PGM Capital – Blog
16Nov/140

Peak Silver: -US Mint Sells Out Of Silver-

By Eric Panneflek

Dear PGM Capital Blog readers,
In this weekend's blog edition, we want to discuss with you the Peak of Silver production and the fact that US-Mint ran out of the American Silver Eagle coins. 

Freshly Minted bullion American Silver-Eagles

Of all the elements on the periodic table, Silver has been dubbed the first to go extinct, which will make it the resource investment opportunity. According to the United States Geological Society, Peak Silver will arrive by 2020. That is just 5-6 years away, and the question is what will happen when the last bit of silver has been mined?

Silver is really unique. It is harder than gold and has a much higher melting temperature. That is why it is being used in the following applications:

  • Medical and food industries because of its antibacterial properties.
  • Water purification systems.
  • Catalytic converters for automobiles.
  • It is an integral part of the cell phone, tablet and computer industry.
  • The construction of solar panels, creation of circuits, RFID chips and in batteries.
  • Windows in high rise buildings.

With silver approaching extinction, industry will need to find a way to replace or recycle it, which means that the price of silver will have to rise significantly in order to entice consumers to recycle it. There is a lot of silver available for recycling, and we suspect that certain industries will be required to pay the higher prices as silver becomes harder to find.

The question about replacing silver with platinum does not work well as a solution. Platinum is nearing extinction too and would be more expensive as a substitute. As the reserves of silver diminish the only logical action is recycling.

SILVER INVESTMENT DEMAND OUTLOOK:
CPM Group Managing Partner Jeffrey Christian wrote a report on silver investment demand. He is a true believer in the value of silver as an investment.

In their free 50-page report, “Silver Investment Demand: A comprehensive study report of the global silver investment market for the Silver Institute” the CPM Group outlined the results of their study regarding the global silver investment market.

CPM Group -Silver Investment Demand-

It never fails: any time there is a dump in precious metals through their paper representation (GLD, SLV, or futures) typically as a hedge to a rally in the dollar, the demand for physical Precious Metals soars confirming yet again that any connection between paper prices and physical demand no longer exists.

Whether it is China buying every ounce of gold it can find or US consumer rushing into retail outlets, the surge in physical metal buying is there like clockwork. Such as US Mint silver orders. As reported on Friday November 14, 2014, sales of American Eagle silver coins by the U.S. Mint jumped 40 percent in October to the highest in 21 months as can be seen from below chart.

Mint Silver Sales

Sales surged in October to 5.79 million ounces, the most since January 2013, the month that set an all-time high at 7.5 million ounces.

Christian, of the CPM Group, estimated that investors may accumulate as much as 1 billion additional ounces of silver in various investment instruments over the next decade. This on top of the more than 860 million ounces of silver purchased for investment purchases since 2006.

US MINT OUT OF SILVER:
On Wednesday, November 5th 2014, the U.S. Mint said it has temporarily sold out of its American Eagle silver bullion coins, due to "tremendous" demand in the past several weeks and that they are in the process of producing more and will advise when additional inventory is available.

On Monday November 10, 2014, the United States Mint said that it expects to have over one million 2014 American Silver Eagle bullion coins for sale by November 17, 2014.

Since the U.S. Mint cannot produce enough Silver Eagles, the Mint sold out of them after weeks of explosive demand, sales of the 99.9% pure silver coins will resume on a rationed basis.

WHO BUYS SILVER:
Despite popular belief, silver is not “poor man’s gold,” the myth that a large number of investors buy silver because it has a lower unit price, the report observed.

A study shows that in most countries, including the USA, the largest volume of silver bars, coins and medallions appear to be purchased by upper income, college educated professionals between the ages of 40 and 65.

PGM CAPITAL COMMENTS:
We believe that silver supplies will tighten and demand to remain high for the next ten to twenty years.

It will take industry that long to redesign products, and find substitutions for silver. That means that silver will remain a resource investment opportunity.

On top of this the demand for silver as a storage of value is soaring.

As can be seen from below table the total amount of Silver Eagle sold up to November 5th 2014, when the mint ran out of Silver, reached 39.301 million ounces, which is very close to the all time record of 39,868,500 American Eagle Silver Bullion coins sold in 2011.

January 4,775,000
February 3,750,000
March 5,354,000
April 3,569,000
May 3,988,500
June 2,692,000
July 1,975,000
August 2,007,500
September 4,140,000
October 5,790,000
November 1,260,000
December 0
Total 39,301,000

In its above mentioned report, CPM advised that currency markets are expected to remain volatile due to uncertainties related to economic and political conditions in various economies. “Investors are expected to continue using silver as a currency hedge, and this factor is expected to remain a strong influence on investor demand for silver.”

