It has been a while since we updated our basis analysis of gold and silver and this is primarily due to the fact that the basis wasn’t doing much of anything. It still isn’t doing all that much but there are signs of change on the horizon so we thought it would be a good time to provide an updated reference point for our ongoing commentary, which is about to go into high gear given the current market situation.
As many of you know, “basis” refers to the spread between prices in two different markets or locations for the same underlying commodity or security. These two markets may be separated by physical distance, which is how basis is measured in the grains, or by manner of ownership, which is one of the ways that basis can be measured for gold and silver. In particular, the classic measure of the basis in gold and silver involves analyzing the spread between the spot price of bullion, which is derived primarily from trading on the London Bullion Market (LBM), and the futures price of bullion, which is derived primarily from trading on the COMEX.
Although the LBM and COMEX are separated by physical distance, this isn’t the main factor creating the differences in prices from which the bullion basis arises. Rather, the main factor is the time lapse between the trade and settlement. On the LBM, physical trades settle in 2 days whereas on the COMEX physical delivery occurs at some point in the future based on the terms of the particular futures contract. For practical purposes, the basis calculation always uses the active futures contract, which currently for gold is February 2011 and silver is March 2011. In any case, the difference in prices between the spot and futures markets is due to the passage of time, and time is money. Specifically, bullion does not generate interest as does invested cash. Acquiring bullion on the spot market today instead of waiting for future delivery on the COMEX requires an expenditure of cash today and therefore interest is foregone in comparison to acquiring gold for future delivery (which requires a much smaller present cash outlay in the form of margin).
Thus we should not be surprised that gold for future delivery should cost more than gold for immediate delivery especially if interest rates are moderate. The condition where the future price of bullion exceeds the spot price is called contango and represents the normal condition of the bullion market. By “normal”, we mean that gold and silver should trade in contango as long as all other things are equal. But what if other things are not equal? For example, what if there is a rise in default risk associated with delivery of bullion in the future? In such a case, buyers may have a strong preference for obtaining gold today even if it costs more than gold promised for delivery in the future. In effect, the foregone interest can become irrelevant compared to the risk of default on the futures contract. Under such conditions the spot price of bullion can be higher than the futures price, and not only for an instant here and there but for a sustained period of time. This is called backwardation. Importantly, backwardation is more meaningful when interest rates are high and rising instead of low and falling since in the former case it is financially more painful to forgo the interest in exchange for the security of immediate bullion possession.
Unfortunately, there are some very serious problems with constructing basis studies from publicly-available price data. The futures price is not a problem as the COMEX exchange provides very detailed trade data. Discrete data on spot prices, however, is very difficult to acquire if you are not a bullion bank — for the simple reason that the spot market represents over-the-counter trading between private parties and does not have its own exchange or reporting mechanism. The only “official” data on spot market prices are the London gold and silver fixings that occur twice a day for gold and once for silver.
There is also an issue with the type of price being used since one can have a bid price, an ask price and a trade price. Despite some strong arguments made by basis proponents that the bid-ask spread is a relevant consideration to undertake in studying the gold and silver basis, we believe that using bid-ask data is fraught with problems. For example, a simple bid or ask price does not transmit information about volume and can provide deceptive results under various market conditions (as has been the case several times since 2008). We therefore prefer using actual trade data in our basis analysis. To our knowledge, the only proxy for spot gold and silver trading that exists is the FOREX market where money center bank currency desks make a cash market for gold and silver under the symbols XAU and XAG.
Another proxy market for gold and silver that has existed for a few years now is the ETF. The major gold ETF, GLD, and its silver cousin, SLV, contain pricing mechanisms that closely track spot bullion prices (for the most part). This mechanism relies on a linkage to bullion trading that takes place on the LBM. Yet the ETF price is never exactly the same as the bullion spot price, primarily because of demand and supply factors that create net asset value (NAV) premiums and discounts. For example, Jim Cramer may recommend to his flock that GLD is a good buy at the moment and that may create instantaneous demand for the ETF that is not matched in the spot gold market. In any case, it is possible to track the NAV premiums and discounts over time and this can reveal similar information about the underlying gold and silver market as does the classic gold and silver basis. For example, both the classic gold basis and the “GLD basis” can reveal large fund flows in and out of the metals that might otherwise not be apparent to market observers. Therefore we use both methods in our basis studies.
Much more can be said about the gold and silver basis but let’s go ahead and look at a few charts and save further exposition for a future date. First up is the classic gold basis. Click on all charts to open full-size versions.
You will want to avoid the chart action in late November during Thanksgiving and also ignore the gentle downsloping trend (an artifact of the fixed calculation required in order to render the chart). Instead, we are looking for major movements in the basis toward or into backwardation (the red line represents the threshold between contango and backwardation) or some other major shift. Other than single data points, which represent anomalies that appear quite often in basis studies, we can see that the gold basis has been rather well-behaved even as gold has fluctuated around record levels.
The internet may be full of dubious claims about “commercial signal failures”, imminent supply shocks and various end-of-world prognostications but the basis reveals gold to be in a normal bull market at the moment. By “normal bull market”, we mean one where prices are determined by the incremental excess of demand over supply. In other words, there is no ongoing massive rush into gold that will momentarily drive the price to the stratosphere. Indeed, the gold basis reveals that physical demand remains well below historic levels such as during 1979-1980 when gold often traded in backwardation even with interest rates at very high levels (see above for why this is relevant).
Note that an encouraging sign can be found for gold bulls at the right end of the above chart, which shows that contango in gold may have built a slight upward bias during the recent pullback but does not (yet) indicate the type of physical dumping that has characterized the major gold corrections of the past. Physical dumping tends to cause the basis to rise, resulting in higher contango, because large sales in the spot market are more difficult to absorb than in futures markets or the ETFs. The simple reason for this is that the spot market requires a dollar-for-dollar offset in physical demand whereas the paper markets can also absorb supply through short covering.
Next up we have the GLD basis chart featuring the gold ETF. In this chart the GLD’s NAV is par at the chart value of zero so there is a NAV premium above the red line and a NAV discount below the red line.
For at least the past couple of years, both GLD and the silver ETF SLV have typically traded at a very small NAV premium simply because demand has consistently exceeded supply. The excess demand, however, is only sufficient on distinct occasions to generate a NAV premium large enough to justify delivering additional bullion to the ETF. Delivery of this bullion results in the issuance of additional ETF shares, which are used to satisfy the incremental demand. On the flip side, supply has rarely been sufficiently excessive to cause the redemption of ETF shares and a consequent decline in the ETF’s bullion holdings. Indeed, one of the hallmarks of this bull market in gold and silver appears to be the maintenance of an ongoing slight NAV premium in the bullion ETFs and the consequent and constant accumulation of ETF metal holdings. We find it difficult to imagine a scenario where gold and silver could enter a longer-term correction or even an intermediate bear market absent a radical change in the ETF basis from perennial NAV premium to a NAV discount.
