Should I wait for a correction to buy silver?

by Jason Hommel, Dec 13, 2005

"Jason, should I buy silver now, or should I wait for the correction?  Because I don't want to buy at the top, I want to buy on a dip."

So many people seem to be expecting what they call a "correction" to happen to gold and silver prices.  It's no wonder that yesterday, a small, temporary, and ultimately failed, manipulation to the downside took place.  

From Bill Murphy at lemetropolecafe.com (where you can get a FREE 2 week subscription to his daily commentary):

Silver, yesterday and today:

Bill, I was in a bit of a rush before so I couldn't exactly explain what was going on in Silver today. To use the words manipulate would be a very large understatement. I have an issue attributing today with the unwinding of the silver/gold spread..here's how today happened: Starting around 12:30 silver is about 9.18 on the floor. Out of nowhere somebody starts offering mini's at 8.01!!! That's right over a point below the market??? After his offers got done some more size came in at 8.25..8.50..etc. Immediately following this the pit broke and so did Gold. If anyone were responsibly unwinding a spread they definitely wouldn't be doing it in this fashion. At the same time I was hearing rumors about the Silver ETF being rejected..obviously we know now this is false. I strongly believe this was the shorts last stand to move BOTH markets down. Gold broke right after silver...Any thoughts?? Seth

This is correct. Chris Jordon of Morgan Stanley, the most well known and successful silver trader on the floor, began to offer Comex silver a dime below some bids, which cratered the market. As mentioned yesterday, the personnel on the floor was less than usual and Jordon got his way as gold followed suit.

So that's the report from the Midas report at lemetropolecafe.com.

It is rather easy to manipulate the paper price of silver, temporarily:  Simply offer promises to deliver silver.  That's it.  That's all it takes.  The hard part comes later, when delivery dates come due.  This is why manipulation cannot work in the long run, when there is a shortage of physical silver.  This type of manipulation is bothersome, but it also offers the opportunity: cheap silver!

But there is another kind of manipulation that is harder to detect.  Why is the word "correction" used to describe a price move to the downside?  Is a low price of silver somehow "correct"?  Absurd! 

Higher prices are obviously needed in order to encourage more production which is needed to satisfy the silver shortage.  The word "correction" should be used to describe a price move up!!!  The subtle bias that you hear when you read someone say, "the precious metals may see a correction" is that it is correct for prices to be cheaper... but that's just not true!

Even further, it is a manipulation to even describe the "price" of silver in terms of dollars.  We could more accurately describe the "price" of dollars in terms of silver.  And the price graphs we are all following would simply be inverted, and what is up is then down.  It would be rather more "correct" to see the dollar continue to fall, in terms of silver! 

So let me address the common question I get when silver prices rise (which is nearly all the time).  "Jason, should I buy silver now, or should I wait for the correction?  Because I don't want to buy at the top, I want to buy on a dip." 

My standard answer is that I only know the long term.  Long term, silver will go up, up, up, much much further from here, due to the silver shortage caused by industrial consumption over the last 60 years.  And I make investment decisions based on the long term. 

I received a call from a broker the other day who was interested in learning about silver stocks, who asked me "What's the deal with silver?  I have a client who bought $5 million worth of silver, and delivery took 100 days!!!  That can't be normal, and something is wrong here."  Yes, that's technically a delivery default!  Delays are evidence of the silver shortage!

Who can predict the short term price of silver, and on what basic fundamentals?  Can you look into the minds of the manipulators, and ask them when, and how far, they will push silver prices down?  No, you can't.  There is no information you can find to determine the short term future. 

And if you look at the long term past, then we ARE on a dip, if you buy silver anywhere under about $25/oz.   Wait for a dip?  What do you mean?  We are IN a dip. 

See the 600 year silver chart to see how undervalued silver really is:
http://goldinfo.net/silver600.html

We will still be in a dip, anywhere from $25/oz. for silver to $80/oz. for silver!  Even $80/oz. for silver is stupid cheap, historically speaking.  Why wait?  There is no basis for waiting.  Silver is now trending up, moving up, headed up, and the word is out about the silver shortage. 

Silver Users Fear Silver Shortage
Important Article October 27, 2005

And if you were waiting for that little "correction", you missed it.  Silver was $8.01 for a few seconds on Monday. 

People have been asking me if they should "wait for a correction" ever since silver rose from about $4.15 and crossed above $5/oz.    What do you think they should have done?  And what are you going to do?

Act now.  Just do it!

For the types of silver available, and for a list of low-priced bullion dealers, see
A Brief Guide to Buying Silver


http://www.silverstockreport.com/buybullion.htm

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Silver stocks, then, why are they lagging?  Are "cheap silver stocks" evidence that precious metals will "correct" down, or does this mean that the silver stocks will "correct" up?  I think the silver stocks are headed, up, of course.

