold Exchange said it will raise margins on silver forwards to 18 percent from 15 percent from Monday if the silver contract hits its daily trade limit on settlement on Friday. The exchange said it would lift daily trade limits on silver forward contracts to 15 percent from 12 percent if the contract hits limit up or down on settlement on Friday."

Philip Klapwijk of Thomson Reuters suggested that the average silver price-per-ounce this year will run around $35.66. His short-term forecast through the end of 2011 is $35-$40 per ounce. And for 2012, Klapwijk anticipates prices surpassing the $50-per-ounce range by the conclusion of 2012.

According to Klapwijk's observation and research, overall market and economic conditions in the coming year will push-up growth and demand in the silver market.

Due to the financial outlook, silver investors' interest is set to remain strong, even “in spite of two major sell-offs.”

However, as mine production of silver continues to grow, it could be a negative development for the silver price outlook.

Klapwijk forecast a "large and growing fundamental market surplus" of silver of +/-230 million ounces this year.

Although silver's core fabrication demand (excluding coins) should rise next year, largely due to gains in industrial consumption, "it will nonetheless be exceeded by gains in production and recycling." However the substantial silver market surplus should be absorbed by silver investors, Thomson Reuters GFMS suggested.

Additionally, Thomson Reuters data reveals that silver coin minting could rise by 25% this year! This would be an all-time-record high for the Thomson Reuters GFMS data series.

But watch out for fake silver and gold jewelry this year...Thomson Reuters says the expect jewelry fabrication to increase a bit this year due to “substitution-led gains at the expense of gold.” On the other hand, they “anticipate further declines in jewelry fabrication silver demand” for the following year.

Economics Theory: JPMorgan, Goldman Sachs Sued Over MF Global Collapse

Reuters reports that Bank of America (BAC), Citigroup Inc. (C), Deutsche Bank (DB), Goldman Sachs (GS) and JPMorgan (JPM) were among the banks sued Friday afternoon in Manhattan federal court by two pension funds over losses on securities of broker-dealer IMF Global Holdings Ltd. (MF).

The complaint, which seeks to represent other shareholders in a class-action, or group suit, was filed by IBEW Local 90 Pension Fund and the Plumbers & Pipefitters’ Local #562 Pension Fund. In their complaints both funds state that the “registration statements and prospectuses for about $900 million of MF Global note offerings this year omitted how the New York based company was using high leverage, investing heavily in risky European sovereign debt, and not properly segregating client assets from its own.”

The complaint also said that the “banks helped draft the offering documents and sell the notes, collecting $21.2 million of fees”, but that their “failure to conduct an adequate due diligence investigation was a substantial factor” in MF Global’s collapse, as well as in defaults on the notes.”

The lawsuits seeks damages for investors “between February 3, 2011 and October 31, 2011 in MF Global securities, including its 1.875 percent convertible senior notes maturing in 2016, its 3.375 percent convertible senior notes maturing in 2018, and its 6.25 percent senior notes maturing in 2016.”

Other defendants in the complaint include several officials associated with MF Global, including former Chief Executive Jon Corzine.

MF Global Holdings filed for bankruptcy Oct. 31, 2011 after getting margin calls and listing debt of nearly $40 billion.

Economics Theory: JPMorgan, Goldman Sachs Sued Over MF Global Collapse

Economics Theory: Gold/Silver Stake for Zombie Terrorist Bankers : Max Keiser

Italy's new prime minister, Mario Monti, has began work on forming a new 'technocrat' government to tackle the country's towering debt. An economist and former EU-commissioner, he now has to implement structural economic reforms to pull Italy out of its financial chaos. For more on this, RT talks to Max Keiser, financial analyst and host of the Keiser Report.

Economics Theory: Gold/Silver Stake for Zombie Terrorist Bankers : Max Keiser