Monday, February 28, 2011

Australian Stock Exchange - Trading grinds to a halt

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ASX Trade Production
Status : Paused

Update: 4

Please be advised that although trade reports are available during the ADJUST_ON session state, trade dissemination will not occur across ALL MARKETS for trade reports executed during this period.

Update 3:

Following consultation with Participants and ASIC, ASX advises that the ASX Trade Market will not re-open today. As a result, there will be no CSPA and the Market will move into Adjust ON at 17:00.
It has been identified that the technical issue with trade dissemination of instrument series in Partition 3 was triggered at 14:18:25. ASX is working to complete the dissemination of the impacted trades made from this time until 14:48:01 when the Market was placed into ENQUIRE.
All these trades are valid.
LINK
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Trading on the ASX halted this afternoon. No transactions could be completed for around the last 1.5 hours of trade.

There is still no confirmation of the direct cause, although local trading forums are rife with rumours and speculation about what might have caused the shutdown.

While my exposure to Gold/Silver is predominantly through ASX listed stocks, it's days like this that are a good reminder why having a physical position is also extremely important.

It's easy to become complacent in Australia. Thinking that the issues plaguing other countries such as market closures, flash crashes and electronic bank runs can't possibly occur here, but the reality is with our reliance on technology based wealth our physical difference in location can mean very little at all in the grand scheme of things.

Chances are that this glitch will be resolved overnight and normal trade will resume at some point tomorrow, but what would happen if we were to experience a shutdown that lasted a few days, a week, a month? Are you prepared?

Gold/Silver are easily exchanged and portable items of wealth that could become priceless if we were to see some sort of shutdown of our financial system (either here in Australia or anywhere worldwide). 

As well as metals it's probably a good idea to keep some local currency out of the system in an easy to access location.

In a world gone mad with electronic storage of wealth it's comforting to know that there is still the ability to keep wealth safe outside of the system.



BB.

Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.

Friday, February 25, 2011

Perth Mint vs Royal Canadian Mint - Silver shortage?

A few weeks ago when there was evidence of retail level shortages I posed some questions on the Perth Mint Blog. Ron Currie (Sales and Market Director for the Mint) was kind enough to come back with some detailed answers, except for one of the questions, where a direct answer was avoided.
BB Question: In the case that Perth Mint had trouble sourcing 1000 oz bars via wholesale distribution channels, could we expect public disclosure of this on the blog or in general when questioned?

RC Response: We have no problems sourcing 1,000oz bars and have plenty in stock. Our problem is finding capacity to cast the metal into retail sizes such is the level of demand. There would be no call for public disclosure as we do not foresee any such difficulty arising.
In the comments section on the Perth Mint Blog I pointed out that I'd expected the final question would not be directly answered:
BB Comment: I was expecting the tricky wording around the last question to avoid a direct answer. Perhaps you are in a better position to judge, however supply/demand figures I have seen would indicate that there is definitely the potential for physical shortages, especially in the case that China starts adding Silver to their reserves as was suggested by Xia Bin (Central Bank Adviser) recently. Though perhaps we will see a significant price rise in Silver that stems demand and brings out more sellers.
And Ron Currie replied with:
RC Comment: "Tricky" language! Hey, we're just manufacturers, not international silver market analysts! We have plenty of silver in stock and ongoing supply is not a problem at present, so forgive me for going no further than that.
So it would seem that as of three weeks ago the Perth Mint was not having any difficulty acquiring Silver.

However today on the King World News blog we hear from David Madge, Director of Sales at the Royal Canadian Mint:
With continued reports of booming sales and tightness in the silver market, today King World News interviewed Dave Madge director of sales at the Royal Canadian Mint.  When asked if the RCM is having trouble acquiring silver Madge responded, “Demand right now for silver is through the roof and it shows no signs of slowing at this point.  Sourcing silver is becoming very difficult.  We are competing with a great many players when it comes to purchasing silver and many of these players are bidding the price higher.”
Dave Madge of the Royal Canadian Mint continues:

“Our advantage is that we have had long-term relationships with our suppliers and that has helped us in this situation.  We have been able to leverage off of those relationships to get supply, but it still remains a big challenge sourcing material.  We’re looking at ways of mitigating our risk regarding supply of silver.

We are anticipating it to become even more difficult to secure supplies in the future.  This is based on what we are seeing firsthand and what our suppliers are telling us.  We work closely with these banks to secure silver and they tell us there is a lot of competition.

When asked what this means for the price of silver and how long this condition is expected to persist Madge stated, “I think you are going to see the premiums go up in order to secure silver.  At some point some players will be priced out of the market.  I don’t think this is a short-term situation, I think there are a lot of issues going forward and this may be the new norm.”
Given the opposing views on sourcing Silver, it leaves a few questions outstanding in my mind...

Is the Perth Mint finding it harder to source Silver now compared with a few weeks ago? Do their experiences in sourcing Silver now reflect that of the Royal Canadian Mint?

Is the Royal Canadian Mint finding it more difficult because they need a larger quantity or do not have as much readily available from mine sources (e.g. in 2009  almost 10 million 1oz Maples were produced, around half of Canadians mined Silver output for the year, Australia has a much higher level of Silver output from mining & I believe Perth Mint output would be a lot lower than the Royal Canadian Mint)?

