I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.- Thomas Jefferson.

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Wednesday, February 23, 2011

Embry - Short Squeeze in Silver, Manipulators Getting Overrun

With gold and silver pulling back, King World News interviewed John Embry, Chief Investment Strategist at Sprott Asset Management. When asked about the move in gold and silver Embry stated, “We have been anticipating this for some time which is why we have had such high price targets for both gold and silver. Without exception everybody is saying that demand is off the charts for both metals.”

John Embry continues:

“There is a tremendous bid in the gold and silver markets at a time when the market is tight in these metals and there is a concentrated short position in both gold and silver. The Middle-East crisis has come out of left field and this is creating additional bidding in the precious metals markets. To be bearish gold and silver is to be bullish paper currencies and in view of QE and sovereign risks, that is a terrible bet.”
When asked about silver Embry remarked, “Eric Sprott and I have always contended that in silver if you get some serious physical buying in the absence of above ground inventories that are available for sale, that the paper manipulators would basically get overrun. Right now we are in the process seeing that unfolding.
I definitely think a short squeeze is underway in silver. The evidence will be if the price of silver moves sharply higher from here. I think you will know if you have a real short squeeze if this thing starts piling on gains in the next week.
The price of silver has been held back for so long and this is not something that can be cured with existing mine production because mine production has been sticky. People are coming after silver as a monetary asset because it’s so much cheaper than gold and this is creating an explosive situation.”

When asked about gold specifically Embry commented, “The Asians are looking at the new budget proposal from the US and saying, “Get me out of the dollar.” The other thing that is amazing to me is the sentiment is so bad in gold. There is remarkably little interest in gold, it is almost surreal.”

Embry noted that for the big gains investors should look to the mining shares, “It is time for the investors who really want torque to buy the precious metals mining shares. I think based on ratios that I follow that the shares are at one of the cheapest points vs the metal in recent history. I could see trading days where some of these shares will be up 20% to 25% at a time.

As bullish as I am on the mining shares, I was deeply concerned with the provision in the budget where President Obama was looking to take a 5% gross royalty from mining on public lands. It is a cash grab and nobody is looking at the fact that the return on equity has been awful for the last 20 years.

I think that this is a very short-sighted attitude. The psychological effect of this could have a net negative impact on overall economic activity. It is simply too early in this bull market to put these kind of pressures on mining companies when they have had such a terrible ROI for so long.
I think there is enough upside in the prices in mining shares that they will do fine, but this is just a retrograde move at this stage.”
One of the things I have always liked about John Embry is that he speaks with tremendous authority and conviction. You have to remember that Embry was the first analyst from a major firm to proclaim a bull market in gold. He has remained steadfastly bullish during this cycle and he has also put his money where his mouth is.

Eric King


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