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Precious Metals

Motivated Reasoning About Silver

We’re seeing the argument, again, that silver stocks are being consumed in solar panels, medical applications, and of course, electronics…

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We’re seeing the argument, again, that silver stocks are being consumed in solar panels, medical applications, and of course, electronics. This argument has a certain temptation. After all, the standard assumption is that value is inversely proportional to quantity.

Purchasing power is widely believed to be 1 / N (N is number of units of currency issued). So, logically, if stocks are decreasing, then silver is becoming scarcer, and they deduce that it is becoming more valuable.

This is a good example of Motivated Reasoning, that is the “tendency to find arguments in favor of conclusions we want to believe…”

Is Silver being Demonetized?

Something needs to be said up front. And it is obvious to even casual observers. The dollar has (by far) the greatest quantity, and yet far from the least purchasing power. It is one of the strongest currencies, despite—or perhaps because of—this fact.

Also, as a corollary, the price of silver measured in dollars, does not go up as a function of increases in the quantity of dollars. Therefore, the logic of silver becoming more valuable strictly on account of its decreasing quantity is broken.

More importantly, this argument argues that silver is being demonetized. It is saying that the commodity formerly known as “money” is being put into consumer goods and, eventually, landfills. That is, people are disposing the stocks of money accumulated over 5,000 years of human action.

If you were trying to build a bullish case for silver, based on its expected role in a new monetary system, this argument would undermine that case. Either silver will likely play a role, and hence buying it now is a non-expiring call option on this expected monetary change. Or else silver is being thrown away, forgotten and unlamented. Take your pick, one or the other.

Some people who tout this kind of argument don’t give a sh*t about the future of the monetary system. They are either in the game for a quick trade, to make what they deem to be real money—i.e. dollars. Or else they are silver spruikers, trying to get you to buy silver, from which they may benefit.

But many are sincere. They come to silver (and gold) because the dollar is obviously, visibly, failing (though not via skyrocketing consumer prices). Interest has all but been euthanized, along with savers, retirees, pension funds, and insurers. The dollar’s managers are taking more and more extreme actions to try to stave off catastrophe, while at the same time loudly proclaiming that there’s nothing wrong, the economy is fine, nothing to see here, move along folks.

So these folks buy silver, thinking about monetary change. But a funny thing happens on the way to said monetary change. SILVER IS GOING UP! It’s easy to lose sight of where things are headed, and why we took what might have been an inconceivable action before 2008—buying silver—because the price action is exciting. And if you time it right, you can get free dollars which can buy real food, real housing, and real Ferraris.

We certainly don’t fault people for trading silver. Speculating for price gain is the surrogate for the yield which has been killed by the Fed (Monetary Metals pays a yield on gold and silver). Our quibble is when they make arguments which undermine the whole Purpose of the precious metals movement: that the monetary metals are money.

Understanding Central Banks Buying and Selling of Gold

Another argument, this one is coming up for gold again, is that Central Bank X bought X tons of gold in June. The implication is that this is bullish. We aren’t sure if those arguing this are trying to make you believe that central bankers are smarter than everyone else, and therefore you should follow them in placing your bets. We can say with confidence, however: they aren’t smarter.

More often, those who argue this way are trying a variant of the scarcity argument. In other words, the central banks just took X tons of gold off the market, therefore the price should rise.

It should be obvious that central banks can just as easily sell what they bought. So this is not necessarily taking gold off the market.

Our main point about this is, perhaps, less obvious. The quantity of gold does not change in a transaction. If a central bank bought X tons of gold, then someone sold X tons of gold. We ask the rhetorical question, why do these gold commentators never write headlines like this: “Thousands of Random People Dump X Tons of Gold Onto Hapless Central Bank”?

Some transactions are correctly characterized as a motivated buyer buying gold off a gold owner. Others are correctly described as a motivated owner selling it onto another party. What factor determines which is correct? That factor is not: whichever party is more famous.

That factor is: the price action. If a buyer is motivated, he lifts the seller’s offer. The offer price ticks up. Conversely, if a seller is motivated, he presses the buyer’s bid. The bid price ticks down.

What do we know about this central bank action in June? We know the price was falling during the month. Therefore, the latter is true. Sellers dumped their gold onto the central bank bid.

Monetary Metals is the exclusive publisher of supply and demand fundamentals and dozens of other charts of market data, that helps traders cut through the noise to understand what’s really going on. We don’t believe that misinformation makes any difference to price, other than in the shortest time horizon. If anything, it causes the price to be depressed over the longer-term as it may cause many people to give up on owning precious metals.

Supply and Demand Fundamentals for the Gold Price

Here is the gold chart, zoomed into show 60 days of the near contract.