Moreover, we find that the ETF basis can help us evaluate the character of an ongoing price rally or pullback in the short to intermediate term. In the above chart, for example, we can definitely note that the NAV premium has declined and even flirted with a discount but still remains positive even after two days of very sharp gold price declines. Continuing to observe ETF basis action over the next several days should reveal strong clues about the nature of the current decline. One possibility is that bargain hunters may enter the market en masse around a certain price level and this would obviously have positive implications. In our experience, the basis can often provide advance notice of bargain-hunting activity. One way this could manifest is a sharp upturn in the NAV premium.
Next up is silver and because it largely confirms the story we are seeing in the gold basis, we’ll only provide abbreviated comments. First up is the classic silver basis.
Quite a similar story here as the gold basis except that we are seeing a more aggressive jump in the contango, which would be consistent with the steeper fall in the silver price and perhaps more physical selling compared to gold. Given silver’s relative outperformance of gold to the upside, none of this is surprising.
The SLV basis chart follows.
Interestingly, the NAV premium on the SLV is actually stronger than GLD and indeed I just checked my live version of this chart and there was a further uptick in the afternoon. This is again an encouraging sign pointing to the weakness in silver being temporary . . . although the ETF basis can notoriously turn on a dime and therefore no trader should take comfort from a fledgling signal like this.
In any case, we typically have these charts running in the background during the trading day and we are currently working on an Internet-based version to be available to Metal Augmentor subscribers sometime early next year. We believe this will be one of the more powerful market tools available to retail and small institutional investors in the gold and silver markets and so we look forward to announcing new developments very soon.
More for subscribers in the next few days as circumstances dictate.
Great work! I look forward to more use of it in the future. If it can help us understand when things are about to turn we can take appropriate action on a macro level rather than just on specific stocks (which has also been excellent) Any guidance to lighten up or get back in at the appropriate times would certainly be useful in these volatile markets. A good guide can help temper greed and fear. Thanks
Thank you for sharing this. Very well written.
Thank you and very impressive writeup/background information.
Tom (or idiotic),
Do you have anything to say about the US Treasury bond market and whether the recent rise in yields is temporary or will continue?
coincidentally two other bias articles appeared:
http://thefundamentalview.blogspot.com/2010/12/scramble-for-physical-metal-paints.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheFundamentalView+%28The+Fundamental+View%29
(among others) quotes J Turk who says there is increasing backwardation in gold and silver and it is spreading into further out months. His charts are more long term and the data source is said to be “based on data obtained by the London Bullion Market Association (LBMA).”. It would be interesting to hear what you say about his data. “for 1-month and 3-months forward has been mainly in backwardation for more than one year. Even more exceptional is that gold 6-months forward has been in backwardation since November 5th. To show how rare this event is, I checked the LBMA database, which goes back to 1989. There is not one instance of 6-month forward gold being in backwardation, which nearly confirms my own experience. ” Err, so how can the case, I’m seeing Feb gold about 60c more expensive than spot as you show. But Turk can’t be completely stupid?
and Otto linked to a copper article with a whole new angle on this http://www.commodities-now.com/news/metals-and-mining/4330-lme-copper-market-and-the-dominant-long.html
And completely off-topic (so I won’t be offended if the powers that be delete this), see the most recent John Petersen article on EVs in SA re Kandi – someone may have designed a practical EV for once (by my coinage this is an NPEV, a no-plug EV), and the market cap is still low! This could be a very big deal, the economics look good, the solution seems appropriate for the target consumer, the potential is 10x minimum IF the consumers agree. [Maybe we could have an OT thread one day?]
Dave, for the guy that brought Amazon to our attention, there are no deletions allowed :>)
@David
I think we will retrace some, and action is likely to follow stocks and the dollar. I am not in the camp of a sharp fall in bonds from here but rather a gradual topping pattern to finish forming on the long term charts. That actually permits bonds to hit marginal new highs again, although that seems hard to believe! I haven’t heard from Eidetic for a while, I’ll try to check in.
@Dave
Turk’s work is a “Charlatan Exposed” candidate though I hate to have another one so soon after Byron King. Basically he conflates forward rate with lease rate so there is no backwardation but rather negative lease rates. The reason for this of course is the flattening of the LIBOR curve particularly the 6 month rate. The copper article seems on point but really doesn’t say anything new — in essence, commodities will go into backwardation when available supply in exchange-approved form is tight. In the instance of copper, I believe there are billions of tonnes of copper being horded off exchange, but what matters for COMEX and LME prices is the tonnes of copper available for delivery on the COMEX and LME. Regarding investment/speculation ideas, it is not off-topic so please by all means mention really good ones (always help to include thesis of course).
@forwill
Very kind forwill, and new highs eh!, now would you like to see my skeleton cupboard!
@silverax
Re Turk – Lack of frequent exposure means I can never remember the terminology well enough to understand this with a single read, but I’ll take your word for it, thanks!
Re Kandi (KNDI) – Sorry, not sure if you mean my few lines enough didn’t count as a thesis or not! I was hoping anyone with an interest would read the SA article. The comment stream is also important, but long, I suggest simply searching for all the comments by Petersen and Arthur. In fact Arthur was kind enough to provide a detailed response to some “too good to be true” questions I posed. The answers were good and added more info, but he didn’t answer them quite all and I have a few more. The discussion will probably now continue on Yahoo, there is a link in the comments to the message board; see already there discussion about number of shares in strong hands.
Just to be clear, the point is really “horses for courses” and costs. This solution will work well in China, not so well in the west (in current form anyway).
And there is no guarantee that the Chinese will actually buy it. BUT if they do, the sub $150m mc and lack of dilution means the sp has much opportunity to really appreciate.
My current crop of queries I would like addressing are: Range effects – hills and aux power loads (a general EV issue, so should be answerable without Kandi-specific input); has anyone actually seen the assembly line being built (I haven’t checked back, I think not); customer satisfaction & independent road test. Also I’m trying to get a second opinion on whether $20m is ball-park for building the 100K assembly line, seems cheap to em.
Any input appreciated!
A PS: re KNDI – a few days later, still a good idea?
Having read some more of the recent comments, the potential still looks good and as I see it the main issues are that
1) there is no user feedback or independent review as to whether the car generally performs as per spec and lives up to expectations (is useful)
2) The somewhat biased commentator “killacycle” on the SA article makes negative points which are not completely addressed. I’m left in two minds here about the sulphation and freezing problems here. [A partially discharged lead-acid battery will sulphate, there are "degrees" of problem this causes depending on how long it is left for, also they are more likely to freeze in cold weather.]
Wow, Tulving.com is selling 90% for spot -$0.10 per ounce. That is better than any other above-ground source of silver or ETF I am aware of.
@Dave
I spent a bit of time researching KNDI and may look to add a spec position in various accounts. It clearly has 10 bagger potential, but I hate buying it on such strength. Believe it or not my plan was to actually begin accumulating a position around the $5 level and then the latest news bumped it back above $6 before I could pull the trigger. It’s on my watch list, and even though it isn’t likely we’ll feature it on Metal Augmentor we would continue to appreciate your thoughts on the company.