Silver stocks are now headed up.  Last Thursday, I profiled (promoted) Canadian Zinc (CZN).  The stock was priced at about $.50 Cdn, and today, the stock is at $.62 Cdn.  There's a substantial gain in there for my long term readers who have purchased the "look at my portfolio" who saw me purchasing CZN over a 4 month period at an average of $.45/share Cdn.

The precious metals are not running ahead of other commodities.  Look, the recent rise in gold and silver is not an anomoly, not unusual.  Gold and silver are LAGGING many other commodities, such as oil, steel, iron, molybdenum, selenium, iridium.  And copper, zinc and lead are all roaring along with gold and silver, more than doubling from their bottom.

Today, most of the metals were down, yes, on a dip.  But zinc hit new highs, to $.83/lb.!  http://www.kitcometals.com/  Just a few years ago, zinc prices bottomed out at $.35/lb., and Canadian Zinc was saying they could mine at a profit when zinc was that cheap, and when silver had bottomed out at $4.15!!

It dawned on me that my company profiles are not well understood by everyone, so I will clarify it by putting it into English, with explanations, below.

CZN.TO CZICF.PK Canadian Zinc
http://www.canadianzinc.com/
87.9 mil shares fully diluted (Nov. 2005)
Share price: $.62 Cdn x .86 US/Cdn = $.53 US
Market Cap $47 million, U.S.
Cash on hand: $14 million, U.S.
Buildings & Infrastructure: $100 million, U.S.
Value of the minerals in the ground: $4 billion, U.S.
Value of the rock: $368/ton!
Value percentage of each mineral compared to the others:
53% zinc, 27% lead, 14% silver, 6% copper. (out of 100%)
(The ore is actually 12% zinc, 10% lead,  6 oz. of silver per tonne!)
Total silver resources: 70 million ounces, and the exploration potential could double that.
Zinc prices continue to hit new highs at $.82/lb, and zinc inventories are dropping.
The company needs to raise about $20 million to start mining, and has 5 out of 6 permits needed.
In the last two years, the stock hit a high of about $2/share, and they raised money as high as $1/share.  Thus, the stock is a real deal at under $.75, and could rise to about $2/share again if people get bullish on commodity stocks again.

CZN.TO CZICF.PK Canadian Zinc  --I use company stock symbols that will give you price quotes at Yahoo! Finance.  CZN.TO is the Canadian symbol for the Toronto Exchange.  CZICF.PK is the "pink sheets" symbol that Americans usually have to buy (depending on your brokerage firm).  No matter which ticker you use, you are buying the same stock, with the same liquidity.  The "pink sheets" ".PK" symbol quotes show less volume, and update prices less frequently, so don't use the pinks for price quotes--you just need the symbol to trade it with your broker, and you generally don't use the ".PK" designation with your broker, you just use "CZICF".

http://www.canadianzinc.com/
--That's the web site, of course.  Click the link to start your further research on the company.  To do full due diligence, you should try to get information on the company or project that is not put out by the company, and not put out by a promoter, which is me.  That's not always possible, but sometimes there is historic information you can look up.

87.9 mil shares fully diluted (Nov. 2005)  --That means there are 87.9 million, or 87,900,000 shares, "fully diluted" as of Nov. 2005.  This number frequently changes, and is a good number to use to calculate the potential market capitalization of the company.  There are other names for shares, as follows:
"authorized"--this is the number of shares a company may issue to raise capital, but have not issued yet.  This may represent a type of ceiling on which no more shares can be issued, but not really.  A company can issue more shares with shareholder permission, which is usually granted.
"issued and outstanding"  --This is typically used to calculate market capitalization, but it does not include warrants and options.
"warrants and options" --these may turn into shares at the option of the holder, who has to pay the option or strike price, to "buy" the share. 
"fully diluted" --this includes all the issued and outstanding shares, and all the warrants and options.  I use the "fully diluted" number, because I like to assume that if the bullish case takes place, that all warrants and options will be exercized.  By using the "fully diluted" number, I'm actually being conservative, by over-estimating the market cap.

Share price: $.62 Cdn x .86 US/Cdn = $53 US  --I always translate the share price into U.S. dollars.  To do that, I have to multiply by the US/Cdn conversion ratio of about .86.  You can find the latest number in the large chart at the bottom of kitco.com.  You should do this before deciding the price to place your limit order in pink sheet stocks. 

Market Cap $47 million, U.S.  --The market capitalization, or "market cap" is the total value, or cost, of the company, if you bought all the shares at the current stock price.   You get this by multiplying the share price by the total shares (or total shares assuming all warrants and options are exercised).