Is the truth being stretched by one of the Mints and if so for what purpose?

Personally I don't see that either has anything to gain from stretching the truth.

I will pose some questions on the Perth Mint Blog over the weekend and see what more they can tell us (and will post any response received on a new entry or in the comments below, so check back in a few days!).

It's interesting times for Silver!

BB.

Disclosure: Positions held in Silver. Not investment advice. Do your own research.

USDX Dancing with support - About to break lower?

Back on the 18th of January I blogged about USDX support at 79 being broken to the downside. We're now dancing with the lower support area of 77. Below this there may be support at 76 and then 74, but the US Dollar is looking very weak. I would not be surprised to see a break below 74 over the next couple of months which would support higher Gold and Silver prices early in the year (as they have an inverse relationship).



BB.

Wednesday, February 23, 2011

History doesn't repeat itself, but it does rhyme.


1979 - Iranian Revolution
The Islamic Revolution (also known as the Iran Revolution or 1979 Revolution) refers to events involving the overthrow of Iran's monarchy (Pahlavi dynasty) under Shah Mohammad Reza Pahlavi and its replacement with an Islamic republic under Ayatollah Ruhollah Khomeini, the leader of the revolution.

Demonstrations against the Shah are sometimes said to have begun in January 1978. However, they actually commenced earlier, in October 1977, developing into a campaign of civil resistance that was partly secular and partly religious. Between August and December 1978 strikes and demonstrations paralyzed the country. The Shah left Iran for exile in mid-January 1979, and in the resulting power vacuum two weeks later Ayatollah Khomeini returned to Tehran to a greeting by several million Iranians. The royal regime collapsed shortly after on February 11 when guerrillas and rebel troops overwhelmed troops loyal to the Shah in armed street fighting. Iran voted by national referendum to become an Islamic Republic on April 1, 1979, and to approve a new theocratic constitution whereby Khomeini became Supreme Leader of the country, in December 1979. Wikipedia
2011 - Libyan (Middle East & North Africa) Revolution?
The 2011 Libyan protests are an ongoing series of protests and confrontations occurring in the North African state of Libya against the government of Libya and its head of state, Muammar al-Gaddafi. The unrest began on 15 February 2011 and continues to the present. Media outlets have reported the unrest as being inspired by the uprisings in Egypt and Tunisia, connecting the protests with the wider 2010–2011 Middle East and North Africa protests. According to Richard Engel, NBC News Chief Foreign Correspondent, who entered Libya and had reached the city of Tobruk on 22 February 2011, "the protest movement is no longer a protest movement, it's a war. It's open revolt." Wikipedia
1979 - Energy Crisis
The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil sector, with production being greatly curtailed and exports suspended. When oil exports were later resumed under the new regime, they were inconsistent and at a lower volume, which pushed prices up. Saudi Arabia and other OPEC nations, under the presidency of Dr. Mana Alotaiba increased production to offset the decline, and the overall loss in production was about 4 percent. However, a widespread panic resulted, added to catastrophic decisions like U.S. President Jimmy Carter ordering cessation of Iranian imports to the U.S., driving the price far higher than would be expected under normal circumstances. Wikipedia
2011 - Energy Crisis?
The Time columnist Robert Baer had a source close to the Libyan regime telling him that Gaddafi has ordered the destruction of oil pipelines, cutting off flow to Mediterranean ports. 

"There's been virtually no reliable information coming out of Tripoli, but a source close to the Gaddafi regime I did manage to get hold of told me the already terrible situation in Libya will get much worse. Among other things, Gaddafi has ordered security services to start sabotaging oil facilities. They will start by blowing up several oil pipelines, cutting off flow to Mediterranean ports," Baer wrote.

The worsening violence in Libya and the continued uncertainty in Bahrain have sent shockwaves through world oil markets, and prices have started going north in anticipation of supply breakdowns. Crude prices spiked up around seven percent on Tuesday morning in New York, inching towards two-year highs.

The political crisis in Libya, which is Africa's third-largest oil producer, has already forced many oil companies to halt production and exports.
 Observers think Gaddafi's message to the Libyans and the rest of the world is that once he is gone, the country will slip into anarchy, and one major fallout would be energy supply disruptions in the Middle East. IB Times
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History doesn't repeat itself, but it does rhyme - Mark Twain

Just like the financial crisis continued to pop up in different locations, such as the movement to firefight issues in Iceland, then Dubai, then Greece, then Ireland (and there are many others on the brink that I have not listed), so has the political instability in the Middle East and Northern Africa flowed from one location to the next.

From Tunisia, to Egypt, then Bahrain, Libya & Yemen (to name but some of the locations we've seen mass protests and revolution).

Where does this stop?

Gold is not always an inflation hedge, 1980 to 2000 is proof of that.

Gold is not always a deflation hedge, 2008 is proof of that.

Gold is a crisis hedge. It thrives in an environment of financial and/or geopolitical instability.

The world stands on a precipice and there is a lot of uncertainty about where things head from here.

2008 saw the US Fed bailout the world and pull us back from that precipice, but printing dollars is not going to solve the world's political problems and it could be argued that the printing has in fact fueled the current Middle East revolution.

