By Eric McWhinnie

It is no secret that precious metal miners have lagged behind bullion prices.  While gold is up 16% this year, gold miner ETFs such as the Market Vectors Gold Miners ETF and Market Vectors Junior Gold Miners ETF are actually down 8% and 24%, respectively.  Newmont Mining, one of the world’s largest gold producers, has been returning value to shareholders by offering a gold-linked dividend.  Furthermore, the miner announced last month that it may consider a share buyback program if the disparity in bullion and equity prices persist.  The situation in silver is similar.  Silver prices are down about 3% for the year, while the Global X Silver Miners ETF is down about 16%.  However, the recent earnings report fromEndeavour Silver could spark the long overdue rally in precious metal miners.

Endeavour Silver is a mid-cap silver miner that is focused on the growth of its silver production, reserves, and resources.  On Tuesday, the company reported impressive third quarter results.  Revenue surged 93% for the quarter to $38.8 million.  The surge was a result of both higher silver and gold production, and also higher realized metal prices.  Last week, the company’s CFO Dan Dickson explained, “We’ve seen seven consecutive years of production, reserve, and resource growth, and four consecutive years of revenue cash flow and earnings growth. In that time, we’ve seen falling cash costs, and we expect to continue that for a while and see our profit margins improve even further.”

Hot Feature: What Does the Unemployment Picture Mean for Precious Metals?

Rising input costs are one of the possible explanations as to why precious metal equities are lagging bullion price increases.  Rising oil and labor costs are major expenses for miners. However, Endeavour is overcoming these obstacles.  The company has increased gross margins for the past four consecutive years.  Cash costs on a by-product basis have decreased from $9.38 in 2007, to only $5.71 in 2010.  Dan Dickson elaborated, “We can’t focus on where the price is when we’re operating, all we can do is focus on the cost. That’s where we put all of our time and effort into at the operations, to make sure we keep tight controls on cost.”  Miners may also be underperforming because investors fear falling gold and silver prices.  However, those closest to the mining industry expect higher prices going forward.  Last month, at the annual Gold Denver Forum, Newmont Mining announced that it expects gold prices to hit $2,300 by next year, while AngloGold Ashanti expects $2,200 gold.

The success of undervalued miners has caught the attention of Sprott Management.  The company said in a September article, “The fact remains that both gold and silver continue to trade well below their inflation-adjusted highs in nominal terms, and the market is now beginning to acknowledge the profit potential that precious metals equities offer at today’s bullion prices.  We believe the equities will offer more upside than the bullion over time.” Endeavour started to receive recognition earlier this year when its shares were first listed on the NYSE.  After the most recent earnings report, shares of EXK traded nearly 3% higher, even though bullion prices were mostly flat.  Today, shares are up another 5% as investors realize the growth story taking place in miners.  Endeavour’s ability to overcome cost issues and industry doubts will prove to investors that miners can be very profitable, despite volatile gold and silver prices.

Investors should realize that pull backs in precious metals do occur, but these declines offer great buying opportunities.  In our September 26 Gold and Silver Premium Newsletter we warned, “Shares of Endeavour look poised to test $7.50-$8.00.” On October 4, shares reached $7.55 before finding support.  After testing our support level, shares have rebounded more than 25% to $10.20.

Why Thousands of TRADERS are using my Trading Signals for ETF’s, Stocks and Commodities

by Karl Denninger
This is an outrage.

Yglesias tells us that some Occupy Wall Street protesters have picked up Ron Paulish monetary ideas — although some know better. I thought I’d say a word about one particular idea that sounds plausible to some people but is actually quite wrong: banning fractional reserve banking.

I know that’s a popular theme among some Austrians. But it’s actually neither a good idea nor even feasible.

The crucial thing is to understand what banks do. And it’s not mostly about money creation! Instead, what banks are for is helping to improve the tradeoff between returns and liquidity.

That’s a very quaint notion.  But were it true there wouldn’t be any such thing as systemic risk!

Why?

Simple: If you only loan against actual asset values there is no systemic risk possible; if you get in trouble you simply sell down the assets until you no longer are.  Since you’ve never “created money” there’s no systemic risk that can arise.  Ever.

Of course this isn’t how it works in the real world today.  That’s the “Bailey and Biddle” model from It’s a Wonderful Life, but pretending that we live in that world today is beyond fanciful.

For proof one need only look at the Credit Card in your wallet – or, for that matter, the student loan.  If you wish to get more esoteric you can look at the Credit Default Swap.

None of these are backed by capital in today’s banking system, but all should be – dollar for dollar.  Why?  Because all are claims on something that does not, today, exist!