As can be seen from below chart, it appears that the US$15.50 level per troy ounce of silver, was the line that broke the camel’s back regarding physical inventories, as physical demand has simply EXPLODED on Friday, November 14 in the morning, after futures dipped below US$15.20. per troy ounce.

Due to this at approximately 1pm EST on Friday November 14, one of the largest Primary Dealers in the US issued a notice to all purchasers that premiums for

ANY PREVIOUSLY PLACED PURCHASES FOR SILVER EAGLES
ARE NO LONGER VALID!

This is simply unprecedented!

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Until next week.

Yours sincerely,

Suriname Times foto

9Nov/140

Why Investing in Graphene can be lucrative

By Eric Panneflek

Graphene

Dear PGM Capital Blog readers,
In this weekend's blog edition, we want to elaborate on the increasing usage of graphene in modern high technology equipment and the best way to invest in it.

WHAT IS GRAPHENE?
On October 5, 2010The Royal Swedish Academy of Sciences decided to award the Nobel Prize in Physics for 2010 to Andre  Geim and Konstantin Novoselov, both researchers at the University of Manchester, UK, for their groundbreaking experiments regarding the two-dimensional material "graphene".

Graphene is pure carbon in the form of a very thin, nearly transparent sheet, one atom thick.

Graphene Molecular Structure

 

Some important characteristics of Graphene:

  • It is remarkably strong VERY strong, considering its very low weight it is 200 times stronger than steel as stiff as diamond, and also flexible and even stretchable.
  • It conducts heat and electricity with great efficiency (faster at room temperature than any other known material)
  • It charges and discharges 100x to 1000x faster than traditional batteries.

Researchers started to study Graphene in 2004, and since then they have found dozens of potential applications and exciting properties of this wonder material. Graphene is set to revolutionize a lot of industries, including sensors, batteries, conductors, displays, electronics, energy generation, medicine and more.

See below video for more details:

THE GRAPHENE TECHNOLOGICAL REVOLUTION:
The commercialization of graphene is just in its infancy, but already dozens of new companies have been established to develop graphene based material, graphene production processes and other related activities.

Graphene's unique properties are valuable in many different industries and applications such as:

  1. Energy Storage:
    Graphene may hold the key to an energy storage revolution. Researchers have developed highly porous graphene-based super capacitors that they, "can fully charge in just 16 seconds and have repeated this some 10,000 times without a significant reduction in capacitance." Imagine charging your smartphone or tablet in just 30 seconds, or your electric car in a few minutes.
  2. Flexible Screens:
    Graphene is transparent (it transmits up to 97.7% of light), and it also has low electrical resistance and is flexible. Therefore, it's a good candidate for flexible electronics and screens.
    graphene-chip
  3. Desalinization/Filtration:
    Graphene behaves strangely around water. Water can pass through it, but almost nothing else can. Graphene is also much stronger and less brittle than aluminum-oxide (currently used in sub-100nm filtration applications). This makes it a good candidate for water filtration systems, desalination systems, and efficient and economically more viable biofuel creation.
  4. Medical Applications/Sensors:
    Offering a large surface area, high electrical conductivity, thinness and strength, graphene would make a good candidate for the development of fast and efficient bio-electric sensory devices, with the ability to monitor such things as glucose levels, hemoglobin levels, cholesterol and even DNA sequencing.
  5. Photovoltaics/Solar cells:
    Graphene offering very low levels of light absorption (at around 2.7% of white light) whilst also offering high electron mobility means that graphene can be used as an alternative to silicon in the manufacture of photovoltaic cells.
  6. Material Composites:
    Graphene is strong, stiff and very light. It could eventually replace steel and carbon composites in everything from aircraft to cars to body armor for the military. It is actually already being used in tennis rackets today.
  7. Computing/Electronics:
    Graphene's unique structure and "extremely mobile electrons could allow graphene transistors to process data at very high rates, with some devices already clocking in at more than 400 gigahertz — many times faster than comparable silicon devices." Alternatively, graphene photodetectors could also "allow computer chips to communicate with light rather than comparatively sluggish, energy-wasting electrons — an advance that would cut power consumption and allow computers to handle data more efficiently.

application-131004

INVESTING IN GRAPHENE:
Investing in a pure-play graphene company is not easy, as almost all of these companies are currently privately held.

Making graphene, gram for gram, is one of the most expensive materials on Earth: one micrometer-sized flake made, can cost more than US$1,000.00

However, as mass production increases, there is potential for a 70% to 80%  price drop, making graphene production much more economical. Chemical vapor deposition (CVD), for example, has brought the cost down to about US$100,000 per square meter.

Estimates suggest that the graphene market will be $149.1 million by 2020.