I talk a lot about Silver on this blog, reality is though I wouldn't have started playing the Silver trade without first having a decent position in Gold.

On January 3rd 1978, Gold's London PM fix was $169.20, on January 21st 1980, a short 2 years later, Gold traded at $850 (a 5x multiple of $169, price data from Daily Gold). If we saw a similar rise in Gold in the short term it would take the price from $1400 to $7000.

In my opinion we are heading into the 3rd and final phase of this bull market (as previously discussed on the blog, here). Not only could we see similar gains to those seen in the 3rd phase of the 1970s bull market (over the final 2 years), but the catalyst for sending the price soaring could be similar in nature to that of the 1970s.

Just like the bumper sticker says:

Get in, Sit down, Shut up, Hold on!


BB.

Disclosure: Positions held in Gold & Silver. Not investment advice. Do your own research.

Tuesday, February 22, 2011

Silver Price Action - Breakout

On December 7th I blogged about the resistance line that appeared to be in the process of being decimated (Link). For the several weeks following the price of Silver hovered around that resistance point, moving slightly above the line in late December, but then over January Silver experienced a sharp correction of around 13.5% moving from the intraday peak of $30.69 to $26.53.

It seemed that the war was lost. Speculative money started withdrawing their long positions. Sentiment turned down. Some started expecting sub $20 Silver again. We saw a large turnaround at the start of February, Silver started rising again and the last few days has seen some spectacular gains. Moving higher by around $1 per day over several trading sessions Silver has taken most by surprise and has blitzed the overhead resistance:


It's worth noting that Monday's trade was with US markets closed. The price of metals has been known to shoot higher during these sessions and then get pulled back into line once US markets open. This is likely why we are seeing a correction in Silver price currently (price has fallen from high of $34.33 to a low of around $32.75 a short time ago).

Where to from here? I suspect we will have a new support level around the $30.50-$31 mark, but ultimately I think Silver is heading higher in the short term so it may not be tested.

I think there is potential for higher prices early this year as I suggested in my 2011 predictions post (Link).

That said I don't trade the short term movements, so they are of little consequence to me as long as the bull market is intact I will continue to hold and buy dips where appropriate.



BB.

Disclosure: Positions held in Silver. Not investment advice. Do your own research.

Friday, February 18, 2011

Exciting times for Silver & ASX Silver Plays

What an exciting couple of weeks we’ve had both for the price of Silver as well as Silver related stocks on the Australian Stock Exchange (and other global exchanges).

While the below chart is Silver priced in USD, we've seen very similar action in the AUD price given that the Australian Dollar has remained around parity with the US Dollar.

 
I have blogged about Australian pure Silver plays in the past. First in September 2010, where I briefly mentioned the 3 available (Link). At the time these stocks were priced a lot lower than they are now.

CCU was 27c and is now 85c (215% Rise)
SVL was 18.5c and is now 33c (78% Rise)
AYN was 3.7c and is now 4.7c (27% Rise)

I also wrote up more indepth blogs on CCU & SVL in the months following (both of which I held at the time and still hold):


Later in 2010 when ARD announced USN had made an offer on their Bullant Gold Mine I spoke about the potential for them to become Australia's 4th pure Silver play:


At the time of the above blog:

ARD was 19c and is now 23c (21% Rise)


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Cobar Consolidated Resources (CCU)

CCU has had an extraordinary run, coming out of a pullback to 50c over the last two weeks it has rallied hard and today saw a new all time high of 90c and closed at a respectable 85c. They are closing in on a finance deal to fund their plant construction and are expecting production to start at the end of this year. Recent comments from the company indicate they don’t want to hedge their Silver production so that investors can retain full exposure to the upside potential for the price of Silver:
Asked whether the company might hedge some of its silver given the strong silver price, Shard responded: We are getting close to finalising the terms of some borrowings and it is likely that that will require us to do some hedging, but how much and over what period is what were still working though at the moment, he said. If we take debt on, hedging is likely.

However, he refuted the notion as to whether the company should take on hedging even if it wasnt required, given the very strong silver price at the moment.

Why would we? he said. The silver price outperformed gold last year. We are not experts on the silver market but we read what others say (and) people are calling it to $100/oz. Why would we want to hedge away that upside for shareholders.
A recent broker recommendation may also have helped with the strong rise:


They provided an upside valuation for CCU of $1.14, using relatively conservative Silver prices (Silver to remain under $30). Here is the recommendation from the report:
OML initiates coverage of CCU with a Buy recommendation as we believe the company has the key ingredients to enable it to generate strong returns over the medium to long term. This will lead to significant share price upside. We believe a strong mid cap resource company – one that is not solely dependent upon commodity price (in this case silver) performance – can be established due to:
  • Its very capable geological, metallurgical and operational management.
  • Strong profitability and operating cashflow driven by good operational performance at the company’s initial mining operation at its Wonawinta silver mine.
  • Significant expansion and exploration potential for silver production at Wonawinta and more broadly in the Cobar district using its Wonawinta infrastructure.
  • Significant exploration potential in and around the Gundaroo prospect for silver and other commodities (zinc-lead-copper and gold).
  • The potential for additional exploration in other parts of its extensive 1,341km2 of strategic exploration holdings in the highly mineralised Cobar mining district.
  • A sensible financial base that will temporarily include relatively modest debt that is expected to be rapidly repaid and replaced by strong net cash balances as low cost production of silver occurs with a high cash margin.
  • Its ability to leverage its strong operating position, especially at Cobar, to take advantage of attractive corporate opportunities that may arise.

