A certain doctor by the name of Jeffrey Lewis who discloses that his “site was created by someone with no professional background in investing” tells us that silver was also confiscated by FDR in 1934 (the gold confiscation actually occurred in 1933, the 1934 Acts made gold contracts unenforceable and devalued the U.S. dollar from $20 to $35 per ounce):

The history of confiscation of precious metals is well documented, with literally tons of gold and silver ripped from the hands of ordinary Americans during the financially tumultuous years of the Great Depression.  However, history books and academic research rarely shine light into the confiscation of silver and rather focus on gold, even though both were made illegal for a total of 40 years.

In this article, we’ll examine the history of confiscation and shed light on the possible future confiscation of silver from investors.

Once Upon 1934

Franklin D. Roosevelt penned the first law to seize precious metal assets from Americans as a way to force savings in banks, rather than allowing Americans to hold their wealth in metals.  Prior to the legislation, banks were riddled with liquidity problems, as trust in the American banking system waned and investors looked for the safest place to store their wealth.  With both the banking system in question and the stock market still volatile after its peak in 1929, investors wanted hard assets, namely gold and silver.

FDR hoped confiscation would push investors towards the banking system, as well as raise cash for a growing Federal budget.  Unfortunately, it did just that – all the while ripping wealth right out of the hands of the American people.

The Confiscation of Silver

Silver bullion was also made illegal to own during the 40 year ban.  However, this is often little discussed, as silver coins were still a large part of the money supply up until 1964.  Almost all pre-1964 coinage was 90% silver, and the coins were not illegal to own during this time, as it was a mainstay of the monetary economy.  Silver bars, on the other hand, were illegal, as they represented wealth outside the monetary system and were systematically “purchased” from their owners at a price well below market value.

This of course is utter BS. Silver was never confiscated by FDR. I don’t think silver has a checkered past of being confiscated by other governments either. You can read a good overview of what “confiscation fears” can do to your bullion accumulation plans here. You can also see this excellent summary of the Hunt silver episode for more information on the silver market in the 1970s. How could the Hunts have acquired 55 million ounces of silver in 1973 if it was illegal to own silver bullion?

I’m not endorsing any particular bullion dealer over another here, I am endorsing the truth.

Elliott Waver Alistair Gilbert has taken a shot at predicting the zigs and zags of silver over the next year with his Market Timing Report - Silver:

This a brief follow up to my Report of 13th January advising a SELL of Silver at $18.52. Silver has since been sold down to $14.62 in Wave 3 of 1 of C of Major Wave 2.

In Wave 4 of 1 we can expect to see typically a retracement of Wave 3 of between 38.2% to 50%. This would give us a target of $16.25 for the 38.2% and $16.75 for a 50% retracement. Obviously the wave 4 retracement can halt anywhere between those two targets and given the pressure to the downside in wave 5 may even fall a bit short.

This is somewhat consistent with my thinking insofar as we should get a relief rally in silver back toward the $16.75 area.

Moving on to the big picture, my weekly DT chart shows how Major Wave 1 topped in March 2008 and we moved down for an “A” wave into October 2008 and up for a “B” wave into December 2009. We are now heading down in the “C” wave which should last until January 2011, and this would complete Major Wave 2. The 3 waves of (C) illustrated are 3 of 1 of (C).

This is the part that most “Wavers” seem so intent to be warning us about, that gold and silver will decline into late this year or early next in a “C” wave of a Major Wave 2 or 3 or 4. I don’t know if these wave counts are being derived purely from an unjaundiced technical look at the charts or as an adjunct to the general sense by the Elliott Waving universe that the world is about to accelerate its depressionary downward spiral. In any case, it is certainly something to be aware of, but unless someone can convincingly show me that Elliott Waves predicted silver would drop to $8 in the fall of 2008, I’m not going to be giving much shrift to this kind of preconceived market “analysis”. Not to toot my own horn, but to my knowledge I was the only one to have publicly predicted a massive drop in a metal (okay, it was copper not gold or silver), developed a strategy to take advantage of it, and ate his/her own medicine (along with a fortunate few SILVERAXIS readers).