@zurbo
re KNDI, Thanks for indicating your opinion, glad to see I haven’t missed some obvious problem. I’m still concerned about the sulphation and deferred recharge issue, but haven’t followed up in more detail (and am running out of time here because of weather problems and christmas). You saw my SA comment clarifying the RE aspect of the Pb-acid battery? That is my latest input.
I was lucky in that I added some (to average down) about 60mins before the news came out (but didn’t get any options I was after). Not sure what to do about adding now, MC is still low relative to potential, shorts may burn in a big gap up, or may increase, volatility in near term is worrying (both from a company specific point of view and china market)!
If you find any further info or have any opinions to share, do you want to open a thread for discussion, or please feel free to email me.
re KNDI. Well that was unexpected (dilution), as cash is not for the 200k factory (assuming previous info correct) I guess we wait to hear what it is for. This Arthur guy not quite as on the ball as he thinks, but also not in possession of insider knowledge it seems! Did I mention volatility? I got the options I was still bidding for.
re KNDI, Just to say for anyone still interested that there is a good Yahoo post here that provides some useful summary, http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_K/threadview?m=te&bn=75013&tid=6372&mid=6372&tof=2&frt=2#6372, see discussion in terms of some key people and the whole chinese subsidy effect.
A point about possible short-term price pressure (Feb earnings) is mentioned in this thread http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_K/threadview?m=te&bn=75013&tid=6372&mid=6372&tof=2&frt=2#6372 and it also has some useful background.
I am long and of course underwater, but would still buy more if we get down near 4 or below. The whole chinese “thing” (economy expansion rates / reserve rates / “bad” stocks issues) is going to make this more volatile than lithium in water.
Silverax and all members:
You may find this article by Adrian Douglas on the impending shortage of physical silver (and to a lesser extent gold) interesting.
https://marketforceanalysis.com/article/latest_article_011511.html
I would be interested in Tom’s take on the article and any signals (or lack thereof) using the basis for comparison.
Levon Resources Announces Definitive Agreement to Acquire Valley High Ventures
@Bart
Thanks for pointing this out Bart. I didn’t notice the news while preparing this morning’s post.
back to the bias, claim of reduced SI contango overnight (18th/19th), http://www.zerohedge.com/article/fmx-exclusive-silver-contango-crushed-%E2%80%93-short-squeeze-imminent-or-position-limit-ruling-fall, but I don’t understand the strange numbers they quote like “The Z11/Z12 futures spread settled 21.40 yesterday and the market today is 13/15. The H/Z futures spread settled 19.2 The market today is 9/11. ” – I’m thinking 21.40 is a cent difference of the close price of the calendar spread. But what is 13/15 stuff, could be bid/ask spread?
Comparing spot on kitco and futures (Mar) on IB I see them (last) exactly the same at 28.93, but don’t know how big spread on each is so could just be spread overlap. And od perhaps that there has been a drop of 40+ cents in last few hours.
[March now 1.5c higher than spot as I finish typing, not a lot]
ps: @tfd, I also found that Douglas article interesting, pity they didn’t colour code the dots to make the relative dates clearer, I too would like some expert opinion! Last chance to buy my $35 calls expiring on Friday! At least I managed to recover their cost.
An interesting CME metals futures products daily report for open interest. http://www.cmegroup.com/tools-information/build-a-report.html?report=dailybulletin
The numbers are preliminary, but it already shows that the open interest was reduced by 64,937 gold contracts. Silver was reduced by 2683 contracts. When the final numbers are posted, I would expect a further decrease in OI.
I do not remember such a large reduction in OI in gold recently. What is also a little odd is that the decrease mainly came from forward months. There was a roll of about 22,000 contracts out of the front month Feb into Apr and June; the later contracts is where the OI was reduced.
I don’t know if this is significant and points to a bottom in the correction, but it is different than every report I can recall for the last several months.
The final number for OI for Monday, Jan 25 is 498998, a reduction of 81752 contracts in one day, which is a significant drop for one day. In comparison, Last year the low in gold OI was 466,905 on Feb 09 report. This corresponded to the low of the year for the price of gold (1044.5) on Feb 05, 2010.
It looks like it is possible for the exact pattern from Jan-Feb for the low last year could repeat again at nearly the exact date. I am not saying it will, but the similarities are striking.
Options for gold/silver futures expire Jan 26, and the first notice day for delivery is 1/31.
The OI reduction is silver is not as large percentage wise, but still a big reduction of 5368 contracts with OI 128228. The Feb 09, 2010 COT reports OI at 118,593 for silver.
I have bought some call options today and spreads for April gold, but I am waiting for another leg down below 1320 to probe for a bottom in futures. The miners look attractive also, but I worry that there is still too much coupling with the broad stock market and if stocks correct, miners could get pulled down or not perform as well as they should based on the price of gold/silver.
Accumulating physical while the prices are lower and the premiums are not too high also seems like a good idea.
Anybody have additional thoughts?
Please excuse my use the comments to refer to other blogs, but I think some b/g info is important:
http://harveyorgan.blogspot.com/2011/01/huge-drop-in-comex-gold-open-interest.html
https://marketforceanalysis.com/article/latest_article_011511.html (from thefroggydude above)
There are various rumors about hedge funds willing to stand for delivery of silver because they have found that a premium is being offered for cash settlement. Again, this is anonymous internet blogging and not confirmed but it is still very intriguing:
http://search.messages.yahoo.com/search?.mbintl=finance&q=wynter_benton&action=Search&r=Huiz75WdCYfD_KCA2Dc-&within=author&within=tm
So if there is a big short squeeze coming, I have my doubts that it will materialize in a disorderly, spectacular price eruption. The way I picture it is that the price will be contained and that those who stand for delivery will get the cash value or ETF shares equivalent which might not be much higher than the current price. Isn’t that about the same thing that happened when the US closed the gold window in 1971?
@David Supposed record retail silver sales coinsiding with serious ETF outflows seems to go along with what you’re talking about.
http://www.kitco.com/reports/KitcoNews201101024DeC_coins.html
I think you make a very good point about accumulating physical while both availability and premiums are in good shape.
A Morgan quote from the end of the article reminiscing about 2008…“The futures market was showing silver at $9. To buy silver rounds there was a 30% premium in the physical market.”
I personally bought a couple bags of $100 face 90% last November when spot “dipped” down to $25. It was hard to pull the trigger but I’m happy I did it. Should have gone for more!
@Dave
Been buying more aggressively into Kandi (NASDAQ: KNDI) lately on the pullback to $4. It has made the cut as one of my few non-commodities related holdings. Thanks for the heads up Dave!
@zurbo
KNDI – congrats on your better timing, I have to be content with adding small amounts to an initial over-purchase, like MNAP!
Can’t decide how much the overall fraudulent-Chinese-Reverse-Merger thing is affecting KNDI, yet another yesterday, can’t remember symbol.
Assuming sulphation is not a material issue, only fly in KNDI ointment is the “standardisation” issue re battery design I think (should have thought about that in the first place), ie role of the state utility. No doubt KNDI can adapt to whatever they might need to, but, if so, will delay price appreciation and stuff the options I added to the mix.
