Buy Silver on Dips
Research for Online Investors

by John Dalt

7/22/11

The Hong Kong Mercantile Exchange (HKME) announced the start of trading in silver futures contracts this morning.  The futures contracts will be conducted in dollars.  This follows the HKME initiating gold futures trading in May.  Silver demand grew 17% globally from 2008 to 2010.  Chinese demand during that same time grew 67%.  China accounted for nearly 23% of global silver consumption last year.

HKME will trade 1,000 troy ounce contracts to be delivered in Hong Kong, compared to the CME’s 5,000 ounce contracts.  They will trade 15 hours per day.  The HKME plans on introducing Chinese Yuan based contracts by September.

This is a game-changer for precious metals, and more specifically silver.  There have been rumors rampant on the internet for the past three years about manipulation in the silver market.  When silver hit its high on 4/28, the CME raised margin requirements 5 times in the next eight days to knock down speculation.  Rumors flew that there were more contracts for delivery than physically possible to deliver.  A massive short squeeze was in the works on May contracts.

Precious metals have been on a roller-coaster recently because of headlines in the eurozone and Washington debt ceiling negotiations.  Our long-term subscribers were stopped out of silver yesterday with a nice gain.  Silver has been a good trade but the volatility is not for the weak of heart!

The addition of Hong Kong trading, that is not controlled by the CME, with long hours and small contracts may take some of the volatility out of precious metals.  It also adds more upward pressure on prices.  China is fighting inflation.  Excess capital cannot gain a positive interest rate against inflation in the nation’s banks.  Silver could directly benefit from additional demand from a population that wants physical possession of their precious metal.

Buy SLV on dips.  This news makes silver a sure bet.

I got a call this morning, “Would you move to N. Dakota for $1000 per day?” asked the caller.  “What doing?” I asked.  Drive around in a pickup; supervise finishing of oil wells and bringing them to production outside Williston.  I asked a few more questions and declined.  I am too old to run off on the latest gold rush.  Younger men can move across the country to chase their dreams, not old guys with a family.

Here is the deal, we forget about it unless we are reminded often.  There are fortunes being made in N. Dakota.  My brother-in-law calls on customers that are drilling wells as fast as the horizontal rigs can complete them.  They are experiencing almost 100% success.  Some of the wells are producing upwards of 2500 barrels of oil per day.  They believe these wells will pump at that production rate for a year or two then settle down to 300 to 400 barrels a day for the next 90 years.

100 barrels a day at $100 dollars per barrel is $10,000 per day, you can do the rest of the math.  Wells can cost upwards of $10 million per hole, but when you can make it back in the first few months, and have a 90 year tail on earnings, you see why the biggest players are falling over themselves to get in on the “oil rush.”

A Tent City has developed in Williston’s city park.
Do these people know how cold it gets in N. Dakota?

There is another chase going on even farther North.  On Wednesday, China’s CNOOC agreed to buy Opti Canada Inc. for $2.04 billion dollars.  Opti Canada is a small oil sands company, but the meaning is clear.  China wants Canada’s crude from the oil sands.  When will the U.S. approve the Trans-Canada Pipeline to bring that crude to the U.S.?  The State Department is withholding the permit while they do studies.  China will be happy to load it on ships in Vancouver.

The U.S. Senate tabled the Cut, Cap and Balance bill this morning.  The House is out of session for the weekend.  It is going to be a hot weekend in Washington.  Buy Silver on dips.

Quote for John Boehner:
Nothing gives a person so much advantage over another as to remain always cool and unruffled under all circumstances.---Thomas Jefferson

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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