Gold Basis (Near Contract): Jul 23, 2021

We have marked it up to show different patterns in different periods. In (1), we see a very large increase in the price of the dollar (we argue at length, that measuring the dollar in terms of gold and not measuring gold in terms of the dollar, is no mere tendentious point, but the only way to see gold and the dollar clearly).

A rising price of the dollar in gold terms means a drop in the price of gold measured in dollars. As this price move occurred, gold became somewhat scarcer. Our measure of scarcity, the cobasis, rose from around -0.70% to -0.44%.

Next, in region (2), the price of the dollar is sideways to down. But the scarcity of gold continues to rise. At the end of this phase, there’s another sizeable blip up in the dollar, with a smaller but noticeable blip up in gold’s scarcity.

In (3), the price of the dollar drops about half as much as it had gains. Technical chartists may read meaning into such a 50% retracement, but that is not our focus. We are just looking at the fact that gold became less scarce during this price move (this was also about a 50% retracement).

It is notable that the proportionality is holding. This means that the price moves are largely driven by leveraged speculators who are positioning and repositioning themselves based on their expectations of the next price move, plus their increasing or decreasing access to credit, margin calls on other assets, etc.

But this week, something changed. Look at the point labelled (4) on Monday, though this pattern continued on Wednesday. We see the dollar went up (i.e. the price of gold went down) but the scarcity of gold market went down. Gold became more abundant to the market when its price dropped.

This is selling of bars and coins, not futures. Not what you want to see, if you’re making a bullish bet on the price of gold.

Now let’s look at silver.

Supply and Demand Fundamentals for the Silver Price

Silver Basis (Near Contract): Jul 23, 2021

The price action of silver is similar to gold. But the basis action is a bit different. The cobasis moves along with the price. There is even a day (July 5) when the cobasis moves up—silver became scarcer—when the dollar went down. That shows buying of coins and bars.

So let’s look at a chart we don’t include in this Report very often (though it is updated on our website every day). This one shows the ratio of the gold basis to the silver basis, and the gold cobasis to the silver cobasis. In other words, it shows which precious metal is relatively more abundant or scarce. And the trend.

This chart is zoomed out to show the start of the covid lockdown through present.


Precious Metals

O2Gold Shares Rise 7.14% After Reporting Intersects 20.11 g/t Gold Over 0.7 Metres At Aurora

O2Gold (TSXV: OTGO) last night reported on its first drill results from its Aurora Property in Colombia…

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O2Gold Shares Rise 7.14% After Reporting Intersects 20.11 g/t Gold Over 0.7 Metres At Aurora

O2Gold (TSXV: OTGO) last night reported on its first drill results from its Aurora Property in Colombia. The firm had previously halted trading in its equity due to the assay results received.

The first drill hole reported by the company comes from the Aurora Tunnel within the Main Aurora Vein, where O2Gold encounter 20.11 g/t gold and 3.30 g/t silver over 0.7 metres, within a larger interval of 9.19 g/t gold and 1.89 g/t silver over 1.6 metres. Mineralization was encountered at just 97.4 metres of depth.

The hole, referred to as AUR-21-001, also encountered 12.30 g/t silver over 3 metres, at a depth of just 8.70 metres within fragmented quartz veins. The hole was drilled to a total depth of 220 metres.

The hole marks the first within an ongoing 8,000 metre drill campaign, which currently has two drills turning on the firms property. Four holes have been completed to date, with assays pending on three holes presently.

O2Gold last traded at $0.21 on the TSX Venture.

Information for this briefing was found via Sedar and O2Gold Inc. The author is currently long the equity. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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Top Silver Stocks To Watch This Week

Will These Silver Stocks Go Up? The market for silver stocks has…
The post Top Silver Stocks To Watch This Week appeared first on Gold Stocks to Buy,…

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Will These Silver Stocks Go Up?

The market for silver stocks has been quite an interesting one to watch in the market in recent times. The pandemic caused silver assets to skyrocket in price throughout the last year and a half. The percentage gains for many silver assets were higher than gold stocks. This brought a lot of new investors to the metal that may have overlooked it before. One other recent event also brought a lot of new people to silver investing. You have certainly heard of the GameStop situation where Reddit traders boosted the price of the stock.

Well in early February the same thing happened to silver prices as a result of retail traders according to the mainstream media. But Reddit traders quickly stated that it was not their doing. This caused the price of the metal to pull back. What this did do, was attract a lot of new eyes and investors to silver related assets. The price of silver has been able to remain relatively stable at the moment.

So what else is affecting silver prices? Jobless reports often affect the price of silver and gold. It will be interesting to see the effect that unemployment and the economy has on the metal in the future. There are many great silver stocks to watch at the moment despite the volatility in the market. Let’s take a look at four silver stocks that show market potential right now.