Cash on hand: $14 million, U.S.  --Canadian Zinc has no debt, and has cash in the bank of about $14 million!  They got this cash from issuing new shares, some as high as $1.50/share, not by engaging in profitable mining.  Canadain Zinc still needs to raise another $20 million or more to get started mining.  Permitting, feasibility, building a road, finishing building the mine, all cost more money.   So, if you get the stock under $1.50 today, you are doing better today than someone else who participated in that "private placement".  CZN has also issued shares at $.50, and at $1.00, and more recently, at $.55 to raise $5 million.

Buildings & Infrastructure: $100 million, U.S. --CZN owns a project that was financed by the Hunt brothers back in 1980, who were famous silver investors.  This project was financed about 90% complete when the Hunts went bankrupt by borrowing money on the value of their silver holdings.  If only the Hunts never borrowed money... don't make the same mistake.

Have you ever seen those movies in the '80's where company raiders would buy up a company that had assets that were more valuable than the company?  This is what CZN is like.  They have $100 million in infrastructure, and $14 million in cash, for a total of $114 million.   (And that does not include the value of the land, nor the previous drilling work done, nor the minerals in the ground.)  If CZN were a brand new company, starting from scratch, and raised $114 million, by issuing 87.9 million shares, it would typically be 1 warrant for every share.  So, they would issue 1/2 of 87.9 million to raise $114 million.  So, the math is:  $114 million / 43.95 = $2.59.  This means that CZN should be priced, at a minimum, of $2.59 US/share.  Again, that would not include money for the land, or for the drilling--and this is a hot piece of land with high grades!

Value of the minerals in the ground: $4 billion, U.S.
Value of the rock: $368/ton!  -- CZN has 11 million tonnes of ore that has the following grades:

12% zinc/ton; = 240 lbs. zinc/ton x 83 cents/lb. = $199/ton for the zinc.
10.1% lead/ton = 202 lbs. lead/ton x 50 cents/lb. = $101/ton for the lead.
                                6 oz. silver/ton x $8.50/oz. = $51/ton for the silver.
0.4% copper/ton = 8 lbs. copper/ton x $2.10 /lb. = $17/ton for the copper.
Total: $368/ton!   Prices accurate as of Dec. 13th., 2005
With 11 million tons, CZN has about $4 billion worth of ore in the ground, at least.

Now, CZN will not calculate the value of the minerals for you.  They are forbidden, by law, from doing that, oddly enough.  Nor can they use current prices for metals in any feasibility study.  Why not?  The banks force the mining companies to assume there will be no inflation, and that metals prices will go down.  Isn't that insane, or what?  But the insanity of the rules prevents CZN from effectively markting their own company.  But we should assume that there will be continued inflation of valuable commodities like zinc because of the industrialization of China that is consuming steel, and zinc is an important componant of steel, because it prevents rust!

Value percentage of each mineral compared to the others:
54% zinc, 27% lead, 14% silver, 5% copper. (out of 100%) --This is only accurate at today's prices.  Someone asked me, "Jason, what if silver goes up due to an economic collapse, and zinc prices go down?"  Well, let's assume zinc prices are cut in half, and silver prices rise ten fold:

12% zinc/ton; = 240 lbs. zinc/ton x 41 cents/lb. = $100/ton for the zinc.
10.1% lead/ton = 202 lbs. lead/ton x 50 cents/lb. = $101/ton for the lead.
                                6 oz. silver/ton x $85/oz. = $510/ton for the silver.
0.4% copper/ton = 8 lbs. copper/ton x $2.10 /lb. = $17/ton for the copper.
Total: $728/ton!   --That's hypothetical, of course

A multi mineral company gives a bit of diversification, no matter what happens to the economy.  If the grades are high across both base metals, and precious metals, it provides a built in level of safety.  --As long as the company avoids debt, and avoids hedging, which is the practice of pre-selling minerals at set costs, which can bankrupt a company, just like debt.  CZN, at this stage, is unhedged, and I hope they remain that way.

Total silver resources: 70 million ounces, and the exploration potential could double that.  --I visited the company offices of CZN, and I asked to see their maps of their resource calculation.  They have done drilling only across 3 zones out of 12 zones on the property.  The high grade ore is in a vein that looks like a large diagonal sheet in the earth, that likely extends further, well below where they have well-defined drilling done.  Drilling gets more expensive the deeper you go, and there is little point in doing too much drilling further out than they have already done, since they have an 18 year mine plan already.  Like almost every property in every minerals company, there is further exploration potential that makes the project look better the longer you look at it.  hmmm...  Is that why I keep writing about this company, or am I in love?

70 million ounces--That's just the silver, too, which is only 14% of the value of the metals in the ground.  I'm not converting zinc to silver, I'm leaving the zinc out of it.

