Like many natural resource company stocks, especially uranium stocks, Powertech Uranium [PWE.to] had been stuck near its 52-week low for months. However, when peer uranium juniors started to fly, many now up 100% to 500% from 52-week lows, Powertech’s shares languished. This, despite the fact that Powertech recently received great news from the NRC on the environmental permitting front.

Here’s a quote from a January 30, 2014 press release from Powertech,

“A proposed uranium mine in South Dakota [Dewey Burdock] cleared a key regulatory hurdle Thursday when a federal agency issued a favorable environmental assessment of the project. The U.S. Nuclear Regulatory Commission said its final supplemental environmental impact statement found there is nothing that would preclude licensing the proposed Dewey-Burdock mine. The report said the project would generally have small impacts on the area’s soil, water, air and economy.”

THE BEST YET TO COME?

Importantly, Wednesday’s news [See Press Release] regarding the proposed acquisition of Alex Molyneux’s Azarga Resources, coupled with the meaningful under-performance of Powertech’s stock and the favorable NRC ruling, could set PWE.to up for a powerful move. If approved, the new entity to be called Azarga Uranium Corp., “AUC” would have ample liquidity through cash / undrawn debt facilities totaling US$13 million and attributable uranium resources of approximately 94 million lbs. It would be very difficult for me to overstate the significance of the pro forma $13 million of unrestricted liquidity, equal to approximately 25% of the upfront capital required to get Dewey Burdock into production. A larger, more diversified Powertech/Azarga would find it easier to finance Dewey Burdock with a prudent mix of debt & equity.

MARKET REACTION STRONG

The market appears to have taken notice. Almost 5 million shares of Powertech traded on BOTH Wednesday AND Thursday, over 9 million shares in total…that’s roughly 15 times the daily average before this week’s news. Alex Molyneux has a large number of contacts, friends & family in Hong Kong (where he’s based), Singapore, Malaysia and Australia. Presumably, a lot of his network doesn’t have a trading platform that accommodates the purchase of Canadian-listed stocks.

However, if Alex’s entourage gets behind PWE.TO, the stock could soar. I think we’ve seen a few big fish already in the market, accounting for a significant portion of the heavy volume on Wednesday and Thursday. I caught up with Mr. Molyneux Thursday night (New York time). Asked about the reaction to the Powertech/Azarga news, he said,

“I am quite pleased the market appears to favor the proposed merger. I’ve received several phone calls and emails requesting more information. It’s clear to me that investors are looking for pure-play uranium exposure but they need some critical mass and solid funding in place to know they have safe leverage to the upside when it comes. Azarga Uranium Corp., which will have ample liquidity and exposure to multiple uranium projects, could do extremely well.”

BRIEF REVIEW OF HIGHLY COMPELLING DEWEY BURDOCK PROJECT

As a reminder, Dewey Burdock is without question one of the strongest near-term (2016 or sooner) U.S. ISR projects. Peer assets just entering production now, or coming online in the next few years, have one or more of the following characteristics– smaller size, lower ore grade and higher costs. Dewey does not have the lowest cost or the largest deposit, but it has by far the highest ore grade… from 30% to 300% higher! For example, although Australian-listed Peninsula Energy’s proposed Lance project in Wyoming is meaningfully larger, Lance’s ore grade is 0.05% (500ppm) vs. Dewey’s grade of 0.21% (2,100ppm). Among the 8 new, or soon-to-be producing, ISR projects, Dewey’s forecasted 48% IRR is among the best of the bunch.

HUGE DE-RISKING OF, AND VOTE OF CONFIDENCE IN, POWERTECH’S PROJECTS

AUC would hold the legacy Powertech assets, [including Dewey Burdock, the highest grade, near-term ISR development project in U.S.] but with much stronger financial backing to get the assets into production. Further, it would enjoy significantly greater geographic and operational diversification, including a 34% stake in Black Range Minerals’ 91 million pound uranium resource in Colorado, access through Black Range to a potentially game-changing uranium mining technology, a 12% stake in a company with an ISR project in Turkey boasting a 103% IRR (@ a $60/lb uranium price) and the largest known historical uranium resource in the Kyrgyz Republic. [NOTE: the Kyrgyz Republic borders Kazakhstan, which is by far the largest producer of uranium on the planet.]

The proposed AUC would form a highly significant platform for acquiring additional uranium assets, including acquiring junior peers outright. Over time, AUC could become the most globally diversified pure-play uranium company in the world…. Certainly the most diversified small-to-mid-cap player.