Top Silver Stocks To Watch

  1. First Majestic Silver Corp. (NYSE: AG)
  2. Fortuna Silver Mines Inc. (NYSE: FSM)
  3. Endeavour Silver Corp. (NYSE: EXK)

First Majestic Silver Corp. (NYSE: AG)

First Majestic Silver Corp. is a mining company that primarily focuses on acquisition of land, exploration, development, and production of mineral assets. The company’s biggest projects include silver production in Mexico. Currently, First Majestic has 100% interest in the San Simas mine, Santa Elena mine, and holds interest a variety of other land too.

On August 16th, First Majestic reported its second quarter financial results for 2021. The company’s revenue achieved a new record, at $154.1 million. Its average realized silver price per ounce increased quarter over quarter as well.

President and CEO Keith Neumeyer said, “As a result of the higher revenues, our quarterly dividend increased by approximately 33% when compared to the prior quarterly payment. The mining units generated $29.4 million in mine operating earnings due to strong production and higher realized metal prices.” With this in mind, is AG stock a contender for your list of silver stocks to watch?

Fortuna Silver Mines Inc. (NYSE: FSM)

Fortuna Silver Mines Inc. is a mining corporation with a focus on exploration, extraction, and processing of precious metals. It actively explores for gold, silver, zinc, and lead. Its main properties include the Caylloma and San Jose mines, as well as the Lindero gold project in Argentina.

On June 28th, Fortuna and Roxgold Inc. announced a business combination. President and CEO of Fortuna Jorge A. Ganoza said, “The successfully completed business combination creates a low-cost intermediate gold and silver producer with four operating mines and a permitted development project. The company will benefit from a robust exploration pipeline and expanded presence in the Americas and West Africa, two of the fastest growing precious metals producing regions in the world.”

On September 20th, the company announced changes in its management team. David Volkert retired as the VP of Exploration in Latin America, which goes into effect on September 30th. Other than this, the company has not released a large amount of recent updates. So now it will be interesting to see where FSM stock goes from here. Will you add FSM to your silver stock watchlist?

Endeavour Silver Corp. (NYSE: EXK)

Endeavour Silver Corp. is a silver stock that just went up in the market. This company acquires land, explores it, and develops it. Endeavour works on the processing, refining, and reclamation at its mineral properties. Most of Endeavour’s primary assets are located in both Mexico and Chile. Endeavour for the most part only searches for silver and gold at its mines.

Back in August, the company announced its second-quarter financial results. The CEO of the company, Dan Dickson said, “From a financial standpoint, our Q2 performance was stronger than the respective period last year, as revenue, cash flow and earnings were all higher. However, our operating costs are clearly not where we want them to be. We are working to optimize our operating cost profile in the second half of 2021.”

Endeavour’s metal production grew 80% during the quarter, and its gold production grew 92%. These numbers were in line with Endeavour’s guidance for the year. Its net revenue in the second quarter was up 136% to $47.7 million. Now the company has completed the acquisition of the Bruner Gold Project in Nye County, Nevada. With this in mind, will you add EXK to your mining stock list?

Silver Stocks To Watch

There are plenty of silver stocks to watch in the market in 2021. Some think that there is not an opportunity to invest in silver stocks at the moment, but there are still many companies with potential in the market.

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Precious Metals

Inca One Gold Posts Record Production Figures For August 2021

Records continue to be beat by Inca One Gold (TSXV: INCA), whom this morning reported its best-ever processing results. The
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Records continue to be beat by Inca One Gold (TSXV: INCA), whom this morning reported its best-ever processing results. The firm managed to post record production for the month of August, with production improving 163% on a year over year basis.

Production in August hit 6,838 tonnes, or 221 tonnes per day, the best ever monthly performance for the company. Production occurred at both of the firms plants, and beat the previous record of 6,581 tonnes.

Gold produced came in at 2,309 ounces, while ore deliveries amounted to 6,982 tonnes – which points to the potential for a very strong September for the company as well. Gold production was up 57% year over year, while deliveries improved 131%.

“It validates our business model and operational aptitude that we were able to so quickly and effectively deploy the working capital received from our second Gold Prepayment Facility received in the first week of August,” commented CEO Ed Kelly. “The Company, now armed with sufficient working capital, its only 10% off its record processing pace set in 2018,” he continued.

The results continue to be driven by the working capital the firm was able to access via a $9.0 million gold pre-payment facility. A similar facility drove record results for the firm in the months of May and July earlier this year, with the working capital expected to continue to provide strong results for the firm on a go-forward basis.

Inca One Gold last traded at $0.34 on the TSX Venture.

FULL DISCLOSURE: Inca One Gold Corp is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover Inca One Gold Corp on The Deep Dive, with The Deep Dive having full editorial control. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.

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