That is functionally the precise same act as a naked short.  You put into circulation that which does not exist “on the come” that it will in the future.  In the case of stock that is naked shorted you’re counterfeiting the stock of the corporation in question – you’re representing that you have something to deliver (the stock) but only the company in question has the right to create (by issuance in exchange for capital) that stock.

In the case of naked credit creation unbacked by an asset the bank is effectively naked shorting the currency, betting “on the come” that production will in the future cause the government to issue actual currency with which to make the bet good!

That’s an outrage!  It’s also how we get massive asset inflation.

Krugman knows this, of course.  After all, he has a Nobel Prize and a PhD, right?  He can’t possibly be so ignorant as to claim that banking as currently practiced actually encompasses (mostly) lending against actual assets - that is, liquidity matching for a price – can he?

After all, were this the primary function of banks these days there could never be systemic risk, since lending against assets can’t cause it, as if the person who borrowed doesn’t pay you simply seize the asset and resell it into the market, extinguishing the debt without systemic consequence (the borrower, of course, goes broke by such a process, but that’s the risk of borrowing that which you can’t pay back!)

The claims of charlatans must be matched against the factual record of not only what has occurred before but what threatens to occur now.

PS: This is why I support – strongly – a “One Dollar of Capital” LAW for banks, and why you should too.

Tim Iacono

If yesterday’s big rally did signal that markets have put in their lows for the year, someone should tell retail investors to get on board because, according to this Gallup poll , they were pretty shaken up last month, investor confidence plunging to early-2009 levels.

It should come as no surprise that two-thirds of the survey respondents said they feel “little or no control in their efforts to build and maintain their retirement savings in the current environment”, but Fed Chief Ben Bernanke’s low interest rates have forced many of them to hold their nose and stay in the market in hopes of higher returns.

The potential good news here is that markets last reached current levels in February 2009 just before one of the biggest stock market rallies in history that began in March.

Dave Banister – www.MarketTrendForecast.com

The prevailing universal sentiment is neutral to bearish by advisors and the general investing public.  Who can really blame them given the Euro-Zone mess, the potential bank contagion collapse effect, and the weak economic trends both here and overseas.  However, the work I do is almost entirely behavioral based analysis looking at crowd or herd behavioral patterns.  Right now, things are adding up to a market bottom as early as the October 7^th-11^th window of time and no later than October 28^th . The figures I have had for a long time are 1088 for a bottom with a possible worst case spillover of 1055-1062 in the SP 500.  We are already eyeing the Gold stocks as bottoming out as well and have begun to nibble and will add on further dips.

Let’s examine some of the evidence and then look the charts as well:

1. Sentiment in recent individual investor surveys had only 25% of those polled bullish. Historically that average is 39% or higher.
2. The volatility index has been pegging  the 43-45 window recently and historically markets have major reversals anywhere from 45-50, with rare cases of that index  going over 50 without a major reversal
3. The German DAX index is carving out what looks like a bottom channel, and if it can hold the 5300 plus ranges, it could be a leading indicator of a US stock market run
4. Seasonally, markets tend to bottom in the September-October window with favorable patterns from November into March/April.
5. Historically, markets tend to correct hard with a “New Moon in Libra” which occurred last Tuesday, the same day the market peaked at 1196 and rolled over hard.  They often bottom with the following Full moon, which is scheduled for October 11^th.
6. Elliott Wave patterns I use indicate we are in the final 5^th wave stage since the 1370 Bin Laden highs, with a gap in the SP 500 chart at 1088 from September 2010 still to fill. That gap happens to coincide as 78.6% Fibonacci retracement of the 2010 lows to the 2011 highs.  It’s also has a 50% Fibonacci correlation with the 1356 high to 1101 swing move this summer.

Bottom line is the SP 500 has withstood a ton of pots and pans and bad news over the past 8 weeks.  The market tends to price in a soft patch in the economy way before it becomes evident in the data. To wit, when we topped at 1370 in May of this year, it was an exact 78.6% retracement to the upside of the 2007 highs to 2009 lows.  The pullback to 1101 is an exact 38% Fibonacci retracement of the 2011 highs and the 2009 lows.  Markets are not as random as everyone things, and if you can lay out a roadmap in advance and understand where key pivots are, you can swing the opposite direction of the herd and profit quite handsomely.  This is what I do every week at my ActiveTradingPartners.com trading service; go against the crowd for handsome profits.

Below are two charts showing two likely outcomes in the SP 500 index in the coming several days to few weeks:

Forewarned is forearmed as they say.  If you’d like to stay ahead of the curve on Gold, Silver, and the SP 500 on a consistent basis, take a look at www.MarketTrendForecast.com, where you can sign up for occasional free reports and/or take advantage of a temporary 33% off coupon to join us!

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