The European Union has created a flagship program for graphene, allocating about U$1.3 billion to spend on the development of graphene over the next 10 years.

WHO IS USING GRAPHENE:
Every tech company with an eye on the future and other industries ranging from medical to defense as well are currently in the race for being the first one being able to produce cost efficient equipments, gadgets or instrumentation, in which graphene is being used. In tech the biggest players are Samsung, which owns 38 graphene patents (and this figure is expanding), and Apple and Google. You thought the smartphone patent wars were annoying? Just wait until the graphene patent wars begin.

Professor Hong Byung Hee at Seoul National University, created a technique--and owns the patent for--mass-producing graphene-based displays, the primary area of interest for tech companies. The fact that Hee has figured out how to turn graphene into displays and owns the patent on it makes him the most popular guy in the world as far as the tech giants are concerned.

The reason you don’t have a graphene smartphone right now is because the material still has some challenges to be worked out. Namely it’s difficult to manufacture on a large scale. So right now they can make a lot of small batches of perfect graphene displays or large batches of, well, crappy ones.

 

But Samsung has recently said it has had a breakthrough in producing graphene in larger batches and other researchers are working on different approaches around the world.

PGM CAPITAL COMMENTS:
Graphene, although it might be the next wonder material, faces hurdles. It is still far too expensive for mass markets, it doesn’t lend itself to be used in some computer-chip circuitry and scientists are still trying to find better ways to turn it into usable forms. 

One factor holding graphene back is cost. Some vendors are selling a layer of graphene on copper foil for about US$60 a square inch.

Its price has to drop to around one dollar per square inch for high-end electronic applications such as fast transistors, and for less than 10 cents per square inch for touch-screen displays.

Graphene is undeniably exciting, and has the potential to transform a number to clean-tech industries. The timeline for that transformation, however, is likely to be slower than investors bidding up graphene-related stocks today.

For those of you who want to invest in graphene, we advise you to carefully research and select a basket of  the best graphene producers and an even more careful selection of companies that are making early efforts at application of the material.

Based on the above, we believe that best way to play graphene right now, is by investing in conglomerates that will profit most, when they integrate graphene in their current products or launch new products using graphene.

Disclosure:
We currently have No position in any graphene producing company or stocks of any company mentioned in this article.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

1Nov/140

Why is the US-Dollar rising?

By Eric Panneflek

Treasuries-up-or-US-Dollar-down

Dear PGM Capital Blog readers,
In this weekend's blog edition, we want to discuss with you why the US-Dollar has been rising since mid May of this year, despite the fact that the long-term health of the world reserve currency is still as precarious as it ever was and the fact that the national debt is currently over 108 percent of its Gross Domestic Product.

THE USA NATIONAL DEBT:
The Outstanding USA Public Debt on Saturday November 1, 2014 at 5:00 PM GMT was:

Source: http://www.brillig.com/debt_clock/

On top of this, the US National debt is rising with approx. 2.5 billion US-Dollar a day, which means that before the end of this year, the USA will have a national debt of over 18 trillion US-Dollars.

THE USD INDEX:
The US Dollar Index (USDX) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies.

It is a weighted geometric mean of the dollar's value compared only with a "basket" of 6 other major currencies which are:

  • Euro (EUR), 57.6% weight
  • Japanese yen (JPY) 13.6% weight
  • Pound sterling (GBP), 11.9% weight
  • Canadian dollar (CAD), 9.1% weight
  • Swedish krona (SEK), 4.2% weight
  • Swiss franc (CHF) 3.6% weight

USD Index

USDX started in March 1973, soon after the dismantling of the Bretton Woods system. At its start, the value of the US Dollar Index was 100.000. It has since traded as high as 164.720 in February 1985, and as low as 70.698 on March 16, 2008.

As can be seen from below chart, the U.S. Dollar Index, is up 8.6% this year.

USD Index

But this is more an indication that traders are bearish on other currencies, as opposed to bullish on the dollar.

The index is comprised of various currencies, each assigned a certain weight that goes into determining the index's final figure. The bulk of the calculation comes from the Euro, which makes up 57.6% of the index, followed by the Japanese yen at a 13.6% weight, and the British pound sterling, which comprises 11.9%.

Together, these three currencies represent 83.1% of the index and explain why the main dollar index has been performing as well as it has this year.

THE POUND STERLING:
As can be seen from below chart, the GBP/USD ratio has been on the way down for a few months now, dropping from US$1.72 to to close on Friday, October 31st on its lowest on the year of US$1.5995.

THE EURO:
European economic policymakers and central bankers are losing their appetite for wide-scale austerity measures and instead are more explicitly advocating inflationary monetary policies to jump start the region's stagnating economy.