Here’s to another AMZ, although this has more uncertainty I guess.
What’s the scoop on KNDI? First time I’ve seen that name.
Just scroll up to the comments above. Start with Dave’s comment #5
Ouch for KNDI…
I wouldn’t bet against Dave. He’s on a hot streak.
LOL, I’m rolling the dice with PV.V
@thefroggydude I’m just playing devil’s advocate and the chart’s not screaming http://awesomescreenshot.com/04e6zkf23
@bart
Zurbo is buying at these prices. If it’s not a scam it could do well. Sure sounds interesting but I wouldn’t bet the farm.
enigmatic as ever bart, pity you can never enlighten us as to what the reasoning behind your choices is.
Not that I’m not apprehensive about KNDI, and certainly the potential chart support around $4 isn’t looking good yet and this is a falling knife I’ve taken another piece of, but I have tried to layout my take and where to find more info. And I’ll buy down at $3 if the story doesn’t change (but not as much as I would like admittedly, need to keep the farm in mind here, let alone not being familiar with much Chinese). It would be nice if you could give some background to your picks – I would have liked to make money on them, but never get the background I ask for.
@Dave In a nutshell, Teck just took down 1,000,000 shares of PV.V @ $4. PV.V are optioning this project http://www.eagleplains.com/projects/bc/ironrange/ The stock is @ $ 2 right now. It’s early days but it “could” be another Sullivan mine, which produced $ 50 Billion in ore. They are drilling right now, so drill results are forth coming. Here’s more on iron range http://www.eagleplains.com/summary/
@bart
The road to another Sullivan is littered with the corpses of failed exploration programs. One benefit here is the target is close to surface unlike the Sullivan Deeps bust that cost several companies dearly. Still, there appears to be sufficient historic drilling in the main areas of interest that if another Sullivan-type SEDEX was located here than they should have found more indications of it by now. The main physical feature of a Sullivan-scale deposit is a very extensive blanket of stratiform mineralization so these types of deposits are almost always “hiding in plain sight”. Sure, albite, sulphides, tourmaline, breccia pipes, the Moyie sills and stockwork veining are just some of the features that the Sullivan had but the main thing was a perfect location in the basin that was underlain by a massive thickness of argillite in an enclosed hydrothermal system that boiled over under perfect thermal conditions. Moreover, at Sullivan the faulting is mostly post mineralization whereas here it appears to be coeval. Simply put, I’m not saying they won’t find some sort of sulfide deposit of potential economic interest but they need to learn much more about the geology before spouting off about the possibility of another Sullivan. As for IOCG, Peter Megaw said it best when he explained his thinking about it to me and Rick Tschauder in SF last fall: to paraphrase, the only alleged-IOCG deposit that matters is one that starts to look like Olympic Dam. In other words, “IOCG” is something that many exploration companies throw around to suggest the potential of a deposit to be something like Olympic Dam, but in reality there is only one IOCG deposit of that caliber and few of the other contestants hold together very well for mining purposes — one exception being Candelaria in Chile but beyond that there aren’t really any “IOCG” deposits in production. Personally, I suspect part of the issue is that “IOCG” better describes a rock chemistry rather than a particular deposit structure, and in some cases there has been an unscrupulous exploitation of the confusion between these two geological concepts, to the detriment of investors. Sometimes we see a similar thing happen with “alkaline gold deposits”.
@Silverax Have you seen this article from ZH? Comments?
Sorry, forgot to include the link in the comment above. Here is the article:
http://www.zerohedge.com/article/guest-post-silver-breaks-its-golden-shackles
The article states: “On Friday silver closed in complete backwardation on the Comex. Spot silver closed at $29.075/oz while FEB 2011 closed at $29.064/oz and DEC 2015 closed at $29.026/oz. I believe this is the first time in history that this has happened. Silver traded in backwardation between the spot price and futures contract up to one year out during the blatantly manipulative precious metals bashing of January, but now the entire futures structure is in backwardation. This is a sure sign there are shortages of silver because it means that buyers will pay a premium for silver delivered sooner rather than later.”
How does this compare to your basis computations?
Yet another article on silver backwardation. Seems to be a common refrain in the PM circles.
http://www.zerohedge.com/article/silver-bullion-backwardation-suggests-supply-stress
@thefroggydude
I’ll be writing a bit more shortly but yes the COMEX silver contract is basically in very slight backwardation and we are also seeing the classic basis spot vs. active futures in backwardation while generally hovering right around par for the past few days. The silver forward rate at LBMA is also showing a slight backwardation for all forwards from 1 to 12 months. What does it mean? Yes, silver would generally have to be tight on the supply side for the wholesale market to be in backwardation like this. I don’t think that is a shock and it has probably been this way for a number of months. Will silver prices explode fortright? The backwardation is not really going to tell us that — it’s not that easy, I don’t care what the “backwardation charlatans” say. Consider several points, one being that many commodities are in one form of backwardation or another right now — copper, corn, sugar, cotton, etc. This appears to be a large fund-driven situation with money overwhelming these markets in the short term and causing near prices to rise more than further out prices. Yes there are backup stories of dwindling supply and the such but basically we are looking at a squeeze of sorts that is not silver specific here — the entire commodity complex has been rallying here in part on the expectation of Ben’s QE funny money raining down permanently. In terms of silver, though, we’ve had this exact same situation for short periods before despite the “expert opinion” to the contrary in the ZH and other articles: as recently as January 2009. Silver prices didn’t explode right after that although they did start a rally that continues to this day. Silver backwardation also happened a number of times in the period 1979-1981 for several days at a time with the backwardation being much more pronounced than what we’re seeing here.
@thefroggydude
As an addendum, much of what is written in that article doesn’t really matter such as industrial demand for silver (which by itself is currently running several hundred million ounces per year below supply) but what is quite shocking as a major change in the market, if true, is that table of Chinese silver imports/exports per Mitsui that first started appearing a couple of weeks ago (or at least that is when I first noticed it). Noting that there are 32.15 troy ounces in a kilogram, and if the table is correct, then China went from exporting 95 million ounces of silver in 2005 to importing 112 million ounces in 2010, a flop of more than 200 million ounces per year. I don’t think much else than that is needed to explain the silver price between 2005 and 2010. The question becomes, what will China do this year and next year and the next? I would dare to say the 200 million ounce flop is not due solely to industrial demand, for if it were we could at least model or account for it. You can’t really model investment and hoarding demand, especially when it involves a potential 1.3 billion persons who have some historical and cultural sense of silver’s value. This appears to be the bull in the china shop so to speak, more important than even ETF silver demand.
I am adding another thought, which is that the iShares silver ETF does have over 300 million ounces (please save the spiel about the silver not being there), and that is where someone who desperately needs silver might go if there is very tight supply in the over the counter market. If this happens, we should see a combination of rising NAV premium and a decline in the silver holdings by the ETF. We haven’t seen that but this would be the sign to look for. More later if I get a chance to put an analysis together this weekend.