A company that possesses similarly broad diversification, through a portfolio of equity holdings in public uranium companies, is Mega Uranium. Mega’s stock has quadrupled in the past 3 months! As evidence mounts of a global nuclear renaissance, most notably from recent positive news out of Japan, I strongly believe that Powertech, soon to be Azarga Uranium Corp, has substantial room to rally.

Article written by Peter Epstein, Guest Contributor to MiningFeeds.com

Disclaimer

Peter Epstein owns shares of Powertech Uranium, but has no prior or existing relationship with Powertech or Azarga Resources. The following views are entirely his own. Peter Epstein is not an investment advisor, please do your own due diligence.

In short: In our opinion short positions (half): gold, silver, and mining stocks are justified from the risk/reward perspective.

The entire precious metals sector declined yesterday, even gold. Has the situation changed enough to double the short position? Let’s take a closer look (charts courtesy of http://stockcharts.com).

Click here for reference chart.

Miners once again moved lower by more than 1% and the volume – while still not huge – was higher than on the previous day. Increasing volume during a downswing is a bearish sign, especially that the day before the decline started we had seen a move up on tiny volume.

Miners moved below the October 2013 high, but they did not move below their previous local low (the most recent one) and back below the 50% Fibonacci retracement level. The situation is bearish, but it doesn’t look that it deteriorated.

Click here for reference chart.

Gold moved lower on relatively high volume, which is a bearish sign. We also saw another sell signal from the RSI and Stochastic indicators. The situation on the above chart has clearly deteriorated, but the move lower has not been significant enough yet to make the situation extremely bearish.

Click here for reference chart.

Yesterday, we wrote the following about the Euro Index:

The situation on the currency markets remains unchanged. The Euro Index is likely to decline based i.a. on the long-term declining resistance line that was recently reached, but not broken.

Even if we had assumed that there was a small breakout above the declining resistance line, it would have been invalidated yesterday. The short- and medium-term implications are bearish for the Euro Index and for the precious metals market. They will become stronger if we see continuation of the decline in the former.

As one might have expected, a decline in the Euro Index meant a move higher in the USD Index. That’s not a surprise as the US Dollar was right at the medium-term support line and was likely to move higher once again shortly. Quoting Tuesday’s alert:

The medium-term USD Index chart suggests that we are still likely to see much higher USD values. The index is right at the long-term (or medium-term depending on one’s approach) support line and after a breakout. It’s an index just waiting to start a big rally. A rally in the USD Index to the 85 level or so would likely have a devastating effect on the precious metals market and this type of rally could be seen based on the above chart.

If the USD really rallies and gold refuses to decline, then we will be happy to conclude that the medium-term decline in the precious metals market is probably over. It simply doesn’t seem to be the case just yet.

The above remains up-to-date.

In Monday’s alert we commented extensively on the juniors’ outperformance and its implications. We summarized that it was not necessarily a bullish sign and that the last 4 years’ performance suggested that we were approaching a local top. We also wrote that the sell signal from the Stochastic indicator would be an important event – we wrote that a sell signal from Stochastic could actually trigger a decline on its own in the current state of the market.

We have just seen this signal, so the situation has further deteriorated from this perspective.

Last but not the least, we would like to discuss the situation in the silver market. We previously wrote about the 50-week moving average that was likely to keep the rally in check. Yesterday, silver invalidated a small, unconfirmed breakout above this resistance and at the same time moved back below the 2008 high. The bearish implications of these events will be much stronger if silver closes the week below these levels, but the outlook deteriorated somewhat based on yesterday’s price action anyway.

Also, please note that the volume is already quite significant for this week even though only 3 trading days have passed. Silver is declining this week, so this is a bearish indication.

All in all, we can summarize the situation by writing once again what we wrote yesterday: with the currency market being a major (!) threat to the precious metals market’s rally and indications that this market will move lower at least in the short run, we think the short positions are justified. The situation has deteriorated somewhat based on several signals, but it doesn’t seem to become extreme enough to justify doubling the short positions just yet.

To summarize once again:

Trading capital (our opinion): Short position (half): gold, silver, and mining stocks.

Stop-loss details:

• Gold: $1,366
• Silver: $22.60
• GDX ETF: $28.90

In short: In our opinion short positions (half): gold, silver, and mining stocks are justified from the risk/reward perspective.