Plagued by an elevated unemployment of 11.5% and troubling indicators signaling disinflation, the austerity calls are being hushed by much louder cries for stimulus.

Due to this at the end of their meeting of September 4th 2014, the ECB announced starting September 10:

  • The interest rate on the main refinancing operations of the Eurosystem will be decreased by 10 basis points to 0.05%
  • The interest rate on the marginal lending facility will be decreased by 10 basis points to 0.30%.
  • The interest rate on the deposit facility will be decreased by 10 basis points to -0.20%.

On top of this they announced to buy non-financial asset-backed securities to the tune of 500 billion euros over three years.

This will all contribute to a weakening of the euro, and already has helped to prop the dollar up.

As a consequence of this the Euro depreciated against the USD from US$ 1.393 in March of this year to US$ 1.2526 at the close of the trading day of Friday, October 31, 2014, as can be seen from below chart.

"ABENOMICS" WEAKENS THE JAPANESE YEN:
"Abenomics" is made up of three main elements called "arrows" that include monetary easing, flexible fiscal policy, and structural reform. Since its inception in 2012, the Yen has fallen more than 23% as can be seen from below chart.

 

The first two arrows are the main culprits behind the yen's plunge.

If this isn't enough, on Friday October 31, in a tight vote, the Bank of Japan backed an 80 trillion yen (U$720 billion) target for expanding the monetary base (a measure of the amount of money held by the central bank and in the economy). That's up from a previous target of 60 trillion to 70 trillion yen.

This was a major unexpected move by Haruhiko Kuroda, the Bank of Japan's governor, and a big new chapter in the country's "Abenomics" experiment, named after Prime Minister Shinzo Abe.

The Dollar and Yen are reacting pretty much as one would expect, too, for which the Dollar went up 2.23% against the Yen to close the week of and trading day of October 31 at 112.3150 its highest level since 2008.

Due to this the USD Index went up on Friday, October 31, 2014, with US$ 0.75 or 0.87%, to close at US$ 86.92 its highest level since mid 2010 as can be seen from below chart.

USD Index 5 year

PGM CAPITAL COMMENTS:
Since mid May of this year the US-Dollar Index has been risen with almost 9%, which is a huge move for any currency to make in such a short period. Due to this the dollar might be on a fragile footing at the moment and likely can't sustain this rise.

The threats for the US-Dollar going forward are more likely than most people think. A stronger US$ hurts the already fragile US exports and also the consolidated earnings from USA multinationals, when they convert their earnings abroad in a higher US-Dollar exchange rate.

Even more troubling are the threats to the US-Dollar hegemony from China and Russia. The two countries are settling more international transactions in their own currencies, effectively bypassing the dollar altogether.

As a consequence of a rising US-Dollar, the price of Crude Oil, Gold and other precious metals, which are measured in US$, received a haircut.

Due to this, China as the biggest holder of US treasuries securities but also Russia, might see the current high and unsustainable USD-Index as a good momentum to SELL (some of) their US treasuries holdings in order to buy Gold at depressed price.

These cues could signal that two major economic powers are weaning themselves off the dollar, further threatening the U.S. dollar's value in international markets

Right now, there's little doubt that their respective QE-programs and subsequent weakening Euro, Japanese Yen and British pound currently are providing tail wind to the Dollar. But on the other hand, based on its balance of payment, country debt - which most probably will reach 18 trillion US-Dollar by mid December 2014 - we can conclude that the value of the US-dollar currently is overstated, is in a bubble and that it is not IF but WHEN, the market will see this and send the US-Dollar into a correction to a more realistic value.

The other aspect of the trade of the US-Dollar is Gold, which is down due to the increasing US-Dollar.

As can be seen from below chart, the Chinese have used the lower Gold price to increase their demand for the yellow metal.

Above chart shows the latest weekly withdrawals figure from the Shanghai Gold Exchange (SGE) in the week of October 20, which hit 59.7 tonnes, making the total Chinese gold demand – so far this year – over 1,600 tonnes. And if the big weekly withdrawal figures continue for the rest of the year, Chinese demand is again on the way to the 2,000 tonnes mark.

But the biggest support for Gold last week came from former FED Chairman Mr. Alan Greenspan, who, according to Wall Street Journal reporter Michael S. Derby said

"Gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments."

We believe that Mr. Greenspan's statement cannot be seen as a short-term statement but that he was clearly looking forward.

Based on the above we are currently adding Gold and other precious metals to our personal portfolio and at the same time we are shorting the USA Markets and the US-Dollar in order to profit from the (coming) correction in US-Equities and the US-Dollar.

Before following any investing advice, always consider your investment horizon and risk tolerance and financial situation and be aware that stock prices don't move in a straight line.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek