Today In Silver

NOTE: This commentary was published at The Metal Augmentor on October 1, 2009 at 7:20 AM EST. Apologies once again to the SILVERAXIS faithful for not posting recently. I do expect to post more often in the future but during extremely busy periods it’s only fair that I spend whatever time I have writing for the benefit of paying Metal Augmentor subscribers. Our subscription window is currently closed but will open again hopefully soon. In the meantime, we are putting together a mailing list to keep everyone up to date on developments. You can sign up for the mailing list at www.metalaugmentor.com.

Gold, silver and commodities moved higher on Wednesday on the back of confusing data about the current state of the “green shoots recovery”. Gold was able to handily regain the $1,000 handle in a clear sign that this level, at least on a microscopic scale, no longer represents a psychological bulwark. Oil also surmounted $70 once again after trading as low as $65 at the end of last week. The U.S. dollar fell, but not as much as one would have thought by looking at the gold, silver and oil charts.

The confusing data came in the form of conflicting reports that showed the U.S. economy is not performing as poorly as previously expected but may be performing more poorly than currently expected. First there was an upward revision of second quarter 2009 GDP to a final minus 0.7% from a preliminary minus 1.0%. Second, there was a report that unemployment actually fell in August in 60% of the metropolitan areas surveyed. Third, the Chicago Purchasing Managers Index fell to 46.1% for September from a perfectly neutral 50.0% reading in August, indicating contraction of business activity in the Chicago area. Fourth, another jobs report that indicated companies are firing fewer people (most likely because there are fewer people left to fire). Along with recent statements by wunderbanker Bernanke that the U.S. recession is likely to have ended sometime in the third quarter, the picture is pretty much complete. Unfortunately it looks like finger painting by a rowdy group of three year olds who aren’t very good at finger painting. Our interpretation is that everybody seems to be grabbing at straws in an attempt to be right — about something in general or anything in particular– after being so horribly wrong for so long.

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silverax Windbag Wisdom

NOTE: I’ve been having some problems accessing the SILVERAXIS blog but hopefully it should be working now and comments should be enabled on this latest post. I’ll be providing some market observations shortly as well. This post was made available to Metal Augmentor subscribers on July 16, 2009 at 6:47 p.m. EDT.

Adrian Douglas, a Director of GATA, wrote a piece recently called The Alchemist in which he pointed out that the “Exchange of Futures for Physical” (”EFP”) mechanism of the gold commodity market allows ETF shares such as IAU and GLD in the definition of “Physical Products”. While this is true, we shall see by the end of my rebuttal that it is also irrelevant to the physical gold market. Furthermore, Mr. Douglas alleges that the regulators are rigging the market in favor of the manipulative shorts since ETFs are “paper” and not the same as physical gold — indeed ETFs may not hold any bullion at all! Alas, I’ve addressed the “empty ETF” issue many times before so I will not spend much more time on it, but I will demonstrate in detail why it doesn’t really matter if ETFs are really “paper” or “Physical Product” when it comes to EFP transactions. In fact, it doesn’t really matter to market participants what is exchanged on the physical side of an EFP, be it even toilet paper, as long as EFPs remain only a minor component of overall trading volume on the exchange.

Unfortunately, Mr. Douglas has done a disservice to the gold community by not explaining how the EFP works and thus I shall try to correct this first. Doing so, however, will take a bit of effort and so I have dedicated the first part of this rebuttal to providing an overview of the EFP transaction. The second part will consist of looking at Mr. Douglas’ allegations and refuting them point-by-point.

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silverax Windbag Wisdom

Note: This commentary was originally posted to Metal Augmentor on June 15, 2009 at 10:27PM EDT.

Last October, I wrote a commentary called Monetary Base Rocket. In it, I argued that the liquidity and bailout programs of the Federal Reserve under the leadership of “Helicopter” Ben Bernanke were the equivalent of a monetary drop from a proverbial helicopter, but with an important caveat:

The Fed has added as much to the monetary base in 6 weeks as it has added in any prior 10 year period going back to the early 1980s. Indeed, the rate of increase appears to be about $100 billion every two weeks and yet the logjam in the credit markets still has not been cleared.