But if you want a stock that stands to rise as silver prices rise... here's the math on that:

$47 million market cap / 70 million oz. silver = $.67/oz.  That's cheap silver in the ground!

The major mining companies sell for up to 1/3 to 1/2 the price of the metals in the ground, like $4/oz. for silver, or $250/oz. for gold in the ground.

Thus, CZN could rise by a factor of 6, even without silver prices rising!  Or up to $3.70/share, up from $.62! --But that still does not count any value for the zinc, but only for the silver!

CZN topped out at about $2.00/share back in Feb., 2004, but that was back when silver was about $6.55 and rising, before silver crashed in April, 2004 from silver's high of $8.40.  The crash in silver prices shook people out of CZN, who were impatient.  Back then, zinc prices were $.46/lb!  See silver stock report #22 in my archives.  Today, zinc prices have nearly doubled!!!  Meaning, we might expect CZN to rise as high as $3-4/share Cdn?

So, I've written about CZN recently, and the price has moved up a bit, from $.50 to $.62.  Does that mean it's ready to correct down from $.62, and you should wait, or is the stock price already on a dip from $2.00, meaning that the stock is going to "correct" up, to catch up with silver and zinc prices?  If you've read this far, that's what you've got to decide.  I made my decision months ago, when buying CZN at $.45, and I've had to wait much longer for prices to rise.

Final disclaimer.  CZN has not paid me to write about them.

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Further promotions:

First company:  
Market Cap: $34 million, U.S.
Cash on hand: <$1 million.
Has a lease:  The value of the reserves, the minerals in the ground: $45 billion, U.S.
Has a positive Feasibility Study showing that about 85% of the value of the ore will be mined at a profit!  That's 85% of $45 billion, or $38 billion! 
The company needs to raise about $400 million to build a mine to unlock that $38,000 million in profit!
To get the name of this company, sign up to "look at my portfolio" at silverstockreport.com

Second company: CZN.TO Canadian Zinc--now being promoted.

Third company:  SRLM.PK Sterling Mining--previously promoted

Fourth company: 
Market Cap: $42 million, U.S.
Cash on hand: <$1 million.
Owns an exploration property that may be the largest copper porphyry in the world, located in Montana, U.S.A.  Has several of the largest mining companies in the world currently very interested.  Has no interest in selling out too soon, and plans to sell at a high premium in a few years after doing a bit more exploration. 
This stock is my largest holding.
To get the name of this company, sign up to "look at my portfolio" at silverstockreport.com

Fifth company:
Market Cap: $10 million, U.S.
Cash on hand: $4 million, Cdn.
Owns over 100 drill rigs, has about 250 employees, and is Canada's third largest drilling company.  Owns silver properties in Cobalt, Ontario, the "Silver Capital of Canada", where silver is found in high grade "slabs", which historically produced over 500 million ounces of silver.
To get the name of this company, sign up to "look at my portfolio" at silverstockreport.com

For a full list of silver stocks, the last full report I produced was in July, 2005, #57.  In the latter half of 2005 since then, I've been travelling to about two shows per month, and I may decide to complete a full report again in the next 2 months or so.  (There's a lot to catch up on, shares issued, and drilling results....)  The list from July is, at this point, only a rough guide of a list of names of silver companies.  But valid enough to start some further research on other companies.

http://www.silverstockreport.com/ssrarchive.htm


Excerpt from: Bible Verses on how to Manage Money
http://www.bibleprophesy.org/goldismoney/biblemoney.html

Don't be lazy, you must work.  Laziness leads to poverty. 

Proverbs 18:9  Being lazy is no different from being a troublemaker.

Ecclesiastes 10:18   Some people are too lazy to fix a leaky roof-- then the house falls in.

Proverbs 24:30   I once walked by the field and the vineyard of a lazy fool.
31   and lo, it was all grown over with thorns, and nettles had covered the face thereof, and the stone wall thereof was broken down.
32   Then I saw and considered it well; I looked upon it, and received instruction:
33   Yet a little sleep, a little slumber, a little folding of the hands to sleep --
34   so shall thy poverty come as one that wandereth, and thy want as an armed man.

Proverbs 20:13  If you sleep all the time, you will starve; if you get up and work, you will have enough food.

Proverbs 28:19  Work hard, and you will have a lot of food; waste time, and you will have a lot of trouble.

The Bible tells us to not only work hard, but to work efficiently, to not waste time!  Therefore, work hard to increase the efficiency and effectiveness of the work that you do!  Or, seek to do the work that is most efficient, most effective and most productive.

Free & Honest Trade, using honest weights and measures, increases men's efficiency, because men can count the cost, plan ahead, specialize & become experts at what they produce, and thus, produce more.

Sincerely,

Jason Hommel