Gold, silver and mining stocks didn’t do much on Friday, so what we wrote in Friday’s alert is generally up-to-date. However, since the week is over, we have weekly closing prices and volume levels. One of the ratios that we monitor provides a very significant indication as far as weekly price changes are concerned. Let’s take a closer look (charts courtesy of http://stockcharts.com).

Click here for reference chart.

This is the juniors to stock market ratio – more precisely, the GDXJ ETF (proxy for the junior mining stock sector) to the SPY ETF (proxy for the S&P 500 Index) ratio.

What does this have to do with gold?
Much more than one might expect. Let’s keep in mind the following about precious metals junior mining stocks and investors in general:

• Juniors are less likely to be held by institutional investors than individuals (mutual funds, for instance, often are allowed only to invest in big, senior companies, listed on major stock exchanges)
• Generally, individual investors tend to depend more on emotions than financial institutions do
• When the sentiment peaks, local tops are formed

Connecting the dots, we might expect juniors to perform particularly strongly right before local tops. Taking into account the fractal nature of the markets, we might also expect that this phenomenon to be present on a short- and long-term basis, but since large movements in sentiment are easier to detect from the long-term perspective, this type of analysis might be particularly useful in detecting more important tops.

Ok, but why divide juniors by other stocks?

Because that will allow to better focus on this sector’s performance with regard to precious metals’ price moves. In case there is a broad rally in the stock market, it could also lift mining stocks, including juniors, which could incorrectly make us draw conclusions about the precious metals sector. By dividing juniors by the stock market, we get the price of juniors without the impact of the general stock market. Technically, we get a ratio, but the above is a convenient way to think about it.

Moreover, the price is not the only thing that is divided. The above chart includes volume, but since a ratio is not traded by itself and doesn’t have volume of its own, it’s not a volume of ratio, but the ratio of volumes. Again, this will tell us when the volume in the junior sector was particularly significant but not because of huge volume across the board.

So, theoretically, if the juniors to stocks ratio rallies sharply then we might be looking at a local top. Does it work in practice?

There are no guarantees in any market, but it certainly looks this way. We included a 4-year chart and marked sharp rallies of the ratio – see for yourself. We put the ratio in the background (candlesticks) and we put the gold price (orange line) to make it easier for you to check the signals’ performance. There are actually two different ways to approach the ratio and they both seem to work. One of them is the ratio itself and the second comes from the analysis of volumes.

Rectangles mark situations when the ratio moved much higher in a short period and then at least paused. It’s easier to observe these phenomena using indicators: ROC (Rate of Change by definition should be very useful here) and Stochastic. We focused on the times when Stochastic was above the middle of its trading range (above 50) and in most cases, the ROC was above 10 as well. The only exception is the early 2012 top, which was included because the rallies in gold, ratio and indicators were clearly visible at that time.

Generally, all (7 out of 7) areas include either a relatively small or a significant decline. Prior to the 2011 top, the declines were local and after the 2011 top, the tops and following declines were major.

The second way to examine the chart is to look at times when volume increased on a relative basis. This is another way to detect increased interest in the juniors sector.

There were 4 cases in the past 4 years, which we marked with black ellipses. We didn’t mark the areas when volume was gradually increasing – only times when it increased quickly. Again, in call cases declines or pullbacks followed shortly after the volume had increased.

What about the current situation? The volume first increased in January, and in the past 2 weeks it was simply huge. As far as the first approach is concerned, we have both indicators at their previous highs and the ROC indicator has already declined slightly. The Stochastic indicator hasn’t flashed a sell signal yet, but if gold at least pauses or declines next week, we will likely see one and then the analogy to previous local tops based on the GDXJ:SPY ratio will be very strong. It’s already strong but a sell signal from Stochastic could actually trigger a decline on its own in the current state of the market.

What does it all mean? Most importantly, it means that not all is as bullish in the precious metals sector as one might think. It seems that the recent rally caused investor sentiment to be too optimistic and this is likely to cause at least a correction.

To summarize:

Trading capital (our opinion): Short position (half): gold, silver, and mining stocks.

Stop-loss details:

• Gold: $1,346
• Silver: $22.36
• GDX ETF: $27.9

Long-term capital (our opinion): No positions.

Thank you.

Przemyslaw Radomski, CFA of Sunshine Profits, Guest Contributor to MiningFeeds.com

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Not much happened in gold and mining stocks this week, but silver moved higher. We sometimes saw this type of divergence right at the local tops, but it was not an extremely reliable sign. Let’s take a closer look (charts courtesy of http://stockcharts.com).