@silverax
iShares silver ETF does have over 300 million ounces (please save the spiel about the silver not being there), and that is where someone who desperately needs silver might go if there is very tight supply in the over the counter market
do you think that may be happenning in the gold ETF?
http://fofoa.blogspot.com/2011/01/who-is-draining-gld.html
BTW that article goes a longway to explain where the GLD gets it’s gold so easily-it uses unallocated gold it already holds and transfers it in/out of the ETF as needed. And IMHO probalby only going to the spot market for a small percentage of it’s needs or sales.
Also regarding silver in BW as you mentioned it’s similar to other commodities,
and I’m sensing silver is following commodities more so than gold lately. It has the makings of a classic squeeze play assuming participants are not afraid of JPM etc.
“assuming participants are not afraid of JPM”
Hi Rob, do you think most Chinese are even aware that JPM exists? The negative real intrest rate in China is probably the only thing that matters.
World silver production of app. 700 million ounces @$30 is only $16 per Chinese.
Possibly to some extent yes it could be happening in GLD but I don’t see large enough NAV premium to believe it is more than just a small player. Regarding unallocated, I don’t agree with that because the trust agreement explicitly requires that only 1000 ounces can be held in that form at the end of each day unless there is a market emergency. And while it’s not reasonable to expect that GLD’s manager is going to tell people about such an emergency if it is not otherwise obvious (e.g., when nobody is able to acquire allocated LBMA gold due to currency crisis, etc.) we can still count on the half yearly physical inspection reports by the unimpeachable firm of Inspectorate, the latest of which is shared with the public for its viewing pleasure here: http://www.spdrgoldshares.com/media/GLD/file/Stockcount_cert.pdf. I note that it would be virtually impossible to “goof” a large number of gold bars and so we must conclude that at least between June 30, 2010 and October 22, 2010 the GLD bar inventory consisted of allocated metal. Moving on to silver, yes it does appear to have squeeze elements in play as with some of the commodities to include copper. People shouldn’t be afraid of just JPM however, anybody with sufficient capital like a big hedge fund or … even … gasp! … China … can try to foil the squeeze and make a boatload of money. Now, why would China want lower metal prices for a few months? Why that’s silly, everybody knows the Chinese like to pay as much as possible when they are buying.
@silverax
the article about draining GLD did not propose that the gld gold was unallocated but that gold was moved from unallocated, fractionally sold gold, held by the bullion banks (that’s what a BB does right) into allocated gold belonging to the GLD.
Just as if say you held unallocated gold with a BB and told them to move it into allocated. the point being that the BBs have access to large hoards of gold held in unallocated form that they can use to supply the GLD. This would explain why they and seemingly only they have access to 50-100 tons of gold in a month without huge moves in the gold price. Do you believe that GLD is buying selling in the spot market all the gold it reports as entering or leaving the trust? Also recall Jeff Christianson’s testimony that unallocated physical gold held by BBs is only about 1% of the unallocated gold they have sold. In watching these 2 ETFs over the years and recalling things like SLV starting with 125moz. roughly the same as Buffet’s silver it is pretty obvious barring a better explanation (I’m open)that the custodian’s already posess the metal to a great degree and just change tags when it goes in/out of the ETFs. For GLD they already had large amounts of unallocated gold and probably access to gold leased from CBs, but for silver they needed a large supply to allow the ETF to work smoothly. they took Buffet’s silver(he took one for the team there) and they took some silver off the comex. Why did JPM want to end their custodianship of SLV at 250moz? Because they didn’t have access to large hoards of silver-that’s my guess. When Blackrock took it over I’m sure they had secured access to some large hoards of metal.
This is the only explanation I’ve come across that explains how these 2 ETFs have been able to operate without much greater impacts on short term metal prices. E.G. what would happen if the IMF or anyone dumped 100 tons of gold on the open market in one month, or China or Russia tried to buy that amount on the open market in such a short time frame? Only the ETFs can do it so there must be an explanation other than it’s being sold/bought on the spot market!!
@silverax
Looking forward to your analysis. Would appreciate your thoughts on this:
“Some precious metals dealers said that backwardation in silver was related to the forward sales program by silver producers.
“When a silver mine company has to put on a hedge, it has to sell forward and borrow a lot of silver from the market, and that put a tremendous amount on the market,” said Bruce Dunn, vice president at precious metals dealer Auramet.
Silver six-month lease rates also spiked to their highest level in 18 months on producer buybacks.
Hedging, which allows producers to guarantee prices for future output, tends to push up lease rates and nearby contract prices.”
There is something here that is not fully explained. If the only aim of a producer is to “guarantee prices for future output”, then why would a producer/hedger need to lease silver? All they would need to do is supply their future production when the futures contracts settle.
If they over-hedged, then it would be necessary to lease silver I suppose. There must be something that causes them to over-hedge so that the financiers have a means to foreclose on the mine. I think Sinclair explained this once, but I forget the details. Or perhaps producers are writing out of the money call options and they got caught above the strike price.
Anybody know the details about mine financing how that affects hedging?
Precisely the point. I see this as a China, India and Middle East oil (net super-producer countries) driven squeeze (and only to a lesser extent) the hedge funds. Using logic and game theory, what would you expect these super-producers to do with their increasingly “worth less” USD? They already have more than they want in reserve and the damn stuff keeps piling up. They would realize that inflation (or worse, hyperinflation) will eventually come to their shores as a result of Banana Ben’s attempt to keep US (and world) money levels from shrinking as a result of private debt defaults. Ben does this by replacing diminishing private bank leverage with increasing public debt. (BTW I don’t believe the argument regarding massive “excess bank reserves” being held on the balance sheet of the Fed. Since bank assets are no longer marked to market, this is simply an accounting trick to hide the commercial banks’ excessive true loss provisions that are not being shown on their own balance sheets.) So what is a super-producer to do? If I were expecting massive future inflation I would be reducing my USD reserves and buying up all the commodities that I could get my hands on but especially those that store easily and have a long shelf life. Yes this action would in itself drive up the price of commodities and result in general price level increases but at least I would now have physical stockpiles of those commodities to provide to my citizens during coming hard times. These stockpiles would have been purchased at the pre-inflation prices and would be used to help quell any uprisings due to shortages. (And hopefully keep me in power.)
If my reasoning is correct then this is simply a counter-move on the part of the super-producers to dampen the effect of inflation that Banana Ben is trying to export to them. This rush for physical is exposing the weakness of the entire futures paper commodities market. In good times the central banks can keep price inflation in check even in the face of monetary inflation through the operation (and manipulation?) of the futures market. Paper supplies of the various commodities mask the true supplies of physical and keep prices down. But in crisis periods this doesn’t work as well since all (most?) commodities fall into backwardation.
If I were a Fed governor I would be very concerned right now. If all commodities go into a sustained backwardation this means that market participants do not trust counterparties to honor their contracts with physical delivery. They fear that “extreme circumstances” clauses in the contracts will allow shorts to pay in depreciating FRN/USD instead of delivery. This is especially so in the case of gold since it has very little industrial value and virtually all value comes through hoarding as a store of wealth (even jewelry to some extent). Silver is a special case since it derives its value both from industrial use and hoarding as a store of value and it is more difficult to tell the different effects apart from one another.