This morning both gold and silver are showing some spunk even in the face of a strong U.S. dollar trading over 80 on the USD Index. While the monetary metals are hardly out of the woods yet, the price action is encouraging as it appears conducive to the formation of a bottom (higher highs and higher lows all this week). In particular, gold was able to easily pierce this morning the 1080 level that previously served as support (but over the past few days it has been resistance). It appears we could have one last pullback in the next several days, perhaps to the 1065-1070 level in gold and back to 15.25 or so in silver. If these levels hold, we could then see a relief rally that takes the monetary metals toward a retracement of their recent losses with initial targets in gold of 1137.50 and silver of 16.75, possibly accompanied by a drop in the U.S. dollar back into the 78.80 area.

From a price point as well as our own positioning in the silver market, we are effectively no longer short-term neutral and therefore we should really be turning our “alert flag” (which is a legacy device from the old SILVERAXIS days to gauge our own sentiment toward the silver market) from YELLOW back to GREEN. All other time horizons remain GREEN as well for now. For perspective, we came close to turning this “alert flag” to RED on October 27, 2009 [link only works for Metal Augmentor subscribers] after having turned to YELLOW all the way back on May 29, 2009 [link only works for Metal Augmentor subscribers].  While we did get a vigorous pullback in the monetary metals from May into early July, we pretty much blew it in late August and early September and failed to recognize the unfolding of the powerful speculative fervor that would eventually take gold over 1200 and silver to nearly 20. On a positive note, however, we are hopeful that very shortly Metal Augmentor will have the benefit of an institutional level technician and market analyst who not only called the record-breaking run in gold last fall but also picked the fall 2008 bottom in gold almost to the dollar. We believe integrating this gentleman’s analysis in our trading and speculating will have us on the right side of the market much more often going forward.

We would also like to see some confirmation from the gold and silver basis, in particular the ETF basis, but these measures remain somewhat inscrutable for now. On the other hand, the gold basis, according to one of the charts we have constructed, does appear to have dropped into ever-so-slight backwardation earlier this week, and this is indicative of solid physical buying (bargain hunting) at lower gold prices. For now it looks like we are back in one of those modes where we should be paying very close attention to the basis (once our live chart tools are built, you will be able to do the same).

On a separate topic, we have been keenly observing the open interest and commitments of traders (COT) positions in both COMEX gold and silver during the ongoing correction and it appears we are now starting to approach a much healthier situation after having worked off most of the froth that helped drive gold prices to record levels above 1200 between early September and December last year. Ideally we would like to see the open interest come down even further but it is not necessary from a seasonal perspective since gold and silver will remain in technical position to undergo price spikes for at least the next several months regardless of how much repair to the speculative portion of the market may or may not have occurred. Looking at the COT structure itself, there has been moderate improvement between early December when the metals were putting in their highs and the latest report on February 2, 2010, and this improvement may be sufficient to have cleaned out enough of the chaff so as to prepare the market for the next rally. For example, swap dealers in COMEX silver have actually gone from being net short about 1000 contracts to being net long about 8000 contracts. These swap dealers primarily hedge paper contracts so a move in commitments from net short to net long effectively means that paper itself is on the demand side of the equation. Keep in mind, however, that swap dealers in COMEX gold remain net short a bunch and in both COMEX gold and silver the true commercials (producer/merchant/processor/user) are still quite a bit net short. So it’s a mixed bag but definitely much better than where we were last October and November.

To follow on this topic of COT and COMEX silver, I’m a bit surprised that Ted Butler does not seem to have incorporated the new disaggregated reporting into his repertoire and instead he still appears to be using trader concentration ratios and “Raptors” (presumably smaller commercial dealers) to analyze the state of the silver market. I don’t have a subscription to his new subscription service so I’m simply going by his interviews on King World News, but perhaps somebody can correct me on this account. If he is not using the disaggregated reports, he is doing a great disservice to the precious metals community by failing to explain the market in more precise strokes than the wide brush of “commercials” and “funds” that has been the mainstay of his conspiracy theories for these so many years.

PROMOTIONAL NOTE: We are now getting really close to officially launching the Metal Augmentor service. Yeah, I know we’ve said that about a bazzillion times but one of these days it will eventually turn out to be true. As a heads up, we’ve had quite a few additions to the mailing/waiting list lately, so much so that assuming all of our current subscribers and the people on the waiting list all end up registering, we will have completely filled our initial Founding Member roster. Once that happens, we would close the membership again for a while as we decide exactly how many Founding Members we can have while still being able to answer individual questions. So, my obviously biased suggestion would be that you sign up for the mailing/waiting list immediately by going to Metal Augmentor. End promotion.

