Silvercorp Announces Share Buyback Program

I thought this press release from a silver mining company was interesting relative to the divergence between the miners and the metals which was featured last week.

By means of disclosure I have a very small trading position in this company, and as a caution I have to advise that it is highly volatile. As such I do not possess a profound knowledge of their operations. I do not like to mention individual companies at all, but it is difficult to reference a share buyback otherwise.

I tend to trade actively in the miners, and hold bullion, so I may not have this position for long even at the end of the week. This is in no way any endorsement of this company or any suggestion about its future performance.

I would expect other companies with the appropriate cash flows and positions to employ this type of relief from the short selling that has been plaguing them, as well as the headwinds of the recent stock market decline. But the divergence between miners and metals predates the stock market correction.

This might also be a period of acquisition and consolidation as we had seen in the Canadian juniors as oil made its moves higher.

The countervailing trend of course is the stock market weakness which weighs on all equities to varying degrees. A stock market 'crash' would hit the miners rather badly.

Generally I prefer to own bullion for the long term, rather than taking a leveraged play in the miners which are unsuitable for investment purposes for the average portfolio due to the risks which must be taken into account.

If you speculate with leverage, the odds are very high that you will lose money. I don't think I can state it more plainly than that.

SILVERCORP ANNOUNCES SHARE REPURCHASE PROGRAM

VANCOUVER, British Columbia – June 17, 2011 – Silvercorp Metals Inc. ("Silvercorp" or the "Company") intends to commence a Normal Course Issuer Bid to acquire up to 10 million common shares from June 29, 2011 to June 28, 2012, representing 5.7% of the Company's 175,047,941 common shares currently issued and outstanding. The Company is taking this action because it believes that prevailing market conditions have resulted in Silvercorp's shares being undervalued relative to the immediate and long term value of Silvercorp's portfolio of producing and development properties in China and Canada.

Purchases will be made at the discretion of the Directors at prevailing market prices, through the facilities of the TSX and/or the New York Stock Exchange (NYSE) in compliance with regulatory requirements. There can be no assurance as to the precise number of shares that will be repurchased under the share repurchase program. Silvercorp may discontinue its purchases at any time, subject to compliance with applicable regulatory requirements. The Company intends to hold all shares acquired under the issuer bid for cancellation. The Normal Course Issuer Bid is subject to regulatory approval.

Directors and senior officers of the Company are not aware of any previously undisclosed material changes or plans or proposals for material changes in the affairs of the Company, nor do any of them have the present intention to sell shares of the Company during the Normal Course Issuer Bid.

Gold Daily and Miners and Silver Weekly Charts

Gold Daily and Silver and Miners Weekly Charts

Commentary on gold and silver action was posted here intraday.

Remember the caution that was sounded about the trends being extended? We are now in the process of correcting that.

Gold, Silver, Miners, and Big Daddy

Gold Daily

Gold is on the verge of breaking out of the handle of the cup and handle formation. A pullback and consolidation of the recent gains would not be unusual. However it will be most interesting if US stocks correct, and there is a flight to safety in gold. Let's see what happens.



Mining Sector (HUI)

The miners have not yet confirmed the break out in silver. This may be because of the thinness and uncertainty accompanying the rally in US equities, despite the impressive levels reached thus far.



Silver Weekly

Silver is a juggernaut having broken out of its big wedge, targeting 22. If the stock market corrects we should see a pullback in silver, but it may be short lived.

I cannot help but notice that the commodities in general have been rallying since the big banks started closing their proprietary trading desks.



US Ten and Thirty Year Treasuries

Since we said they looked toppy, the bonds have been in a swoon.

This will reverse if the stock market rally abates. Even with the low volumes they are shoving a lot of portfolio allocation around the plate, looking to hand off the hot potato in stocks to mom and pop, at the top.

Gold Daily and Weekly, Miners, and Silver Charts at Week's End

Gold rallied up to big resistance today on the weaker than expected economic news and weakness in US equities, in yet another example of the 'Risk-on, risk-off' trade.

Next Tuesday is the FOMC meeting for August, and on such auspicious occasions gold is frequently subjected to short selling to express official discouragement by the banking establishment towards a competitive currency.

August is a stronger seasonal month, so the metals will have the wind at their backs. We would be looking to buy on weakness.

Gold Daily Chart



Gold Daily Chart with 50 Day Moving Average

Gold rallied up to its 50 Day moving average which is now just over 1211. I would not expect the momentrum traders to get on board until that metric is taken out and nailed to the daily chart.



Gold Weekly Chart

This is not even a log chart, and the trend in the weekly price of gold looks like a thrown rope. You might want to keep this chart in mind when making your buy and sell decisions, and not allow yourself to get caught up in the short term hype of the daytraders and assorted knuckleheads.



Silver Weekly Chart



Mining Index (HUI)

Gold Daily and Weekly Charts; Silver Charts; 1099 Change Does Not 'Target Gold and Silver'

There was quite a bit of central bank concern over the results of the 'stress tests' for the European banks.

I will not address the tests themselves here, but let it suffice to say that they only involved the banks' trading portfolios, and not their loan portfolios, which could give you some idea of their lack of rigor. And 7 of 91 banks failed.

But the spokesmodels on Bloomberg were remarking, frequently, that the markets are pleased by the tests and the crisis is over because 'stocks are higher,' and 'gold was lower.'

The lies and market manipulation will continue until confidence is restored.


Gold Daily Chart



Gold Weekly Chart



Silver Weekly Chart



Miners (HUI) Weekly Chart

Charts: Gold, SP 500, Silver, HUI, Gold/Euro

Gold Daily Chart



Gold Weekly Chart



SP 500 September Futures Daily Chart



Silver Weekly Chart



Miner's Index (HUI)



Gold / Euro Correlation

Gold: Chart Updates - Gold is a Counter Trade to Currency Risk

Although the gold bulls took a severe 'gut check' today, the cup and handle formation ultimately proved too powerful for the bears and bullion banks to break. It is an epic struggle, with much broader, perhaps even historic, implications than most of us can now realize, being too close to the event to see its true dimensions.



The weekly chart shows that gold is in a bull market. Anyone who does not acknowledge this, especially any metals analysts, are talking their books and private agendas. I can think of no other profession that allows for such blatant deceptions as the US financial sector.

The hysteria that accompanies every minor, albeit somewhat sharp, pullback in the price of gold borders on the ridiculous. It is often a 'psych job' by hedge funds, and unfortunately a mass of the deluded who simply do not understand currency markets and money. They think they do, but they don't, and in this case a little knowledge is a dangerous thing for their accounts.

Gold is a counter trade to currency risks. Monetary inflation is only one example of that risk. So the simplistic model is bewildered when gold rockets in the face of deflation caused by credit destruction and weak aggregate demand. What it fails to account for is the dramatic deterioration in the backing for the currency due to the corrosive decay of its underlying assets, the degraded ability to tax and service debt, and the actual assets held by the central bank.

And this is why at times some governments seek to control rival currencies such as gold. It is the economic equivalent of rolling back the odometer, or putting sawdust in the crankcase of a car which you wish to sell to the unsuspecting. It is a means to a control fraud, the deliberate hiding of the dilution of your currency to support a set of political and personal objectives. And this is why the citizenry, if they are wise, will insist on transparency in the metals markets and the asset holdings of their country.



The miners are doing reasonably well all things considered, but may not stand up well IF there is a sell off in the general equity markets.



You may as well hear it all now, because in the event of war, the truth will be the first victim.

Why Are the Miners Underperforming The Metal?

Occasionally a reader asks, "Why are the miners lagging the performance of gold?"

My standard reply is that the mining stocks are both stocks and a store and source of the underlying bullion which is the basis of their business.

Past regression analysis which I had done a few years ago indicated that it was about a 50 - 50 split. Over time, an 'average' mining company will correlate roughly 50% to the SP 500 and 50% to the metal which is its predominant business. The lags due to anticipation and expectations are taken care of in the size your sample.

Just to do a quick check, since these things do sometimes change over time, I ran a quick comparison of the GDX Mining Index, GLD as a proxy for gold, and the SP 500.

I think the results since mid 2008 shown below seem to indicate that the miners, on average, are still a rough split between a stock and a store of wealth, with bullion exerting a bit more pull than in the past. This is probably an effect of the underperformance of the financials, and their heavy influence in the SP index. I would caution against using this in place of a genuine regression analysis. But its close enough to make the point that the mining stocks are, to some significant degree, a stock.



Note: Please read what I have said before snapping off a quick comment objecting to it on the basis of the stellar performance of your favorite junior or senior mining company.

I have done very excruciatingly details multivariate regression analysis of the price of bullion itself. and have published the results in the past on my 'old site' the Crossroads Cafe. That correlation does change. Perhaps I will find the time to take out the big spreadsheets and run them again.

Gold, Silver, and the Mining Index with the SP 500 for the 'Quad Witch' This Week

This is one of the big four 'quad witch' weeks for US equities, and Goldman is bring out some IPO's including the CBOE. So as previously said, we'll look for shenanigans on light volumes as the trolley dodgers try to stay out of the way of intermittent headline risks and keep that perfect trading score going.

When frauds like the US financial markets become this obvious and blatant, it is frequently a sign that they are nearing the endgame, or perhaps more properly, an implosion. But never poke a cornered skunk, you have to smoke them out.

Gold



Silver Daily Chart



Silver Weekly Chart



HUI Mining Index - Weekly Chart

Some might notice a trend on this chart. That trend would not hold up in a general stock market crash.



US Long Bond

Big Daddy looks about read to take a dump.



SP 500 Sept Futures Hourly chart



SP 500 Longer Term Cash Chart



SP 500 Correlated to Bernanke's Quantitative Easing Program



Chart Courtesy of James Turk

Jim Rickards: Gold, Silver, and a May 11 Meeting to Discuss Global Currency Issues

Gold is showing a potential inverse H&S pattern.



Silver is in a well-defined uptrend.



As are the miners.

But all bets are off for the miners and silver most likely if US equities head south.



Jim Rickards on CNBC discusses the May 11th IMF meeting in Switzerland
to discuss the dollar alternatives, the SDR and gold.

And it is worth watching the reactions of the CNBC anchors to what their guests
have to say, and the elegantly polite way that Rickards deals with Joe Kernen.



It's kind of sad that after all these years Joe Kernen is Becky Quick's assistant.

Doesn't he have seniority or something? Can't Immelt throw him a bone?

Gold and Silver Weekly Charts - Explosive Silver Situation Intensifies

Gold Weekly

Gold held against two determined bear raid this past week, centered around 'announcements.' The first was the re-announcement of the IMF gold sale, and next was the largely symbolic gesture by the Fed in raising the Discount Rate to 75 basis points, without touching the target rate. That announcement was made AFTER the bell, rather than before as is more usual. There was noticeable front running of the miners before each announcement.

There is likely to be another bear raid, since this coming week is metals options expiration, and there is a cluster of contracts around 1100. There is also something brewing under the surface which is creating tension on the tape, with a violent back and forth motion in the spot price of gold. We can only speculate for now, but choose to wait and see what is revealed.

The most interesting speculation is that metals bears target is not gold, but rather silver.

Silver Weekly

Silver is in a potential inverse H&S formation that targets $30 per ounce. There are two or three big bullion banks that are massively short silver, that cannot possibly cover their short positions without significant pain, including a risk of default if a higher price fuels demand and breaks the confidence of the paper market.

If this is true, it is a big problem for the US government, because unlike gold, the central banks have no ready store of silver to sell into the markets, having exhausted their strategic stores some years ago.

If silver explodes because of a paper default, gold will follow. The central banks view that as a very risky development since several of the banks are already breaking ranks with the ECB, BofE, and the Fed over this issue of the de facto dollar reserve currency regime.

We do not anticipate a resolution of this quickly. DO NOT try and trade this for the short term. The 'beta' of the silver market could be terrific. The forces aligned around this market are determined and not easily moved. The small specs can get crushed if the titans start shoving.

These sorts of big changes tend to drag out over long periods of time. But we are aware of the situation. The breakout is at 19.50 and the pattern is negated with a drop below 12.

Look for more old arguments of the metals to resurfaces, and nonsensical arguments to be put forward by those banks and funds talking their books through contacts in the media and analyst community.

I cannot stress enough that if there is an all out stock market crash and liquidation both gold and silver will get deeply sold off, with everything which is what happens in a general liquidation of assets. Then we would begin to look for opportunities to buy in as the dust settles.

Miners 'Gold Bugs Index' Weekly

If silver breaks the paper shorts, the miners will break out, targeting 600 on this index. The silver plays would be remarkable.

What could trigger this? We suspect it would have to be a strong indication from the nations of the developing world for a bi-metallic content in the proposed SDR replacement for the dollar reserve currency.

Since central banks currently do not hold any significant silver bullion positions, the resulting buying panic could rival that of the 'Hunt corner' in the silver market. Therefore we would expect a maximum effort to control it ahead of time. A default on paper positions is certainly within the realm of probability.