Click here for reference chart.

As the situation didn’t really change yesterday, the comments that we had made previously didn’t change as well:

Gold moved higher and the rally above the declining resistance line is now quite significant. However, it’s overbought on a short-term basis. Taking the RSI indicator into account, it’s even more overbought than it was in August 2013, when it was trading $100 higher. The Stochastic indicator is about to flash a sell signal as well. This suggests that we will likely see either a beginning of a new big decline or a correction in the rally (if one has really already begun). Either way, it looks like there soon will be a much better opportunity to go long than the one we have right now.

Silver has finally moved visibly higher. Friday’s rally took the white metal above both the rising and declining resistance lines and it moved higher this week as well. Did the outlook change substantially based on that? Not necessarily. The move was sharp and silver has been trading above the declining resistance line for just a few days now.

More importantly, silver moved to its 50-week moving average, which served as strong support and resistance numerous times. The last time that it served as resistance was right after silver rallied sharply after the previous long-term cyclical turning point.

Consequently, even though silver’s recent rally is impressive, let’s keep in mind that the same (actually, the rally was much more significant back then) was the case in August 2013 and was still followed by declines. In the coming years, silver will probably rally very far – well over its 2011 high. However, as far as short-term is concerned, it seems that traders and investors might expect at least (!) a short-term decline.

The third and final metal that we would like to feature today is palladium. The situation hasn’t really changed this week, but the implications for the precious metals sector remain in place.

Palladium moved to its declining resistance line without breaking it, and if you’ve been following our analyses for some time, you know that this has been signaling local tops in the entire precious metals sector. Consequently, whatever happens months from now, it still seems that we will see a short-term downswing shortly.

All in all, it looks like we are likely to see a correction or another big decline soon. Let’s see if this outlook is consistent with the situation in the currency markets.

Much of what we wrote on Friday remains up-to-date:

It’s been over a year now since the USD Index broke above the long-term resistance line, which is now support. The index is therefore likely to move much higher, probably to the 85 level. The last time we saw a rally of similar magnitude was in the first half of 2013, which is also when the precious metals sector plunged.

On the previous chart, we see that the rally could begin shortly and on the above chart we see that when it really starts, it can be quite significant.

The impact on the precious metals market is likely to be major and negative, unless metals and miners prove – and do so for more than a week or two – that they can rally along with the dollar’s upswing (like it was the case in early 2010).

On the medium-term basis, we have the US currency at important support and also at the psychologically important 80 level. It definitely supports at least a correction in the USD Index and the precious metals sector, and it could also cause a bigger decline…

… Especially that the short-term support line – based on the October and December 2013 lows – was also reached.

There’s one more important line that was just reached.

The Euro Index is now even slightly above its long-term resistance line. This line kept rallies in check and the situation now is similar to what we saw in December 2013.

This further supports the bearish outlook for the precious metals market, at least for the short term as in the recent weeks short-term moves in the Euro Index and in gold, silver and mining stocks have been quite in tune with each other.

At this time precious metals are amplifying euro’s gains but if the decline in the euro is huge, the above strength will likely not be enough to prevent a decline in metals and miners. The point is that the resistance is significant enough to generate a big downswing.

Overall, what we wrote about the current situation in the previous alert remains up-to-date:

The “problem” with gold’s rally is that it is very unlikely to continue unless the USD Index gives in and declines below the medium-term line. We already saw a move very close to it yesterday and in today’s pre-market action. The USD is after a long-term breakout, and at medium-term support, which is a powerful bullish combination for the coming weeks.

If the USD Index breaks lower or it rallies strongly (not a daily rally, but at least a weekly one) and gold refuses to decline, then we will have a good indication that it’s safe to jump back into the precious metals market. At this time, we have an encouraging rally, but we also see a major threat (the USD is likely to start a significant rally) that is just waiting to impact the market.

If the USD rallies – and it seems likely that it will relatively soon – we will quite likely see invalidations of breakouts and subsequent plunges. This will be likely until either the USD breaks below the medium-term support or precious metals prove that the dollar’s substantial rally is not a major threat.

Even if the next big upswing in the precious metals market is underway, we are still likely to see a decline shortly as the situation in gold is now overbought on a short-term basis (…)

We also have bearish indications from the palladium market and a quite significant resistance on the silver market in the form of the 50-week moving average.