Bottom line to this comment is that I do not believe necessarily that we will see an immediate spike in prices of PM though this is certainly possible. I do see my analysis as confirmation that the bull market in PM has a lot further to run (possibly decades) as people try to protect their wealth position from the ravages of the hidden monetary inflation of the past 4 decades. This analysis also tells me that all investors should have a healthy position in physical gold (and silver) in their own possession as insurance against devaluation of (all?) fiat currencies. The only way that I see that this bull market in commodities would suddenly end is if all market participants began to increase their confidence in the security of un-backed paper money and the futures market. This could occur if the Fed pulled a “Paul Volker” and raised interest rates in excess of the true rate of inflation. I see this as a political non-starter. No politician will agree to foist this level of pain on the populace. Better to let the market take the blame for the pain that is about to come … one way or another.
@thefroggydude Nice post TFD. I agree with your bottom line statement.
FWIW, another conspiracy theory has been put forward by James West here http://www.kitco.com/ind/West/feb112011.html
Quote “Or have those with a vested interest in the appearance of a stable dollar realized that they could use the billions of dollars in quantitative easing to directly influence demand for and thereby price of gold by incrementally building large holdings in gold ETF’s and then dumping them in compressed timelines to help generate severe price swings?
How very ingenuous to use the strength of gold’s demand and price metrics to undermine those very same dynamics! Buy up ETF shares with dollars fabricated out of thin air, then dump the built-up position in a single month to drive superficial dollar demand and coincident gold aversion. Whoever dreamed that up should get the congressional medal of honour and go straight to jail.”
On the subject of financing CAPEX, don’t developers simply sell shares to raise funds to achieve production? If management could borrow most of what it needed from banks they wouldn’t need to go public and “share” any future profits with crabby and nosey shareholders.
@forwill
Thanks for the compliment forwill.
“On the subject of financing CAPEX, don’t developers simply sell shares to raise funds to achieve production?” In my ideal world developers would be forced to finance all new mine capex through equity alone. Unfortunately in the real world it is my understanding that, in addition to share sales, they borrow gold from bullion banks, sell that gold for fiat and then buy the equipment that they need to build the mine with fiat (after all … the employees of Caterpillar can’t eat gold).
@thefroggydude
I’ve never heard or read of any developer going that route Froggy. Much simpler just to negotiate a term loan backed by so many ozs. per year for so many years of their production. The big risk of course is that gold dramatically increases in price and then the miner has to show a large loss on the books because of the hedge. That’s when there is a risk of bankruptcy and getting taken over by the bank.
A lot of the juniors are able to get to production by raising money through pp’s but the climate is not always favorable for dilutative financings so they have to go to the banks.
In regards to Caterpillar, I’m sure they do a lot of leasing and in house financing.
Would love to see a basis update with all the backwardation talk in silver.
KNDI is now worth 3.66 $ which looks like a nice entry point, isn’t it?
the company has even penetrated into the italian market!
http://www.tradingmarkets.com/news/press-release/kndi_kandi-evs-to-be-placed-on-the-italian-market-1449763.html
@Giuseppe
If you buy one be sure to let us know how it feels
Public transport is great here in DC, but if I ever feel the need to get a car and it’s street legal by then, I would certainly consider it (especially given all the potential tax incentives). As for the shares, I’ve been somewhat aggressively accumulating below $4.00. Silverax has his eye on $3, but I think he’s perhaps too greedy.
Although not strictly a resource play, we are considering an official profile of the company as a part of what could become our “Energy Portfolio”. We haven’t thought it all through yet, but such a portfolio would probably consist of a mix of uranium, alternative energy, oil & gas, rare earth, and other special situation companies such as Kandi.
We’re also playing around with the idea of a portfolio focused on the basics, food and water. My idea is to call it the Agua Portfolio. Hopefully someone gets it.
If in the Agua portfolio you know of a company with ten bagger potential please let us now.
Such features would make MA even greater than it already is!
@zurbo
In fine AUGmentor tradition, it should obviously be an AGua portfolio.
I’m very interested in an Energy Portfolio, especially given the MA and Eidetic views on nat gas.
I’ve never seen anything like the Eidetic calls on Silver from 2008 and 2010.
@Roubaix
Re Nat Gas: It’s been 3 years since the last big up move in nat gas and nearly 5 1/2 years since the peak of the prolonged 2001 – 2005 up cycle. We think that time is in favor of the market again showing its upside stuff.
ER is not big on seasonal analysis in the markets but let’s note that seasonality in the petro-complex is probably the most consistent of all the markets. Typically lows occur in the first quarter timeframe and highs in the mid-late fourth quarter. It’s fair to say that Nat Gas also tends to put in major highs in the fourth quarter (but note that highs in the month of December could actually be made by the January futures contract).
Lows for NG, however, are not so consistent. An eyeball analysis of the monthly futures continuation chart shows that, since the advent of the big amplitude cycles in 1999, the stand out lows appear to be in Aug and Sep. The last major low at $2.41 occurred in Sep 2009. That was probably the low for the current down cycle. Of course, nothing’s impossible but we doubt that it will be taken out.
However, late last October when the continuation chart rolled from Nov to Dec as front month there was a big rollover gap opened between $3.29 and $3.66. In our experience, rollover gaps are no different from typical chart gaps – they tend to be filled. We are looking for a front month futures to eventually fill most, if not all, of that hole. Earlier we had thought that event might occur in tandem with a typical first quarter 2011 petro-complex low but geopolitical events have pretty much blown that expectation out of the water. Therefore, the second half of the year may be when the NG market gets its feet under itself. If the front month trades into that continuation gap, no matter what the timeframe, we think one needs to be psychologically geared to pay the freight (ie. the contango premium) to get long the distant Jan or Feb contracts given confirming price and momentum action. We’re sure that Silverax and Zurbo will have ideas on stocks and or option plays if fundamentals start to shape up for a higher price scenario.
@idiotic
Re: Nat Gas, thanks for the perspective.
Natural gas stocks (juniors mostly, but mid-tiers as well) remind me of the Uranium sector a bit. Hit hard… lagged, then came back fairly strong (with perhaps more to come?). But, alas, Natty is a difficult beast… yet favorable fundamentals (when they occur) may yet claim the day.
Investor fund flows don’t always follow fundamentals precisely…. but they often begin to man up for the task.
As always, being at the front of the herd is best. I note some herding action has begun.
Indeed, the times are a changing lads. In a sort of post-embryonic stage, It appears WWIII is getting underway. Quite dramatic, geopolitical and economic changes are ahead.
During these times, seek wise counsel…. much of which is found and shared here.
The 2012 elections are going to be a barn burner! = More dramatic change++!
