The Vet

Venezuela Looms Large in Gold Reserve's Slide

Despite the lack of information from Venezuela, Gold Reserve unlike many other juniors is quite well cashed up and has a 35k tpd mill and process machinery ready for delivery next year.

Venezuela may be able to block Brisas but they can't confiscate the cash and equipment even though the market prices GRZ as if they already have.. GRZ has approx. 56 million shares issued so that gives it well over $1 a share in cash without considering the value of the equipment, but it trades at 35 cents?

Countdown of Manipulated Gold Price Running Out

Short selling of anything requires buyers to take the other side of the trade. Gold is still one place that there are buyers prepared to step up and there are no government restrictions on their activity so the short sellers have a market to ply their trade and they don't need any gold to sell in order to participate.

COMEX works in cash and generally settles in cash. You can be sure that if too many longs start standing for delivery of real metal the exchange will quickly change the rules to force cash settlements only at the manipulated paper price, not the real market price, and the short sellers know that protects them regardless of what happens to real gold.

Banning Shorts Works in Fancy Restaurants, Not the Marketplace

If short selling allows an investor to be "bearish on stocks they don't own" the obvious opposite position is an activity that allows longs to be "bullish on stocks they buy but don't pay for".

Of course that is possible through buying call options or sell puts, just as the bearish crowd can either sell calls or buy puts. If bears want to speculate on drops in the stock price then they should use the options market, the same way as the bulls have to.

So until the system allows bullish investors to buy stocks without paying for them, why should shorts be allowed to sell something they don't own?

The Disconnect Between Supply and Demand in Gold and Silver Markets, Part II

The major risk to the metal ETFs like GLD and SLV is not their structure or management but the fact that as stocks they can be sold short.
Naked short selling is the worse, but even "legal" short selling where stock is borrowed and then sold creates more long holders of stock than there is metal in the vault to cover that stock.

Ultimately in the worse case 100% of the metal could be redeemed leaving zero "real" shares but the same number of borrowed shares would remain in long shareholders accounts backed by nothing except the creditworthyness of the short sellers.

Of course once the backing of gold dropped, few new buyers are likely to step up and the price would fall leaving the shorts sellers of the stocks with a tidy profit and the long shareholders with nothing. Current SEC rules can't even force the shorts to cover or deliver stocks they have sold, so don't expect any protection from the regulators.

The Strange Case of Dr. GLD & Mr. Bullion

While the ETF's GLD and SLV (for silver) should always trade close to the spot price due to arbitrage of the authorised participants, there is another factor to consider. That is that the metal backing each share is less than the "official" stated figure due to short selling. Short selling (regardless of whether the shares are borrowed or sold naked) increases the effective float without a corresponding increase in the backing metal.

SLV has already appeared on the Reg SHO list on a couple of occasions indicating without a doubt that there were sellers of the stock who were unable (or unwilling) to borrow stock and this resulted in a failure to deliver stock. There is no way that a share sold short to a long shareholder or bought by an authorised participant for redemption can be distinguished from a share backed by real metal. Even if there was no naked short sales and no duplicate borrowing of stock, a situation where each real backed share was sold to two long shareholders could exist and the entire float could be redeemed for metal leaving the equal number of shares in the market no longer backed by a single ounce of metal and supported only by the credit of the short seller.

Cheap Silver: Whither the Ratio?

Silver is probably the best example that exists of a large "paper" market which swamps the actual physical market. According to figures just highlighted by Ted Butler, in July a couple of US banks dumped over 30k of short contracts (169,025,000 ounces) onto the COMEX futures market. That is far more silver than exists in COMEX warehouses and over 20% of the world's annual production.

Not a single ounce of this silver actually exists and none of it will ever be delivered to a buyer of silver. The whole transaction will be settled some time in the future in paper and in effect has no influence on the true supply or demand for silver metal even though it has a huge influence on the price.

www.investmentrarities...

Rick Rule: Market Malaise Signals Opportunity in Miners

This article and many like it seem to ignore the basic business strategy used by all responsible gold producers. When metal prices are low, the strategy is to high grade the depost, mining the high profit ore and ignoring the low grades in order to maintain margins and stay in business.

However when metal prices are high, the best long term approach is to "low grade" that is to mine and process the ore that wouldn't be profitable at times of low prices. This extends the life of the mine and maximises the recovery of metal from the ore body but of course profit margins suffer due to the utilization of this low grade material.

Sure other input costs have gone up, but lower profit margins of the miners are not solely due to this. Maximising mine life and recovery of all the PM in the ore body due to "salvaging" the low grade material left during the periods of low prices creates a significant drain on margins. However if high metal prices are maintained, the average ore grade will tend to rise and profits will return to more normal levels later in the bull market.

Thoughts About the Current Bear Market Among Junior Miners

Great insight, but of course this failure for the banks and the markets to commit to any risk is the same reason that commodities, metals, food and oil are in such demand right now. In the dot com days and before, paper projects and paper investments were short term, quick return and had a degree of certainty... until they failed!

Now commodities are high, costs are high and the time, expenditure and risk involved in getting a new mine off the ground is even higher than before, right at the time that the traditional risk taker, the small investor is feeling the pinch.

The need to get starter projects going so that the world will have adequate supply of commodities has never been greater, but investors time horizons have never been shorter, so where will it end.

IMO the solution lies with the few majors who are doing well with their high cash flows and diminishing reserves. They have to step up and start aquiring and investing in the junior sector. Only then will we get the investor interest returning. The majors are not doing themselves an favours with their current "just in time" mentality, as they well know that new projects always take longer and cost more the longer they delay commencement...

Once they start to lose production as mines become depleted, they will lose their income and the currency of their high stock price regardless of the current spot price of their production. Gold at $5000 an ounce is of no help if production has dropped to a pittance.