So, is this the fabled helicopter drop? Yessirreee! There is, however, a slight matter that deserves some mention. The money dropped from the helicopter has not reached the ground yet. In other words, most of this money is still being held by the banks in the form of Reserve Balances. Put another way, it has not yet started to work its way down through the fractional-reserve lending process to the credit-strapped private sector.

The reason these funds are being held and not loaned out by the banks is simple. The Fed is actually paying banks to hold the funds in reserves. Indeed, the Fed has just today increasing the rate it is paying by 40 basis points. Some of you may know that the Fed was originally going to start paying banks for excess Reserve Balances starting in 2011 but the recent emergency bailout legislation moved that date up so that Reserve Balances would start to earn interest immediately. The Fed’s intent is to try to keep the massive increases in Reserve Balances close to the heart so that these funds serve mainly to shore up the banks’ balance sheets but don’t create a tsunami of “unnecessary liquidity” in the money supply. Remember what I said earlier about jumping out of a burning building. In helicopter lingo, the $300 billion has been dropped but it is fluttering in midair due to an updraft created by the rotor.

I suspect, however, that the Fed will have to dispense with its “gradualism” before too long and fly the helicopter to open airspace in order to avoid a crash. Even if the Fed has no intention of moving clear, the longer the money stays out there fluttering in midair, the more difficult it will be to keep it aloft. Moreover, once the dropped money has cleared the updraft from the helicopter’s rotor, it can no longer be reclaimed by the Fed without consequences, especially while the global economy remains on an unsure footing. Thus I suspect most of the dropped money will eventually flutter to the ground.

What I think we should watch for in particular is an increase in M1, which includes circulating currency (Federal Reserve Notes) and demand deposits. The latest data only goes up to October 13, but that data actually shows weekly average M1 shrinking by as much as $100 billion since the end of September. If and when we see M1 reverse sharply upwards, we could start to suspect that the first batches of the monetary drop are starting to reach the ground and that a “hyperinflationary event” will not be very far behind. How long could this take? I give it 6 to 18 months although others say it could be literally weeks from now. Jim Sinclair claims something big will happen in 13 to 88 days, which is the timeframe between the U.S. elections and the inauguration of the next President.

The caveat was that the helicopter actually has to fly clear of the money fluttering in the sky so that it can start falling to the ground. Much has taken place since I wrote the above piece and several related ones but the simple fact is that the helicopter has not flown clear. The money drop continues to be kept aloft primarily because banks are unwilling to lend their borrowed Reserve Balances as there are no qualified borrowers who need loans. Also, there is a stigma attached to these borrowed Reserve Balances. Lending them out means they won’t be paid back anytime soon, which is a reason of itself not to lend them out. Indeed, some of the money drop has even been sucked back up. For example, the largest bailout program, named Term Auction Credit, has seen outstanding balances drop from $493 billion in early March to $337 billion last week. On a related front, a number of banks have announced they will be paying back their TARP money as well.

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silverax Windbag Wisdom

A few weeks ago we wrote a “teaser” for the Metal Augmentor service about an exploration company that we believe offers a very good opportunity to double your money in the near term. Our report on that company is now “sold out” and today we will reveal its name along with a synopsis of our full report, which is available only to Metal Augmentor subscribers.

In addition, we would like to announce the availability of a new Special Report that features two gold companies we feel have very strong prospects in the months ahead. These companies have recently been featured as part of the Metal Augmentor service, so if you are already a subscriber or buyer of a previous Special Report, there is no need to purchase this latest report, just log in at http://metalaugmentor.com/subscribers/start.php.

Founding Memberships to the Metal Augmentor service were supposed to close yesterday but we have extended the deadline to the end of this week so that late comers can have one last chance at the current price of $87 per year. If we do open the service to new Founding Members again in the future, it will be at a higher price and only after we have officially launched the Metal Augmentor website.

If you were looking for another tease, we apologize but we are not going to extoll the virtues of the two companies in the new Special Report. What we will say, however, is that each sits on a world-class gold deposit and yet trades at a fraction of the share prices of its peers. Moreover, both these world-class gold deposits are likely to come to the attention of investors later this year as they move through advanced feasibility toward development. We feel the summer doldrums will be a perfect opportunity to pick up some shares in these companies before they are discovered by everybody else. One of these companies trades on the Toronto exchange and the other trades on both the Toronto and the AMEX exchange.