Click Picture To Enlarge


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Silver Mines (SVL)

After some consolidation in the low to mid 20s SVL has finally started to move higher and an announcement this morning sent the share price skyward.  SVL closed the day 16% higher than yesterday (closed the day at 33c, peaked intraday at 36c).

The announcement gave some direction around the potential the company sees in the Webbs Silver Project.
EXPLORATION TARGET
* Silver Mines is pleased to announce it has defined an exploration target of between 4.0 million and 7.0 million tonnes at 200-260 g/t silver for the Webbs Silver project.
* This target has the potential to contain between 26 - 57 Moz of silver.
* The exploration target includes the existing JORC compliant Inferred and Indicated Resources of 1.23Mt at 256g/t silver containing 10.14Moz1.
* An exploration target has not been determined for copper, lead and zinc grades known to occur in the resource.
This exploration target indicates SVL could potentially have a resource that is similar in size to CCUs currently.

Further to the above the announcement also provided an update on diamond drilling progress:
Silver Mines has recently completed 1,236m of diamond drilling in 11 holes at the Webbs project. The aim of the diamond program is to provide samples for metallurgical testwork, geotechnical data, provide additional assay data and improve the geological understanding of the deposit. Several previously drilled RC holes were twinned. Other holes were designed to intersect mineralisation relatively near surface and target larger gaps in the existing RC drill coverage.

All diamond holes intersected mineralisation and the Company is preparing a separate news release on the initial results of this program.
There is another 8500m RC drilling program scheduled to begin in March this year.

With so many results on the way it's hard to imagine SVL still being this cheap provided the news continues to flow steadily and the price of Silver holds up or increases.

Click Picture To Enlarge


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Argent Minerals (ARD)

Argent has been capped at 20c for sometime, following several attempts to break past this resistance level over the last couple of months. A large wall of shares at the 20c mark was taken out the other morning, so the share price has been able to rise and has posted an impressive gain today (12%), closing well above the previous resistance level. It’s hard to tell whether this enthusiastic interest in ARD is simply a carry on from interest in other Silver plays or whether we are seeing an influx of investors wishing to buy in prior to the USN allocation expected in early March (assuming shareholders vote for the proposal come the AGM).

Based on the rising channel seen in the 2 year chart (starting early 2009) I could see ARD rising to around 27c before it meets resistance. It may do this over the next 2 weeks leading into the date they go ex-USN allocation and then drop back down to around the 20c mark (as part of the current value of ARD's share price is built into the expectation of receiving the USN shares on around a 1 USN per 2 ARD basis).

Click Picture To Enlarge
 


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Alcyone Resources (AYN)

I sometimes get some questions around AYN. I am probably not the best to answer them as personally have never owned any shares in the company. The reason being that I have not been encouraged by the actions of management.

The first 10 weeks after listing there was basically no forth coming information (I would have expected transparency about what they were doing, given they were resurrecting the assets of a company that went into administration).

Early 2010 indication was they would be mining by 4th quarter 2010, now it looks like it will be 12 months later. At this stage CCU may very well beat them to it and they (CCU) are yet to even start constructing their plant.
 
The huge dilution recently was managed horrendously in my opinion, if I was a shareholder at the time I would have been aghast. $5m worth of new scrip was offered to existing shareholders (1 new share for every 5 held), with $11m  being offered to institutional buyers. Talk about a raw deal for the existing holders! Especially when SVL had recently raised cash at a much smaller discount to their share price and CCU had raised capital at a premium to theirs. The Silver market was hot and yet it seemed AYN management was unable to make use of this.

Also AYN has recently been slack about keeping share holders up to date with a resource upgrade that was expected months ago.

That's not to say there isn't value here, the chart looks close to breaking out and chances are with a continued rise in the price of Silver it's likely AYN will continue to do well, but you will need to work out whether this a Silver play worth holding for yourself.

 Click Picture To Enlarge


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It's an exciting time for these junior Silver mining companies. There is the potential for them all to takeoff much like we saw recently with Rare Earth Element (REE) stocks. The daily trading of these stocks still seems to indicate that speculation is minimal, but with such few choices for stocks heavily exposed to the price of Silver it seems there is huge upside potential for these companies.

The short term direction of their share price is somewhat reliant on Silver steadying at these levels or climbing higher. There is what looks like a double top in Silver forming, often it seems the larger players in the precious metals markets will push around the price short term to make it appear as if a bearish scenario is about to play out. Will they scare out some longs by forcing in a what appears as a short term double top? Quite possibly. It's also worth remembering that the Silver peaks in both 2006 and 2008 ended in a double top with a significant correction following. I posted about this in a blog late last year (Link). So rather than a fake double top, we could also see a real one play out.

So many possibilities and we know Silver can be a volatile market, but those of us that have boarded and held through the wild swings have been well rewarded.


BB.
Disclosure: Position held in Silver, CCU, SVL & ARD. Not investment advice. Do your own research.

Wednesday, February 16, 2011

Australian Housing Priced in Gold and Silver

The last time I covered this topic it was one of my first blog entries (Link). The statistics for that post were a bit cobbled together as I had not been able to find a constant data series for Australian house prices (so several sources were used). Recently though I stumbled across the Residex House/Unit Price Indices, this source has data going back to 1979 for 3 capital cities (Sydney, Melbourne and Brisbane). I have used this source to chart a more accurate set of houses priced in ounces of Gold and Silver.

The Perth Mint data I used was the monthly bid average (AUD) for Gold and Silver.

Source of data used for charts:


Besides the source of housing data the other change between my last version of this series and today's is that I have charted monthly figures rather than annual, this provides a clearer idea of the real highs and lows that we've seen over the last 30 years.

Sometimes it can be a little difficult to judge the numbers from a chart, so here are some of the key figures:

Brisbane (Ounces to buy a house)
Precious Metals Peak (January 1980): 62oz Gold, 1091oz Silver 
Housing Peak (February 2004): 600oz Gold, 37,696oz Silver
Currently (December 2010): 327oz Gold, 15,605oz Silver

Melbourne (Ounces to buy a house)
Precious Metals Peak (January 1980): 67oz Gold, 1181oz Silver
Housing Peak (February 2004): 661oz Gold, 41,538oz Silver
Currently (December 2010): 423oz Gold, 20,221oz Silver

Sydney (Ounces to buy a house)
Precious Metals Peak (January 1980): 103oz Gold, 1811oz Silver
Housing Peak (February 2004): 1100oz Gold, 69,143oz Silver
Currently (December 2010): 481oz Gold, 22,947oz Silver


For the ratios to return to the previous precious metals peak we would need to see Silver increase to around $400oz and Gold to increase to around $7,000oz. That is if house prices were to stay priced where they are currently, in my opinion there is a greater chance that we will see house prices fall while precious metals continue to rise.

Will we see a return to the ratios seen during the last Gold/Silver bull market? As much as property owners might hate to hear it I suspect they will return to similar numbers. I think it's a real possibility that at some point during this precious metals bull market we will have houses available for around 100oz of Gold or 2000oz of Silver in any Australian capital city.

Does that mean it's time for home owners to sell up and move the proceeds to precious metals? Probably not for the average family, let's face it you can't very well live in a bar of Gold/Silver and it's not going to provide your family the stability that owning your own home does. For the savvy investor the time to exit property and switch to precious metals was early 2004, however that doesn't mean that there's not still time to cash in on the trade if you were so inclined.



CLICK IMAGE FOR LARGER VERSION

BRISBANE

MELBOURNE

SYDNEY



BB.

Monday, February 14, 2011

Gallery Pictures - New Page

If you haven't already noticed I created a 'gallery' page a little while back and have been adding pictures to it every now and then. You can access the gallery by clicking the link on the right hand side bar (under 'Pages'). Alternatively click this text to go there now. Here's a sample:





All photos were taken with a Canon G10 (camera model).


BB.

Wednesday, February 9, 2011

Signature Metals Limited (SBL) - Above Resistance

Signature Metals (ASX) closed with an impressive 13.33% gain today after Gold's strong rally in the US market the night prior. SBL closed above previous resistance (.033) to finsih the day on .034. The intraday high of .035 matched that seen on December 31st and January 4th, but both these days closed lower (.033 and .032 respectively). So we may see some resistance at .035, but once the SP passes this final barrier I think technically SBL is primed to run much higher in the short to medium term (if we see the price of Gold also hold up).

Fundamentally their position supports a higher share price as well, providing their move from developer to producer goes smoothly. I bought into SBL in early 2010 (adding to my position during price weakness over middle months of the year), their prospects looked strong and still do.

With 1.86b shares on issue their market capitalization at today's close was approximately $63m.

They are nearing completion of a plant refurbishment which should see them start production early this year in Ghana (Konongo Gold Project).

SBL recently upgraded their Gold resource to 1.47m ounces (@ 1.95g/t). They have a resource target of 1.5-2.5m ounces @ 2-4g/t.

Their tenements lie within a prospective region (Ashanti Gold Belt), which should lead to further exploration success and resource increases.

Keep your eye on this one.


BB.

Disclosure: Positions held in SBL. Not investment advice. Do your own research.

Adelaide Beachside Housing Market (Brighton)

I keep an eye on my local housing market. I rent locally to these properties and potentially will be looking to buy in the area at sometime in the future. Brighton Beach is one of Adelaide's nicest and most popular beaches so it's not surprising that the best (beach front) real estate in the area commands a  much higher price than Adelaide's median price (which is around $400,000).


Over recent months (September 2010 to present) I've noticed a large increase in the number of property listings on the Esplanade (beach front) in Brighton.

Early in 2010 1 or perhaps 2 listings on the Esplanade was common place. Today on realestate.com.au I counted 7.

I also note that on Old Listings there have been a couple of properties which have had their listing prices revised significantly lower in the last 9 months:

130 ESPLANADE, BRIGHTON
June 2010 - $1,495,000
November 2009 - $1,750,000+
April 2007 - $1,350,000

165A ESPLANADE, BRIGHTON
June 2010 - $1,345,000+
February 2010 - $1,400,000+

Another site I frequent (which I've mentioned on the blog before) is REFind House Prices. They have an option on the site to filter only those listings that have had a price reduction over the time they've been advertised. Here are some examples of reductions in the suburb of Brighton (not specific to the Esplanade):

$1,400,000 167a Esplanade BRIGHTON
REDUCED by $300,000 (21.43%) on 24 Sep 2010

$1,150,000 6 Seaview Terrace BRIGHTON
REDUCED by $200,000 (17.39%) on 30 Jan 2011

$570,000 10 Seymour Grove BRIGHTON
REDUCED by $75,000 (13.16%) on 12 Jan 2011

$459,500 10 Bennett Street BRIGHTON
REDUCED by $35,500 (7.73%) on 07 Jan 2011

2/182 Esplanade BRIGHTON
REDUCED by $190,000 on 01 Feb 2011

It looks like some vendors are finally coming around with their pricing... there aren't that many properties listed for sale in Brighton so it's interesting to see so many discounted (according to REFind there are 9 houses out of 30 advertised that have been discounted).

It's certainly not looking like a healthy market in this suburb. If my investments perform well and prices drop in Brighton then I might just end up back in the property market sooner than I thought!


BB.

Perth Mint Kilo Silver Coin Production

The Perth Mint Blog had a new article posted yesterday by Stephen Ward (blog editor), updating their figures for kilo coin production levels since September  2010 (introduction of the 2011 designs):
Worldwide demand for silver kilo coins from The Perth Mint continues at an unprecedented level as we prepare to ship the 100,000th coin since the introduction of 2011 designs last September!

100,000 kilo coins equates to 3,215,100oz of 99.9% pure silver.

Perth Mint Bullion Blog
In a  recent blog of mine (about whether Gold/Silver are entering the 3rd phase of the bull market) I spoke about their last publication of this figure.
Since the launch of the 2011 bullion coin program (in September 2010) 1.75m ounces worth of 1kg coins have been sold (up to mid December), that’s approximately 55,000 (1kg) coins. 

To put that in context, Australia was the world’s 5th largest Silver producer in 2009 with 57.8m ounces produced. Assuming that level of production is similar today and we see similar demand for the 1kg coins over the next 9 months (that we’ve seen over the last 3), then we will see approximately 5.9m ounces worth of 1 kg coins purchased from Perth Mint (Sept 2010 to Sept 2011) or almost 10% of this country’s entire Silver production. Does that raise an eyebrow?
Based on the updated figures they have provided us...
3,215,100oz / 147 days (since September 14th, release of new designs)
= 21,871 oz per day produced (only 1kg coins) x 365
= 7.98m oz will be sold in this form (over 12 months) if the pace continues

As I mention above,  Australian annual production is approximately 57.8m ounces, so these kilo coins could account for nearly 14% of Australian mined Silver.

In my opinion this really highlights the level of retail demand we are seeing at the moment and cements in my mind that we are entering the public awareness phase of the bull market. Hold onto your hats!


BB.

Disclosure: Positions held in Silver. Not investment advice. Do your own research.

Friday, February 4, 2011

Reply to Bullion Baron on Perth Mint Blog

I recently asked some questions over on the Perth Mint blog regarding shortages of some products that customers have been reporting. Ron Currie, Sales and Marketing Director for the Perth Mint was kind enough to post a detailed reply in a new blog and thought I would share it here for those that don't regular the Perth Mint blog, but have seen some of the recent posts I have made about their (specific product) shortages.

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Bullion Baron has posted comments/questions to the recent Perth Mint blog article entitled Dog Stars At Auction. I’ve noticed that the silver issues he raises have been topical on a number of other blogs and forums in the past few days. In the interest of openness, I’d like to respond to his questions in a separate post so that as many people as possible have the opportunity to read about our position.
  
BB Question: Why does the Perth Mint not allow back orders to be placed at current pricing allowing the customer to lock in a price and product (that is if customer reports are accurate)?


RC Response: There are two reasons. Firstly, to fix the silver price, buyers would have to pay immediately for goods they may not receive for some time. We know this causes angst for clients. Also, our website does not have the capability to take back orders.


Secondly, it is a nightmare to administer and only highlights the inability to supply. We’d much prefer that we only sell when we have product available. Our approach also allows clients to look at other sourcing options because they’re not locked into a contract with us.


BB Question: It seems that Perth Mint has been struggling with coin and bar output for some months now (an earlier example being the suspension of 5/10 ounce coin sales), when do you expect to catch-up to the demand that is currently being seen? Bron has mentioned that measures were being taken to increase production levels, when will the outcome from these measures be seen if demand continues as strongly as we've seen recently?


RC Response: There is enormous demand for silver, particularly in Europe, and we are currently running at capacity. I’m just back from World Money Fair in Berlin and all the indications are that this demand will continue.

Let me emphasise again – there are constraints on our ability to produce. We have plenty of silver – we just don’t have the production capacity to meet demand at present.

We ordered a new press 12 months ago specifically for large silver coins (kilo, 10oz, 5oz) which indicates that we foresaw the need for extra capacity a long time ago. This press recently arrived in Perth from Germany. We hope to have it up, running and producing in the next three months. We’ve also ordered a new press for smaller coins which will arrive later in the year. To house these new presses, we’ve had to build an extension to the factory.