Get Out of Commodities - Barron's

What a lot of wooly logic... Hydrogen to solve all of our problems? And just how do you get free hydrogen?

Answer.. There are lots of ways but they all require energy in some form or another and as no process is 100% efficient. The energy required to make extract the hydrogen is always going to be greater than the energy utilized when it is burnt for fuel. Innovation may give us better processes to generate and store hydrogen but there is no perpetual motion machine and no free lunch.

Wind power as the saviour? Give us a break! Sure up to 20% of the total electric power consumed could come from wind power, but to depend on any more puts the whole grid at risk. The wind doesn't blow all the time anywhere. So you need another back up for those windless days, and nights... Days, maybe some solar would cover some of the deficit but on those cold windless nights when you are sitting freezing in the dark you will get to realise that depending on too much "alternative"... energy which by definition is erratic in supply might not be such a great idea. You might find yourself wishing for a nice big nuclear plant churning out hundreds of megaWatts of baseload power which would keep the wheels of industry and the home "fires" toasty warm.

Besides, all of the alternatives are very "dilute" sources of power. Wind farms have to cover thousands of acres in order to capture a reasonable amount of energy as does solar. Speading these around helps to cover for local weather variations in wind, cload cover etc. but just how do you think this dispersed energy gets to where it is needed.. The electricity gid has be be much larger, cover longer distances and have a large amount of redundency built in in order to use this alternative power effectively. Funny thing, but that needs metals; lots of metal especially copper (form windings, wires and transformers), steel (for transmission towers), silver (for switch gear) etc.

This rosy future where all our energy comes from everlasting 24 hour sunshine and the perennially cloudless sky, with steady breezes that never vary and which blow everywhere power is consumed at a rate to cover the load regardless of time of day or the curent weather, and where no metals, oil, gas, uranium or any other "commodity" is ever needed or used, is a fairy tale straight from the pollyannas of the "green revolution". THINK!

Four-Digit Gold Sets a New World Order

"Charlie the counterfeiter adds an extra demand for goods and services without making any contribution to the production of goods and services."

We don't need Charlie, to create that extra money, the banks do that quite easily and legally on their own through the mechanism of fractional reserve lending.

The theory is that that excess credit which is created by fractional reserve lending and circulated into the community is ultimately removed when the loan is repayed to the lending institution.

However where the asset backing that loan loses value and the borrower walks away, the loan isn't repaid and the "excess" credit previously created is still out there and it cannot be removed.

When the borrower walks away, he is in effect like Charlie the counterfeiter, he passed on the benefit of the "created cash" to the builder of the house but ultimately produces nothing of lasting value to add to the pool of goods. True the house he once owned may still exist but it is worth only a fraction of the outstanding loan until such times as housing prices recover. Until that loss is either repaid or written off then the effect is to increase the money supply by the diference between the current value and the original purchase price.

Gold Is Just a Brick ('Active Value Investing' Book Excerpt)

What the author completely ignores is the very real and ever present counterparty risk of all paper instruments. He touches on it in respect to gold shares and ETF type instruments in gold, but ignores it for his favourite paper instruments, bonds, TIPs etc.

It is true that strong governments will try to support their "official" paper in a numerical sense when it suits them, but they also actively devalue the base fiat unit of account when times get tough. You might be able to redeem the face number of fiat units but you never get back the real value invested regardless of interest payments.

For recent examples look at Argentina and Russia, historically, check out Germany in the first half of the 20th century, and Rome a couple of thousand years ago. The US government may look to be reliable now, but so did Rome and hundreds of other governments at various times in history. The only constant historical fact is that all of them have eventually failed and their fiat currency failed with them. Gold on the other hand has always retained value.

Closer to home, Americans who bought and held Continentals and paper denominated that way certainly would have wished they had bought gold instead at the end of the war...

Gold and Silver Will Not Save You From a Sell-Off

It's odd that with this "selloff" of gold and silver that both the GLD and SLV holdings of metal are at record highs... Perception, caused by the respective share prices, of a "selloff" is not backed up by the actual physical holdings. Remember that the ETF's can be sold short. The sellers do not own gold, never have owned gold, and never intend to own gold; they simply see a nervous stock market and they pile on their short sales... They are selling unbacked paper, not metal.

Chavez's Recent Statement Positive For Crystallex

yippee, I wasn't trying to "muscle in" with comments about another company. I was merely trying to point out that the building of the already approved Brisas mine may alleviate much of the pressure on Chavez to provide jobs in the region. GRZ has $200 million in cash already available, sufficient to commence construction quite soon.

However the parts where you say you are not in agreement indicates you do not appreciate the size and scope of the Brisas project. If you check the executive summary prepared for Gold Reserve by Aker Kvaerner as part of their bankable feasibility study, pages 18 and 19 headed Manpower Requirements, you will find that by the second year they anticipate employing 2,197 on Engineering and Construction, and for years 1 to 15 of production the manpower requirement is anticipated to be range of 674 - 934.

These numbers are considerably larger than the equivalent for the proposed Las Cristinas mine regardless of what you would imagine.

Source GRZ web site goldreserveinc.com/doc...

Chavez's Recent Statement Positive For Crystallex

Yippee, we all agree on the statement "You are right that unemployment - particularly in this area of Bolivar State - is very high, and this is causing considerable social problems, too. "

However you have ignored the fact that Gold Reserve at Brisas right next door are commencing building their mine this month and they will employ thousands of workers commencing within weeks. The Brisas mine is bigger and requires more capital expenditure than the proposed initial Las Cristinas operation. Once GRZ starts putting those people to work, and they see "on the ground" progess it will take some pressure off Chavez in regards to local employment issues.