We are also preparing an analysis of a little-known Australian-listed Platinum Group Metals (PGM) explorer that is advancing an exciting project with excellent exploration upside and development potential. Metal Augmentor subscribers, including buyers of our latest Special Report, will have an opportunity to find out about this company when they log in to the Metal Augmentor website (log in information will be contained in the Special Report).

Please note that the Special Report, priced at US$87, includes a one-year Founding Membership to the Metal Augmentor service. The report will only be available until the end of this week. After this Sunday, we will close the service to new subscribers and focus on our official website launch. If and when we open The Metal Augmentor to new subscribers again, it will be at a higher price.

Our new Special Report can be purchased for US$87 here:

(You can securely use any major credit card, or a Paypal account if  you have one)

(Use this link if the above does not work:
http://www.metalaugmentor.com/order.php)

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silverax Administrative Matters, Founding Members, Windbag Wisdom

NOTE: Portions of this commentary were originally posted at Metal Augmentor on June 10, 2009 at 2:29PM EST.

Self-proclaimed economist Jeff Nielson asks, Will a ‘Silver Bullet’ Finally Kill the Metal Manipulators?. Here is an excerpt:

Specifically, at a time when actual silver inventories are at their lowest level in centuries, the (supposed) amount of “bullion” these funds claim to hold has singlehandedly resulted in “official” inventory levels tripling in just three years – after plunging by 90%.

Today’s market price is based upon these phony “inventories” despite the fact that the bullion-banks who claim to hold all this silver are never subjected to audits, to determine that they are not only holding enough silver to cover their custodial agreements with the “bullion-ETFs” - but are also holding sufficient silver to cover the MUCH larger “short” positions of these Manipulators (see “Silver Manipulation the worst in history – Ted Butler”).

Unless and until there is such a full and complete audit, the only rational assumption for investors is this supposed “tripling”of inventories is totally illusory, which also means that the “bullion” that is claimed to be held by these bullion-ETFs is also illusory.

As I have also mentioned before, it is elementary economics than any “good” which is undervalued will be over-consumed (relative to its current price). Thus, we have TWO extremely important dynamics which are setting up this sector for a final “implosion” of the criminal conspiracy by the anti-precious metals cabal.

First, price-suppression means the (actual) tiny inventories of silver are still declining not increasing. It is simply absurd to claim that with record, investment demand and declining mine production (due to the dramatic cuts in base metals production) that inventories are increasing. The under-pricing of silver simply confirms this trend.

Secondly, with real inventories only 1/3rd of what is claimed by the Manipulators, continuing to under-price silver (through continued manipulation) must result in a supply “squeeze” which inevitably causes the price to “spike” (and begin to correct toward some sort of medium-term equilibrium). Given that there has been no similar depletion of gold stockpiles (merely the transfer of ownership), it is far more likely that the final defeat of the anti-gold cabal will be accomplished via a default in silver markets.

The BIG question in the minds of all precious metals “bulls” is when and how will this final victory occur?

Many commentators have pointed to the rigged Comex markets in New York as the place where the final destruction of the Manipulators will occur. However, with the short positions of the bullion-banks, and their (supposed) “custodial agreements” with the bullion-ETFs being “two sides of the same coin”, then implosion could originate in either component of this fraudulent manipulation.

A bullion-default at the Comex (or “Crimex”, as some like to call it) is a very simple scenario. The Comex is essentially selling its phony, “paper” futures for less than any other bullion market. Thus, at some point, large buyers will simply step into this market and continue relentless, heavy buying until default occurs.

Specifically, there would be a “failure to deliver” of bullion to a buyer (or buyers) - who chose to hold their futures contract until expiry, and thus take “physical” delivery of real bullion. As has been reported by several commentators, apparently such a default nearly occurred just weeks ago (see “Did ECB save Deutsche Bank from Comex gold-default?”).

There has been a great deal of frustration among the “gold bugs” (in particular) that such a final “show-down” has not already taken place. However, perhaps we would all be more patient in this respect if we were to try to put ourselves in the position of such big “players”.

Our response is as follows.

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silverax Windbag Wisdom