@zurbo
KNDI down 10% following this news release. Buying opportunity?
http://finance.yahoo.com/news/Kandi-Technologies-Reports-iw-2388660911.html?x=0&.v=1
@gerininamo
Kandi has been beaten down severely over the past few months. Investors may have been expecting better Q4 results, namely more electric vehicles sales and a jump in revenues, but more than likely most of the selling is being fueled by investor unease.
There has been a lot of fuss lately about fraudulent Chinese companies listed in the US, including some prominent delistings, Rino International Corp (Pink Sheets: RINO) and Fuqi International (Pink Sheets: FUQI), and halts (NASDAQ: CCME).
Muddy Waters Research and some other prominent short sellers have led the charge into what appear to be fraudulent companies. Nothing wrong with this, and in fact I almost jumped aboard the short CCME bandwagon. But it appears as if Kandi may be getting caught up in the mix for no good reason. For example, its short interest as % of float is currently over 10%. Not nearly as high as RINO (at over 40%, a staggering figure), but still noteworthy, source: http://www.dailyfinance.com/company/kandi-technologies-corp/kndi/nas/short-interest.
There don’t seem to be any telltale signs that Kandi is in the same camp as RINO, FUQI, and CCME. It’s a long shot, but we like the companies approach of focusing on producing a low cost and affordable electric vehicle that would be accessible to the masses, especially in China. If successful, Kandi could become a multi-billion company within a few years (just look at Tesla and Morgan Stanley’s rather incredible $70 share price target: http://blogs.barrons.com/techtraderdaily/2011/03/31/tesla-50-page-morgan-stanley-opus-sets-70-price-target/).
As Aurthor Porcari explains in an article on Seeking Alpha, it shouldn’t take more than 100,000 vehicle sales per year to generate annual earnings on the order of $8 per share, source: http://seekingalpha.com/article/255860-revisiting-kandi-why-i-remain-confident-in-this-stock. Slap on a 15 P/E and we’re talking about a $120 stock currently trading around $3 (this of course assumes no further dilution to pay for the necessary capital to ramp up production to that level).
I’m adding to my position, but if the $3 level breaks down it probably isn’t going to be pretty. In that scenario I would plan to add more on the way down, and especially so if it falls below $2 and then $1.50. Probably the best thing that could happen at this point would be for Muddy Waters to write a research report stating why no one should be shorting KNDI, it’s the real deal, etc., but that almost certainly isn’t going to happen. What we need now is probably some guidance about what to expect in the coming year regarding EV sales in China. Until then it’s probably going to come under pressure given investor unease about anything china-related.
Silence is not going to help ease concern, but unfortunately the company doesn’t have that great a history when it comes to investor relations. Just take a look at its outdated website: http://www.kanditechnology.com/index.php. The company did appoint what appears to be a legit IR firm in mid-February, so perhaps that will start paying off: http://finance.yahoo.com/news/Kandi-Technologies-Retains-iw-1082293149.html?x=0&.v=1
@idiotic
Sorry ER, didn’t notice the comment until now but much appreciated and pretty much 100% in agreement (the gap fill mention particularly helpful as I didn’t even consider that). We are now seeing NG back at $4 with crude topping $110. At some point this will change and could be a major winner for those who time it right. Let’s hope that includes us!
@GL
Great observations, though I am leery to call the latest round of geopolitical upheaval as anything outside the ordinary that takes place just about every decade. After all, Iraq and Afghanistan are so 2000′s!
Any new info wrt Kandi?
The total disappearance of Arthur Porcari from the discussion on his article on SeekingAlpha is a bit “irritating”. I’d like to know, if the recent price action is an opportunity to buy.
Thanks for any estimation!
@Krischan
Zurbo just had a talk with Porcari so the guy is still around. Quite talkative and you are apparently welcome to call as well since he basically gave out his phone # here: http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_K/threadview?m=tm&bn=75013&tid=8569&mid=8569&tof=7&frt=2. Personally I’m looking for $2 now that it has broken technical support but there is still a slight chance it gets back above $2.75-$3.00 and keeps it together. My guess is that first quarter is not going to show a lot of EV sales either and that is going to have shareholders impatient for things to take off. One wild card is the shorts, they keep piling on and at some point they will have to cover since it doesn’t look like this is one of those non-existent fraud Chinese companies like many of the others.
Anyone making $$ on KNDI?
Time to buy some puts on Minefinders.
Right now those who are behind the 10% short interest and no other I suppose, since the share price is making a new minimum every day! I bought at 5 $ and added down to 2.3 $ today, if it keeps falling I may keep adding, and I really hope the company will finally have its glory days…
@zurbo
Are you holding your KNDI? I see Porcari believes the company is not a fraud, while Silverax told it partially is.
@Giuseppe
I don’t think it is a fraud in the sense of many other Chinese listed companies that are booking non-existent sales but there could very well be some accounting irregularities. My guess is that any financial statement errors will not be enough to force a de-listing and so at some point KNDI might indeed be a fantastic buy. Too bad they only have options out to end of this year. The key is EV sales and if those can get off the ground in a meaningful way (say 1000 units per month) then it could be a time to buy, until then the market is going to do whatever it wants with the shares.
@silverax
I do not want to mean that account irregularities are a minor issue, but unless there is the risk that the company could be forced to indemnify the investors willing to undertake a legal battle, or that it will be delisted, I think it is offering great value right now, because when it will be selling 1000 units per month I think the price will not couch under 2 $ per share any more.
I know the triumph in the Chinese EV market is not an easy task but the enterprise value of the company is way cheaper than the replacement cost of just its land and buildings, they have a profitable small business on not electrical, so that it seems to me the bet on their success in EV market is like a “free lunch” at the current share price.
I think I’m going to just hold my position (it was a core position before the drop), because I know the market here could bring more weakness until the situation gets more clear, and could be adding only if KNDI will ever become a “fantastic buy” so that MA makes it an official rec.
I hope there will be a time when I will regret not having backed up the truck at 1.8 $, when most weak hands were leaving the stock, as the discouraged investor Sapaburu who finally said, on SA: “Out of Kandi with a 50% loss. I was destroyed in LPH too. I will never invest in china small cap stocks again. Period.”
Usually these kind of comments suggest that a bottom is near. I am curious to know if Zurbo sold its shares like Sapaburu or not…
David Zurbuchen, your email has been hacked and you are sending out spam FYI.
@bart
Yes, I became painfully aware of that a few minutes ago. Currently trying to resolve the issue, thanks.
http://www.predatorgroup.ca/ first time I heard of tigris and redtail….
@silverax
I have the impression that it might be time to reconsider Kandi Technologies. They have undoubtedly made some progress, perhaps not in sales, but in things like joint ventures (sensu latissimo), and it might perhaps not be the best idea to wait for the sales to come. There is a new summary at Seeking Alpha available (see link), but with my pigeon English I won’t try a summary by myself.
http://seekingalpha.com/article/280460-kandi-technologies-set-to-be-big-winner-in-international-electric-car-market
@Krischan
Well I bought a few more, again.