Unfortunately, we can’t install and commission complex new machinery overnight. These activities take time and represent a substantial investment that will increase our capacity to meet future demand.

BB Question: In the case that Perth Mint had trouble sourcing 1000 oz bars via wholesale distribution channels, could we expect public disclosure of this on the blog or in general when questioned?

RC Response: We have no problems sourcing 1,000oz bars and have plenty in stock. Our problem is finding capacity to cast the metal into retail sizes such is the level of demand. There would be no call for public disclosure as we do not foresee any such difficulty arising.

Thanks for all your recent comments and questions Bullion Baron which we are always delighted to receive and respond to.

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BB. 

Thursday, February 3, 2011

AFG Mortgage Statistics - January 2011

AFG have released their lending statistics for the month of January, you can view the statistics and their commentary on this PDF.

Delusional Economics has covered this release in detail over on the new Macro Business Super Blog. I couldn't agree more with their analysis and discussion points so don't see much point duplicating it here, it's worth the jump to read for yourself in full.

Thanks goes out to AusHousingCrash on Twitter for the idea to chart the raw figures. Here are the last 3.5 years worth of raw lending figures from AFG who make up approximately 10% of all new Australian mortgages.


While the dip into a January low is a seasonal occurrence, you will notice that there is also a distinct trend that has formed in the charted data over the past two years. Looks like a downtrend to me with lower highs and lowers lows. 

I've posted this chart from the RBA on the blog before, but I think it is worth re-posting, it shows a correlation between reduced lending, low auction clearance rates and falling prices:


We've got the dismal lending figures, we've got the low clearance rates, it's time to see the falling prices.

It's been a while since I posted about the REIV's auction clearance rates, but I will resume tracking this data early in the new year when it makes sense to. Last weekend the REIV only reported 126 auctions and they are only expecting 180 for this coming weekend, the real test will start the weekends following where 390 are expected on the 12th/13th of February and then 700 the weekend after (19th/20th).


BB.

A reckless, passionate affair... (Australian Property)

Melbourne house prices peaked at $132,000 in 1989, they fell to a low of $126,000 in 1993 and didn’t pass the previous high set in 1989 until 1997. In nominal terms that is a fall of approximately 4.5% in nominal terms, but using a real house price index (deflates prices using the consumer price index) we saw Melbourne fall from 108.1 to 90.6, a fall of 16%. That is according to figures in this research article: House Prices in Australia (1970 to 2003).

Here is an interesting article on Australian property that was published in 1991:


They say history doesn’t repeat, but it rhymes.

Like the article it seems many today also are of the opinion that house prices do not fall. While some obviously realise that a tough time for property might be approaching, they are still hesitant about expecting price falls and rather talk about a 'stagnation' of the market. I think that we will be lucky to see this correction play out via flat prices for a significant period of time.

The article mentions that 100% loans were available in the 1980s at the height of the boom. It was only a few years ago that 100% loans were common place again and even 105-107% loans where extra finance (e.g. in the form of a personal loan) could be taken out to cover costs!

The article talks about Paul Keating's 'take down' of the property market, today similar (but less brash) comments are being made by the RBA as they increase rates. Of course they do not directly say they will take housing down to more sustainable prices, but read between the lines...
Warning: RBA to crunch housing boom to save economy from overheating
We have been warned: the current housing boom risks ending in tears with the Reserve Bank forced to crunch it to save the rest of the economy from overheating. Its not a new warning from the central bank, but the time is approaching that the bank will stop being nice and bash the housing sector with a brutal rate rise (or rises) that surprises the deliberately deaf and ignorant in politics, business and the media.

It’s a bit rich when the only consistent voice warning us of the dangers of rapidly rising house prices, is the Reserve Bank and its senior officials and it’s really rich that these warnings have fallen on ears made deaf by conflicted self interest.

The bank’s head of economics, assistant governor Phil Lowe, was the latest in a growing list of senior central bankers out this morning warning of the dramatic impact of rising house prices.

He joins governor Glenn Stevens, deputy Ric Battellino, assistant governor Guy Debelle and head of research Anthony Broadbent, who in the past nine months all pointed to the dangers of rapidly rising house prices to the economy and to the country’s social fabric.
Crikey
It's time to batten down the hatches. A correction in Australian property prices has started. It's only a matter of time before we see whether it plays out via stagnating prices (falling real prices) or significant nominal price falls (over capital city medians, of course some areas have already had significant price falls occur), perhaps we see a combination of both.


BB.

Wednesday, February 2, 2011

Silver: Supply, Demand and China

This evenings post will be a mixed bag, I have a few things to share and discuss.

As I have reported a couple of times in recent blogs (Perth Mint struggling to keep up with demand & 3rd phase of bull market) we have seen an increasing number of reported shortages and unavailability of some retail sized Silver (100 ounce products and below).