Keep an Eye on the Long End of the US Bond Curve

This has been a long trend change as can easily be seen from this chart. The trend is bottoming and may be starting a reversal. Again, these things tend to play out over long periods of time. Don't expect to start day trading this next week.



Disclosure: I added initial positions in the gold and silver miners last week. I expect to add to them if the markets confirm. I have been hedging them against a 'market crash' in US equities such as the panic selloff in late 2008 which took us into the market lows.

China Is Shopping the World for Miners and Commodities

As anyone who has looked into this knows, the producers always lag the commodities in any recovery, and base materials lag precious metals.

China is showing remarkable foresight in using its dollars to secure supplies of key industrial commodities and oil now.

Bloomberg
China Feasts on Miners as ‘Bank of Last Resort,’ as Metal Falls
By Helen Yuan and Rebecca Keenan

Feb. 18 (Bloomberg) -- Wuhan Iron & Steel Group and Jiangsu Shagang Group Co., China’s third- and fifth-largest steelmakers, are shopping for iron ore mining stakes in Australia and Brazil, executives said in interviews.

“We are evaluating and selecting” candidates in Australia and Brazil, said Shen Wenrong, Jiangsu-based Shagang’s chairman. “Going overseas is the government policy, so I believe we will get financing from Chinese banks.” Wuhan spokesman Bai Fang said his company is “looking for opportunities” amid lower acquisition costs for iron ore assets in Australia and “won’t rule out other countries.”

The world’s top metal user, China already has acquired $22 billion worth of commodity assets this year after a 70 percent drop in metal and oil since July ended a six-year boom in raw materials. With U.S. and Australian banks still hesitant to lend, Rio Tinto Group and OZ Minerals Ltd., laboring under combined debt of $40 billion, agreed this month to sell stakes to Aluminum Corp. of China and China Minmetals Corp., respectively.

“China has turned out to be the bank of last resort,” said Glyn Lawcock, head of resources research at UBS AG in Sydney. “China is a net importer of copper, bauxite, alumina, nickel, zircon, uranium. China is looking for ways to secure supply of these raw materials.”

Commodity acquisitions by China would put increasing amounts of the world’s raw materials under control of their biggest consumer and may allow it to influence prices. The investment by Aluminum Corp. of China, or Chinalco as the state-owned entity is known, into Rio may bolster China’s bargaining power to set iron ore prices, China Iron and Steel Association said.

Steel Prices Surge

China’s plan to boost the economy with 4 trillion ($585 billion) yuan in spending on roads, bridges and other infrastructure has pushed up prices for steel and iron ore by as much as 37 percent and the cost of shipping commodities has more than doubled.

State-owned China National Petroleum Corp., the country’s largest oil producer, also is looking overseas in search of oil fields. China this week agreed to provide $25 billion of loans to Russia in return for oil supplies for the next 20 years.

Australia already has signaled concern that China is buying strategic assets on the cheap. Treasurer Wayne Swan last week tightened takeover laws when Chinalco announced its investment in London-based Rio Tinto, the world’s third-largest mining company.

Swan has the power to reject both that deal and Minmetals’ proposition with Melbourne-based OZ Minerals on national interest grounds. When Peter Costello was Australia’s treasurer in 2001, he blocked Royal Dutch Shell Plc’s bid for Woodside Petroleum Ltd. In 2004, Minmetals failed to reach an accord to buy Noranda Inc. amid objections from Canadian politicians.

Currency Reserves

China’s acquisition hunt is happening as the government ponders where to invest its currency reserves, which increased 27 percent in the past year to $1.95 trillion, about 29 percent of the world’s total. The country already owns $696.2 billion in Treasuries, about 12 percent of the U.S.’s outstanding marketable debt and has been stung by losses of more than $5 billion on $10.5 billion invested in Blackstone Group LP and Morgan Stanley in New York and TPG Inc. in Fort Worth, Texas, since mid-2007.

“China has burnt its hands in the past buying liquid assets like Blackstone, but here they have the chance to buy tangible, useful assets,” said Professor Liu Baocheng at the University of International Business & Economics in Beijing. “There’s no point putting money in the bank or in deposits with low returns.”

China consumes over a third of the world’s aluminum output, a quarter of its copper production, almost a tenth of its oil and it accounts for more than half of the trading in iron ore. Last year, China bought $211 billion worth of iron ore, refined copper, crude oil and alumina....