Przemyslaw Radomski, CFA of Sunshine Profits, Guest Contributor to MiningFeeds.com

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Technology metals – also referred to as tech metals – are a relatively new investment option that, until recently, have only been available through exchange traded funds (ETFs). With the proliferation of the mobile electronics market over the past thirty years, demand for tech metals has increased exponentially. Even with the increased demand, many investors still have questions about this unique, emerging sector. Let’s take a moment and demystify the tech metals market.

The term ‘tech metals’ is used in different ways by different people but, for our intents and purposes, we’ll define it as metals used primarily in industrial (read technical) applications. These industrial metals are divided into three categories: Precious Metals, Rare Earths and Specialty Metals.

Precious metals include gold, silver, platinum, palladium, rhodium, ruthenium, iridium and osmium. Rare earth elements include cerium, europium, neodymium, samarium, and thirteen others. Specialty metals are different from precious metals and rare earths in the fact that many of them don’t occur in nature in their pure form. This category of tech metals includes gallium, indium, germanium, and thallium.

We call the tech metals an emerging market because, even though many of these metals have been in use since the middle part of the twentieth century – compare that to gold and silver which have been sought after for millennia – they didn’t really hit their stride until closer to the twenty-first century. The intense manufacture of electronics during World War II, and the cold war that followed, found uses for many of these previously unused metals but it wasn’t until the late twentieth century that the use of these metals in the manufacture of mobile electronics really got going.

The twenty-first century has ushered in a sea change of profound proportions from which there is no turning back: miniaturized electronics, large scale televisions, electronic data processing, and personal communications have become a way of life and our dependence on them – for good or bad – has become set in stone.

This brings us to the current state of the tech metals market. Unfortunately, information about the market can be contradictory, but if we take a step back and look at the big picture, we can get a better perspective of the sector.

Demand for tech metals from the automotive industry continues to rise. Eighty percent of all platinum group metals – as well as a large percentage of specialty metals and rare earths – are used in electronic components, LEDs, and batteries. The path the automotive industry chooses to tread will largely dictate which metals will see higher use. If electric-powered vehicles become the norm, battery materials will become the metal of the moment. If hydrogen-powered vehicles take over, the platinum metals will be in the spotlight. But as one expert asked, “Does it have to be one or the other?” In other words, does the demand for one group of tech metals necessarily exclude the others? The obvious answer is of course not.

If the automotive industry is first in the tech metals market, the mobile phone/tablet industry is a close (read very close) second. The electronics market in general relies heavily on the application of tech metals to everything from battery production to screen production to the layout of all internal components. And with the number of phones and tablets exceeding the number of users – and still increasing – the electronics industry will continue to influence the tech metals market for some time to come.

When we identify the major players in the tech metals market, it becomes obvious that there is a very real potential for the market to explode as innovation and demand drive the sector forward (and upward).

This potential is tempered though when we examine the physical distribution of the existing deposits of tech metals. China currently sits on top of the majority of world reserves of the technology metals. In conjunction, China produced 97% of the world rare earth elements despite having only 36% of the reserves. And while 36% may not seem like a lot, it’s a veritable gold mine (no pun intended) when compared to the next two highest reserve percentages: 19% located in western Russia and 13% located in the U.S. Is it really any wonder that most of the major electronics companies (i.e., Microsoft, Apple, Sony) manufacture in China?

When this and other data is analyzed and extrapolated forward we get a rosy picture of the tech metals market…at least for investors. Increased reliance on the tech metals for electronic manufacturing – and the increased demand from consumers for the resultant technology – has strained supply of these ‘rare’ metals. Concern is mounting that the world may soon face a shortage of the tech metals – rare earths in particular.

China has done little to mitigate these concerns; going so far as to exacerbate the situation by reducing export quotas. The result – until new sources are found and mined – will undoubtedly be an increase in the price of both the metals themselves and the products in which they are used.

The choice whether to get involved in the tech metals market is entirely up to you. Whichever direction you’re leaning, research is always advisable and even necessary. Ask yourself, “Why invest in the technology metals?” “What are the critical factors influencing the market right now?” “What is the best investment vehicle and which metals are the easiest to invest in?” Answering these questions can provide a wealth of relevant information. Keep in mind 1) who the major players in the game are and 2) the fact that technology demands are not going away anytime soon. Consider the availability of the tech metals and who holds “the key to the kingdom”, so to speak. Regardless of your decision, the future looks bright for the tech metals industry.