For reference the pops:
On the 11th was due to a NR about Hangzhou “…Kandi’s pure electric vehicles will become a preferred vehicle of choice for Hangzhou Electric Vehicle Service Co. …”, http://finance.yahoo.com/news/Kandi-Technologies-and-State-prnews-3047686309.html?x=0&.v=1
On the 19th we had a $5m share buyback announcement, remember there was a cash raise $15m at $5.5 in Dec 2010. At this rate (2.78 close yesterday vs $2 close before the announcement) they might not need to / be able to buy back at a useful 50$ discount or so the 10% approx that they could have theoretically afforded. But I think we have a floor in place!
Next chart technical obstacle looks like the clear $3 support from last year, here’s hoping we get through that. All we need then are sales, which of course also need the battery exchange stations, and they are being built. Here’s hoping the Chinese are ready for their urban runabouts, at least there seems to be more media coverage in China now (it gets mentioned on the Yahoo private board, gets a bit tedious, but worth subscribing).
Meanwhile the SA article is worth a read, and there was a part 1 last week, no doubt it helped the price continue up on 20th.
But the China-shorts probably haven’t given up yet. Here’s hoping that KNDI-specific credibility increases to separate itself from the common taint and dissuade them.
At least I now have one account that is in the black, but not overall by any means. Still, looking back through this thread I see PV.V was and still is even worse! Nothing like sitting in less shit to feel good! Is PV worth a punt now or did Teck get it wrong?
KNDI busted through $3 and is on a roll — I think the bottom has been made although some of this recent strength (on share buyback, probably some short-covering) may fade a bit. We might not get below $2 again — it does look like the Chinese fraud stuff has seen its peak. I’d now be interested in KNDI on a pullback under $2.50. The buyback doesn’t make a lot of sense if they plan to expand production and given the money comes from a recent placement but it is probably going to give the shares some support so that we may not see any more free-falls. In the meantime KNDI should now have time to get its EV production numbers going. Probably just a few months window at this point, I’ll have to discuss with zurbo if we actually want to make anything official but we probably aren’t going to do much of a write-up or analysis given the amount of material already out there on “Sinking” Alpha.
Looking at PV/Providence Resources the best thing it seems to have going for it is how cheap it is. I believe that I have mentioned before the futile historic search for “Sullivan II” or “Sullivan Deeps” and you’ll note my generally correct assessment of Azteca Gold (stock recommended by David Morgan first at 10 cents and all the way up to 25+ cents, now at 2 cents with not much more than a cooked goose) over at Stockhouse. A major SEDEX deposit should not be this hard to find and I don’t think the prior PV drilling indicates they have found one (the mineralization, like in the Silver Valley, probably post-dates the Proterozoic timeline of the Aldridge formation host and Moyie sills thermal source of the massive sulfides of the Purcell Basin/Belt Supergroup — also there is a lot of gold and silver whereas the argentites in these assembleges are probably more prone to engander huge masses of lead and zinc). In general, I find the drill pattern to also be too tight given the targeting of a Sullivan-sized ore body, which would probably measure on the kilometers scale in all directions. If one is going to play this at this point, I would say Eagle Plains, though a bit indirect, would be the way to go. Now if they do find something new with geophysics or drilling then it might be time to reconsider so let’s keep an eye on this one.
I think, now is the point of no return wrt Kandi (KNDI): subsidies and sales have started, and KNDI appears to be in the pole position compared to literally all competitors:
http://finance.yahoo.com/news/Kandi-Technologies-Corp-prnews-928154336.html?x=0&.v=1
For all not yet common with this company producing electrical vehicles (EV) in China, have a look at:
http://seekingalpha.com/article/280460-kandi-technologies-set-to-be-big-winner-in-international-electric-car-market
“China is much too big for Kandi to fail.” (I don’t remember the source.)
@krischan
Well I certainly hope so. Meanwhile if anyone is interested in a closer-to-metals Chinese stock, well there is a foundry that seems to be going for an absolute song given that it has just doubled manufacturing capacity. Has some debt. Perhaps the powers that be could create a thread if they want this discussing. I’m currently hoping they might reply to an email about how well the new plant is working. Certainly seems closer to the money than all this tedious drilling and digging and leaching stuff, but not actually a metal. And come to that I’ve found a water processing stock I think I might like, but yet again, not really the thing for here, ’tis a “resource-process” stock though.
@Dave
I’m interested Dave. Its a little slow here right now anyhow.
@krischan
The private Yahoo board is abuzz with discussion of
http://auto.hexun.com/2011-11-02/134822062.html which talks about 20,000 QBEX cars being bought for lease to the people of Hangzhou.
Your machine-translated pseudo-english version is not entirely clear whether the mention of Kandi is in the context of them supplying all the cars, but the forum experts say it for real.
So, all being well, Kandi seem to have sold 20k vehicles (not clear about delivery/invoice schedule). Got to be good for the bottom line I think, as well as perceived potential.
Too big to fail = SELL
Oh sod this, just wrote a Kandi update, but when posted it said “Please select a company” on a blank screen, so I did “Back” and the comment box had cleared.
Prior to that had failed to get the “Quote” feature to work.
So this time I copied the text before I Submitted it, to see it disappear again.
So I’ve looked for Kandi and it’s not in the list.
So how do we post about new companies and/or existing cos that have no entry, bloody conformity?
For now I’ve made Kagara Mining an honoury “Sister” company to Kandi so I can post this.
Anyone interested in Kandi had better do their own checking.
Please Dave, can you summarize your thoughts about KNDI?
@Giuseppe
Latest news is that 20k leave purchase by Hangzhou seems to have been signed and with implication in chinese coverage (http://auto.hexun.com/2012-07-11/143461098.html (microsofttranslator.com may be better than chrome) that only Kndi was car supplier, thus is supplying all of them, to be completed during 2013.
As yet no PR from company, but we have this http://www.forbes.com/sites/tomkonrad/2012/07/11/kandi-technologies-bags-largest-single-electric-vehicle-order-ever/?partner=yahootix
@Giuseppe
BTW, you heard any news on the Italian order? Paperwork got the blame for a while I think.
I see (by accident of course) we no longer have to “Tag Companies”, thanks.
Perhaps the compromise here is that if Post Comment is pressed with no tags selected, a prompt comes up and says “Would you like to add a tag?”?
@Dave
KNDI PR on Yahoo re LOI for the 20k EVs (these are QBEX (Quick Battery Exchange), lithium batteries (there is a also a LA version they are selling), although it doesn’t actually say Kandi is sole supplier I think that is taken as implied. http://finance.yahoo.com/news/kandi-vehicles-co-ltd-signed-150600513.html
@Dave
We are working on better ways to handle the tagging process and think we have a workable solution. The real problem here was that the tagging process for admins is a little different so we didn’t notice the glitch that required a comment to be tagged or else the comment was trashed. We notified our programmer and had it fixed as soon as possible (no accident), but all of us here being in summer-mode (e.g. vacationing and other conflicts) admittedly our response was a bit slow. Again, we apologize for any lost comments or other problems experienced by subscribers. In the long run we’re confident this new tagging feature and others will provide orders of magnitude more benefit than the short term pain of integration.