This hasn't really been news to readers of KWN where discussions about such shortages have been circulating for a few days already:
Today King World News interviewed one of the top gold and silver dealers in the United States about tightness in the silver market.  Bill Haynes is President and owner of CMI Gold & Silver for and when asked about a shortage in  silver he stated, “All of the major suppliers of 100 ounce silver bars are either weeks or months out, some will not even take orders.  I had some conversations with a number of people who buy from them, had to dig through the information and some of them revealed that they thought the refineries were having trouble and the manufacturers were having trouble getting the physical product which falls right into the silver shortage.
It’s starting to show up in the 100 ounce silver bar market which is a primary investment vehicle for individuals who want to buy silver for investment purposes.  It does surprise me because we did not see the buying that we saw in 2008, 2009 when our safes were absolutely emptied of 100 ounce silver bars, and that’s the type of buying I thought we would have to see in order for there to be a shortage of 100 ounce silver bars.
I was able to get 100 ounce silver bars (recently) and then all of the sudden these guys I call them and say ok, we are talking 100 ounce silver bars, they’ll say well, it’s a month out on any order you place today.  And then I have people telling me they will not take any orders on 100 ounce silver bars until May.
There’s a couple of things that are going to happen that is going to shut a lot of people out of this market.  All of the 100 ounce bars are going to be gone in a matter of days, not weeks, days.  Then people are going to have to put up their money and they are going to have to wait weeks or months before they get their bars.  They are also going to have to pay higher premiums for that product because the marketplace will put a higher premium on the bars on a price drop that depletes all of the vaults around the country.
KWN
Hopefully the recent examples I have shared have been of interest.

Here is another taken from the Silver Stackers forum, an example supplied by user rbaggio on his recent talks with a dealer:
I went in to a large bullion dealer here today (to sort out something), and we got talking about inventory.  The dealer will remain anonymous.

I can tell you that he is experiencing a massive shortage of physical, and he seemed very worried about it.

Got the tour through his safe, saw what was there (1kg bars, 15kg bars), also saw that what was there was already spoken for (invoices with the bars, numbers written on to them etc).

He said that if I walked off the street and ordered $60,000 worth of silver today, it would not be delivered until August.

In terms of bars, the only stock >1-2 bars that he had for immediate delivery, was Perth Mint 100oz bars.   And he said that this was because 6 weeks ago, he called up Perth Mint and asked what they had in stock.  They had 1.5 tons, so he said he took the lot.

In terms of coins, there was a non-trivial amount of Perth Mint product there, which I guess is something.
KJC, another Australian dealer sent out an email to subscribers:
As we have previously mentioned there is an extreme worldwide shortage and availability in the silver market - especially in 1kg & 100oz bar silvers two of the most popular sizes offered worldwide.

We would like to advise we currently have available from fresh deliveries a small yet healthy supply of silver bars & coins available for immediate delivery, we are probably one of the only major dealers Australia wide with silver available for immediate delivery as we are well aware many dealers are quoting late February / early march earliest for fresh orders and that's not even guaranteed.
A recent comment on the official Perth Mint Blog also mentions the shortage of the 100oz products (see last comment on 27th Jan):
Regarding supply of 100os Silver bars….. these bars are just suffering a temporary shortage due to demand and general production pressures. Our online store has some available today but restocking probably wont occur until March.  I can confirm, however that Perth Mint Depository does have stocks of 100oz silver bars. These are not available for sale to online customers as they are kept in reserve by Depository to ensure it can meet its legal obligation to satisfy client collection requests.

Once again, production  is the difficulty here, not supply of silver. Silver is in strong demand from the “popular numismatic market of the Mints”, but that doesn’t affect our ability to supply it in a particular form – 100oz bars.
Further to the above news of shortages, today we received an update on the production level of American Silver Eagles from the US Mint for January. I speculated in a previous blog around 2 weeks ago that if sales trends continued that we would see over 6 million ASEs sold and that's exactly what happened:


As a comparison to US mine production of Silver the months tally is equal to around 16% of their annual output... Incredible!

On a final note I saw an article today discussing recent comments out of China in relation to precious metals:
China is taking several initiatives to raise the country’s reserves in gold and silver in an attempt to globalize the Yuan. The main strategy is to buy gold and silver reserves when prices of these precious metals fall.

According to a report published by the Economic Information Daily, the Chinese central bank, the People’s Bank of China, is chalking out plans to buy gold and silver reserves these days considerably as their prices are currently down.

Gold prices have come down by nearly $100 in the last few days. Silver prices that have been also following gold prices in the last one year have fallen thanks to the rise in US dollar value.

Commodity Online
I bolded the comment that leaped off the page at me.

I have heard comments out of China (and other countries) about increasing Gold reserves, but never Silver!

In my opinion this is a very exciting development.

Those of you who have been reading the KWN blog will have read comments about Asian sources buying the Silver dip, articles such as this one:
The contact out of London has updated King World News on the massive Asian buyers which have been accumulating both gold and silver.  The London source stated, “Last week Asian buyers let the price come in to them.  They were buying all day long, hitting all of the offers and they were not sending the price higher.  As much as the orchestrators were hitting the bids, there were some smart buyers hitting the offers.  The thinking was, I can pick up tonnage here, literally I can pick up tonnage here.”
KWN
I will be honest, when reading articles from mysterious unamed sources I am always suspect about how seriously to take their comments, but it seems in this case the source may have been on the money. For all we know China is already adding to Silver reserves, could they be the country to set the trend? What pressure will this add to the already tightening physical Silver market?

Got Silver?


BB.

Disclosure: Positions held in Silver. Not investment advice. Do your own research.