Take a look at the literature over the last three years and you’re likely to come away just as confused as when you started. “The future looks bleak.” “Potash capacity expected to rise 37% between 2011 and 2015.” “Uralkali declares price war on potash market.” “Potash demand projected to increase 3.1 percent between 2011 and 2015.” “Potash markets peaked in 2011.” “Potash: 2013 the Year of Demand Recovery.” And if that wasn’t enough fuel for confusion, “Real estate prices in Canada soaring on the back of petroleum and potash production.” So what’s going on to generate such disparate opinions?

Let’s rewind to 2011 and track this through. In that year, the Food and Agriculture Organization of the United Nations released a report entitled, Current World Fertilizer Trends and Outlook to 2015, in which they reported:

“Consumption/demand projections based on agronomic considerations and other market factors indicate the world potential balance of potash to increase from 42,700 (thousand tons) in 2011 to 59,600 (thousand tons) in 2015,” and the aforementioned, “…demand for potash is projected to increase by 3.1 percent between 2011 and 2015.”

Granted, it was just a projection, but based on market activity at the time, it was entirely reasonable. Then the bubble burst. Emerging markets – unbeknownst to all at the time – topped in late 2011 and began a precipitous decline through the start of 2012. The world looked bleak.

Chinese and Indian contracts expired and – as of November 2012 – had not yet been renewed. That was a big hit to the market. China accounts for about 20 percent of potash consumption, followed a close second by the Indian subcontinent. By their actions, these two major consumers took the potash market hostage.

Fast-forward to the beginning of 2013. Potash shipments for 2012 were estimated at 50 to 52 million tons. Not too bad. With Chinese and Indian contracts nailed down, market insiders looked ahead to 2013 and forecasted a global potash shipment increase to 56 – 58 million tons. 2013 was indeed shaping up to be the year of demand recovery.

Mid-2013, however, still yielded headlines like, “Potash Future Looks Bleak.” Then, in August, Uralkali, a large Russian potash producer, made a bold move, switched their business strategy, and opted for volume over price. Something was going on. Confused? Not really surprising. This shift would serve to increase the total potash available, drive prices down, and introduce competition into the market. These lower prices coupled with competition could eventually lead to lower food prices as farmers pass on their savings. So does this signal something good or something bad for the potash market? Looking at the numbers, it’s hard to tell.

Nevertheless, major players seemed to follow suit and production ramped up. We see evidence of this production through unlikely and indirect methods – like studying sunlight by looking at the moon. The Vancouver Sun reported early last month, through the Saskatoon Housing Initiatives Partnership, that real estate markets are booming. They are booming because of potash production. All the people involved in potash production – from land holders to day laborers – are benefiting from this move. As a result, real estate markets react accordingly. Interesting, no?

Though this headline may seem incidental to a discussion of commodities markets, it actually strikes at the heart of the matter: fertilizer is intimately connected with people…and there are a lot of people on the planet right now.

Last year, world population reached 7.2 billion. That number could increase to 8.2 billion by 2025 and reach 9.6 billion by 2050. Population increases demand food production increases. Dramatic population increases – such as those forecasted – demand dramatic food production increases. And dramatic food production increases inexorably lead to dramatic fertilizer production increases. Fertilizer is intimately connected with people.

But that’s not all that’s going on here; population is only one variable in this complex equation. Not only is population increasing but the wealth of that population is increasing in tandem. This new-found wealth is used to move many large groups of people away from simple subsistence diets to more complex and varied diets. As a result, food demand increases.

In addition, the so called “middle class phenomenon” is now in full effect. These emerging middle classes – which will almost triple in the next 15 years – have begun altering their eating habits even further to incorporate foods that require more fertilizer-intensive agriculture. People demand food. Food (production) demands fertilizer.

When we examine fertilizer production and demand through the lens of population growth rather than through the lens of market trends, we see a much clearer picture: potash demand will go up. It’s just a matter of time. Remember, over the long run (read five, ten, fifteen years), markets tend upward. There may be valleys along the way but the elevation averages up. But when time and investing are thrown into the same shaker, patience becomes all important. Several years ago, I remember seeing a graph reporting the performance of the mutual fund market over a forty or fifty-year period. Though there were definite ups and down (some large some small) along the way, the general trend was an increase from left to right. But to reap the rewards of this trend required the same thing that investing in the current potash market: patience and a willingness to go long.

