Today In Silver

Dr. Ron Paul, U.S. Representative from Texas, wants to have an audit of the gold held at Ft. Knox that is under the supposed control of the Federal Reserve. He even plans to introduce legislation next year to force the Fed to conduct an audit:

“If there was no question about the gold being there, you think they would be anxious to prove gold is there,” he said of the Federal Reserve.

This is not the first time the congressman has made his pitch. “In the early 1980s when I was on the gold commission, I asked them to recommend to the Congress that they audit the gold reserves – we had 17 members of the commission and 15 voted no to the audit,” said Paul. “I think there was only one decent audit done 50 years ago,” he said.

Paging Dr. Paul! Paging Dr. Paul! The U.S. gold reserves held at Ft. Knox and elsewhere are actually under the control of the U.S. Mint, a bureau of the U.S. Treasury Department, and these gold reserves are ALREADY being audited by the independent accounting firm KPMG. In fact, an annual audit has been ongoing for a number of years, first by inspectors of the U.S. Treasury Department since the 1980s (Treasury inspectors are sworn federal law enforcement personnel) with additional audits by independent accounting firms starting in the 1990s.

When KPMG was appointed independent auditors for the 2005 fiscal year, the accounting firm insisted on a revised audit format that involved a complete audit  included accompanying Treasury inspectors on the physical count of bullion in vault facilities at the Ft. Knox and West Point bullion depositories. Prior to this and despite Dr. Paul’s claim that the last audit was conducted in the 1950s, Treasury inspectors had conducted rotating audits of bullion held at the Ft. Knox, West Point and other depositories since the 1980s as part of a comprehensive overhaul of governmental accountability by the Office of the Management and Budget. These audits include test weighing and assays that have periodically revealed minor discrepancies in bullion fineness and weight over the years. Not all the bullion is counted each year, mind you, rather it is done on a rotating basis with Treasury seals being placed on each audited vault. The inspectors check at least on an annual basis that these seals have not been tampered with. According to my reckoning, all vaults should have been initially rotated through a few years ago, which means that the vaults now being inspected are already on their second or third audit pass.

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silverax Windbag Wisdom

In a recent interview conducted by Jeff Clark of Casey Research and self-declared as The Best Gold Interview of 2010, Andy Schectman of Miles Franklin discusses the future supply situation in the retail bullion market. Unfortunately, most people who have been around the block in the gold market will not find his views to be particularly insightful or surprising so we’d like to spice things up a bit by adding our own contrarian arguments and twisted perspective.

Among Mr. Schectman’s not-very-extraordinary claims is that the apparent shortage of gold and silver bullion and the resulting premiums that arose during the financial crisis in 2008 were caused by extremely strong demand from panicked retail buyers. Mr. Schectman then warns us that we should expect more retail shortages in the future. We can’t really argue with his logic but we believe he is only telling half the story given that many dealers were in fact rationing their existing inventories as a result of low bullion prices. Simply put, the dealers were unwilling to sell the shelves bare at prices so terribly low.

While it is true that bullion dealers are running a business like everybody else, most of them are also gold (and/or silver) bugs and consequently have much of their wealth sunk into their business in the form of bullion inventory. That way when the eventual and inevitable price spike to $5,000 gold and $500 silver comes, they can sell it all and retire as billionaires. This might not be the case for the large corporation-style dealers or the tiny numismatic coin shop mom-ann-pops but there are a lot of dealers between those two extremes. Their inventories are typically not hedged or only slightly so. More to the point, these dealers are expecting the big score along the way and would only sell out at a loss under desperate circumstances.

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silverax Windbag Wisdom

Over at Metal Augmentor we recently prepared an updated mid-tier silver producer report in PDF format. Here it is: Mid-Tier Silver Producer Report June 2010 PDF.

We reach basically the same conclusion as in our initial reports — Fortuna Silver and First Majestic get top honors although there is a case to be made for Silver Standard and several of the other companies depending on what you are looking for in a silver producer other than fundamental value. I will note that yesterday Fortuna and First Majestic were top performers among the silver producers along with U.S. Silver, which our report identified as having the greatest leverage to higher silver prices. Coincidence? I think not.

Our report is unlike anything else out there since it is comparative and allows silver investors to analyze a number of different fundamental and valuation measures on a head-to-head basis. Even a venerable and respected analysis such as John Doody’s Gold Stock Analyst looks like doodling with crayons compared to our effort. Previously we published a mid-tier gold report that identified New Gold as an undervalued standout. The company’s chart over the past six months tells the story: our approach works.

Soon we are going to be adding several smaller juniors (Great Panther, Excellon, Impact, Aurcana, etc.) as well as some larger companies (Fresnillo, Silver Wheaton) in an updated silver producer report that will be available to Metal Augmentor subscribers. We are also in the process of updating the mid-tier gold producer report as well as preparing a junior gold producer report over the next few weeks. These reports alone are easily worth ten times more than the measly $107 cost of a one year subscription to Metal Augmentor.

The PDF format makes the silver producer report easy to send around, which we encourage. Once again, here is the report: Mid-Tier Silver Producer Report June 2010 PDF.

silverax Gold/Silver Shares Mid-Tier Silver Producer Report

It has now been over two months since the CFTC hearings on the COMEX metals and Ted Butler reports this week an Impressive Result of over 3,000 comment letters about the hearings of which apparently 95% or more were Butler copycat comments urging the commission to limit silver positions to 1,500 contracts. Alas, I fail to see anything impressive about this given that the only position limits the commission would consider changing are speculative limits. Unfortunately the big bad bullion banks are not holding their short positions as speculators but rather as commercial hedgers. To hope the commission would limit hedging positions is beyond silly, it is seriously deranged. Doing so in COMEX silver and/or COMEX gold without setting similar limits in all other futures markets will never happen.