So buy, sell, or hold? In the end, that’s entirely up to you. By all means, do your research but don’t get bogged down in the market numbers. It’s easy to get confused with all the contradictory information being propagated around the internet. Do what we did above and look at the problem through one lens at a time. Reducing the problem to its essential pieces can make for much simpler analysis and easier decision making. And remember to keep in mind what is really driving fertilizer production: an increasing population demanding more and more food.

The “Silver Guru” David Morgan is the author of the investment newsletter, The Morgan Report, which covers economic news, the currency market and reasons for investing in precious metals. He is a regular commentator on the gold and silver markets and has been featured on CNBC, Fox Business News and BNN in Canada.

He sat down with Cambridge House International for a lengthy discussion on topics such as why 2013 was such a poor year for silver, why he feels the precious metal will enjoy a comeback in 2014, as well as his doubts about the U.S. economy’s recovery.

On January 29, Chairman of the Fed announced that the Federal Reserve would continue with their tapering plan and cut QE by a further $10 billion to $65 billion in bond purchases. The move unsettled markets and specifically brought attention to whether the growth that emerging markets had been enjoying in the past year or more had any real or sustainable foundation.

Less than a week later, on Monday, February 3, the Bernanke Era at the Fed ended as, after eight years as Chairman of the Federal Reserve, Ben Bernanke stepped down from office to be replaced by Federal Reserve Vice Chair, Janet Yellen.

So begins a new era in the Federal Reserve and the question on everyone’s mind now is how will Janet Yellen’s fiscal policy and actions compare with Bernanke’s and, specifically, how will she favor – or not favor as it were – the continued QE tapering that’s expected in 2014.

Make no mistake about it, on Wall Street Janet Yellen is firmly placed in the dove camp and, indeed, many of the decisions she’s made as a member of the Fed in the past point to the same. Case in point, in a February 2013 speech, Yellen commented on her concern over long-term U.S. unemployment, saying that it is “… devastating to workers and their families.” And a month later, when speaking about the stubbornly high U.S. unemployment rate, Yellen remarked to the National Association for Business Economics that, “I believe it’s appropriate for progress in the labor market to take center stage in the conduct of monetary policy.” To add further fuel to the argument supporting an incoming dovish Yellen, in President Obama’s remarks given in his October nomination of Yellen as new Fed chairman, President Obama stated “[Janet Yellen] is committed to increasing employment, and she understands the human costs when Americans can’t find a job.”

However, on the other side of the coin, there have been instances in Yellen’s career that point arguably to a more hawkish fiscal point of view. Take, for example, how in a Fed meeting in 1996, Yellen warned Greenspan of a threat of inflation. And indeed, some believe that if the U.S. recovery continues with its current upward momentum, and if unemployment rate sees a significant dip, Yellen may turn from a dove to a true fiscal hawk.

But, until that time, the wager that Yellen proves to be fiscally more concerned with unemployment than inflation and, at the same time, the wager that Yellen continues with the Fed’s rollback of its stimulus program are both good ones. With this in mind, the question of whether or not Yellen continues with Bernanke’s QE tapering can be answered with an affirmative. And the real question then is how this will be done and whether a true and final Fed QE exit strategy can be executed while maintaining market stability.

In 2013, Bernanke’s announcement of the Fed’s intention to taper its stimulus program inspired a brief semi-panic in the markets. And as evidenced by the market’s quick frothing in response to Bernanke’s January 29 announcement of the $10b in QE tapering, executing a continued exit strategy for the Fed’s asset purchase program, especially when done under the authority of a new chairman who has yet to prove herself and who has yet to establish any sort of rapport with Wall Street, may prove very difficult indeed. Future announcements of continued Fed QE tapering may lead to much more dramatic market fluctuations and, in a situation such as this, investors may return to seeing gold as a safe haven investment.

However, as mentioned before, there are two big unknowns when making any sort of Fed and market predictions right now – one, the unknown of how dovish Janet Yellen will truly end up being and, two, the unknown of how robust of a recovery the U.S. will see in its labor market this year, both factors which play hand-in-hand. Without a firm and sustainable drop in the country’s unemployment rate, Yellen’s dovish outlook may lead to a delaying of further Fed QE tapering, and, in turn, the economic acceleration we’ve seen in the past year may continue with little disturbance from the Fed. In an environment such as this, and if emerging markets successfully re-stabilize, investors may take on a more bullish attitude.