What Ted Butler and others concerned about silver price suppression should have done, instead of making an ineffectual plea for across-the-board position limits in silver that includes commercial hedgers, was to ask the commission to institute robust compliance review and enforcement over the hedging designation of commercial positions. By their own admissions during the hearings, neither the commission nor the SRO (the exchange itself) have spent a lot of time or effort historically on reviewing hedging designations of the commercials. This means that the bullion banks are largely taken at their word that their positions are legitimate hedges. Shining a bright light at the bullion banks by instituting thorough periodic policing action would surely result in some commercial short positions being disqualified, and such shorts would likely be closed permanently.

Alas, Ted Butler and some silver bugs are so enamored of the silver market that they believe it is special and unique above everything else. Sorry buckos, silver has some great investment and industrial qualities and it is very shiny as well, but the reality is that very few people in the world care a whiff about it. Silver might be everything to you, but to the bullion banks silver is a tiny profit center hardly worth the effort. That implies the possibility of rogue trading desks manipulating the silver market (probably both up and down) but precludes high level collusion between the banks. If the banks are going to collude, it would certainly be in a market bigger and more profitable than silver.

So, congratulations for derailing a potentially positive outcome by shifting the commission’s focus to your demand that silver and gold are to be treated as special markets deserving of special rules. Let’s hope the commission is able to do the right thing by instead announcing regulatory reviews of commercial designations. Sometimes you are your own worst enemy.

silverax Windbag Wisdom

We are very fortunate to have access to the technical expertise of Eidetic Research over at Metal Augmentor. Going forward Eidetic has informed us that we will receive shorter-term technical analysis that is frequently updated in addition to the big picture technical reviews that we are so fortunate to receive every few weeks or months. This is very exciting and we feel it makes the Metal Augmentor service a must-have for any investor interested in not only the metals but other markets where big profit opportunities exist.

Here is a bit more information about Eidetic Research for those who do not fully appreciate what this recent development really means. Eidetic is a highly-respected institutional level technical service that is of a quality rarely if ever made available to the investing public. Indeed, we don’t think any retail-oriented technical analysis even comes close. Moreover,  we firmly believe only a small handful of institutional technical analysis, costing thousands of dollars per year or more, can hold a candle to Eidetic. Fortunately this is not well recognized at present simply because there isn’t much of Eidetic’s work in the historical public record to examine. We say “fortunately” because otherwise Eidetic would probably not be available to investors such as Metal Augmentor subscribers. In the future should Eidetic decide to start providing technical work to institutional investors again, we are hopeful that Metal Augmentor will be able to negotiate an ongoing arrangement with Eidetic.

From time to time I will reprint the silver portion of these technical updates here at SILVERAXIS in the hopes that those of you who are on the fence about joining Metal Augmentor as a Founding Member will finally get a clue. If you do wish to join, go to the Metal Augmentor home page and add your name to the mailing list. Any day now we are going to open the service to new subscribers and if you are on the mailing list you will be among the first to find out.

So here is the latest silver excerpt from Eidetic Research:

Silver – Jly

All trends are up. Resistance 19.50 – 19.90, then 20.35 – 21.50. Support maybe 18.90 plus/minus; more probable 18.60 – 18.26. Upside potential a test of major resistance above 20.00 that defines the March 2008 intermediate-term top. Ongoing rally development from the early Feb low at 14.775, basis the active nearby futures, reached a new high Thur at 19.865. Gains were lost by the close* which established a small top reversal range. Some followthru weakness on Fri, including range expansion, suggested that short-term buyers may be running out of nerve. Rising daily stochastic values are near 80, a level generally considered “overbought”. Look for some two-sided consolidation between 19.00 – 20.00 on Mon-Tue.
ER 5/16/2010

Please note that for analytic purposes we use the Globex afternoon close at 5:15 pm ET as our Comex closing values rather than the official Comex settlement. In our view, it is absurd to consider a 1:30 pm ET official settlement as a legitimate close when other major futures markets such as Chicago treasuries and forex trade for hours beyond the Comex settlement times.

Disclaimer: Futures and options are inherently risky and should only be considered by highly risk tolerant investors. You can loose more than the amount invested and sometimes even more than the amount in your brokerage account so it is critical to seek the oversight or advice of a licensed professional if you do not have extensive experience trading futures and options.

Don’t mistake the above for your typical broker or market technician drivel that you might have access to, this is the real thing and not otherwise available to you normally unless you are an institutional investor or bank trading desk and paying thousands of dollars for such a service. This is not some amateurish charting by a wanna-be, magic numbers, astrology or some other BS either, it is the result of decades of nose-to-the-grindstone professional technical expertise that has actual utility helping people make money in the real world.

If you want to thank me, just go and join the mailing list and sign up for Metal Augmentor so you can be alerted when we open it up again to new Founding Members. Now that our new system is almost ready to go, we are going to be kicking ass and taking names. What, you don’t want thousands of dollars in investment and technical research for almost nothing? It’s your loss (and literally somebody else’s gain).

silverax Technical Analysis