With the recent weakness in silver, it was somewhat gratifying to see that the iShares Silver Trust ETF, SLV, has just filed a report with the U.S. Securities and Exchange Commission to disclose a recent amendment to their custodian agreement that provides for an increase in the silver bullion storage capacity to 400 million ounces. The iShares SLV is already by far the largest single public owner of silver bullion in the world with just a bit over 300 million ounces in custody at present, and the increase to 400 million ounces indicates that the ETF sponsors, BlackRock, feel confident that the trust’s silver bullion holdings will continue to grow at a rapid pace. By the way, very few in the bullion community have commented much less seem to have noticed that the iShares sponsor is no longer Barclays Global Investors, a division of a troubled bank, but rather a (somewhat) independent publicly-traded asset management firm*. In our opinion, this change in sponsorship structure of the iShares silver ETF represents a reduction in operations risk.  Importantly based on some whispers I have heard, BlackRock may become more aggressive compared to Barclays in protecting its image and credibility by going after irresponsible slander and libel against its iShares unit, especially when the lies are being publicly disseminated by competitors. We’ll have to see if these whispers are true or merely wishful thinking by market participants with an ax to grind, but in the meantime I would suggest that those who like to throw around unsubstantiated, self-serving accusations about their competitors should cool their jets. You know who you are.

*I know the merger of BlackRock and Barclays Global Investors is old news, but the deal did just close this past December.

Going forward SILVERAXIS will return to its original premise, which is “Dedicated to Investment Opportunities in Silver”. That means less generic posts — for example those about gold or whatever else that only peripherally touch on silver. So effectively non-silver commentaries will be reserved for Metal Augmentor subscribers, but the good news is there will probably be more free material here that is specific or at least directly related to silver.

Here is a new series that we may or may not keep up with, depending on how much time we have and reader feedback. It is called Grounding the Hype and tries to analyze and deflate excessive hype in metals and mining. We’ve done this type of thing already with our commentaries in the past such as covering Paramount Gold and Silver and more recently Premium Exploration.

While we don’t want to focus on negativity and will certainly be viewed by some company and industry insiders as “filthy” for exposing some of the tricks and ploys that they rely on to make money on the backs of unsuspecting investors, we have a strong desire to differentiate ourselves from the typical newsletter, research and advisory crowd that in many cases is in bed with the companies they are covering. We are not going to make money that way and we want everybody to know that.

If we are wrong about a particular situation, we will try to be the first to admit that, but we won’t mind being called on it either. Importantly, we are attempting to get at the whole truth, no matter how grainy and dirty, by shedding light on uncertainty and questionable circumstances.

So without further ado, here is our first official case study of Grounding the Hype. Earlier today, we received a promotional advertisement that began as follows:

American Company Discovers Massive ‘Silver Vein’… Below China’s Great Wall

Govt. surveys confirm 186 mile-long strike containing up to 30 billion ounces… worth as much as $514 billion…

Go here to learn more…

When we clicked on the link, we were directed to a too-good-to-believe newsletter promotion for Sound Profits by Investor’s Daily Edge that begins like this:

Dear Reader,

Hundreds of miles south of Beijing…

Deep in the remote foothills beneath the Great Wall of China…

An American junior mining company has made an amazing discovery.

This silver strike stretches 186 miles.  It could contain, by our estimates, 30.2 billion ounces of silver.

Oh, brother!

Although the name of the company they were talking about was immediately obvious to us, we went over to Stock Gumshoe (a website we recommend) before doing our own confirmation research to see if the detective work had already been done. And indeed, it has been:

Today’s holiday look is at a silver mining company with a mother lode strike in China … this time, the tease is from the Sound Profits newsletter by the Investors Daily Edge folks, and they would, of course, be delighted to have you subscribe to their newsletter to find out who this “Silver Striker” company is. Here’s how they tease the stock:

[Ed: not reproduced]

So who could it be? We get a few other clues as we troll through the email …

[Ed: not reproduced]

OK, so that’s actually enough — the mine they must be referring to with the 78,581 meters of drilling and 280 holes is the Ying mine, which is the flagship property of and is roughly three-quarters owned by …

SilverCorp Metals (SVM in both NY and Toronto)

SilverCorp is not an American company, but they are US-listed (they’re Canadian, with the actual operating businesses all being Chinese subsidiaries) — but otherwise it matches the clues pretty much perfectly, including the $8 million in capital expenditures planned for the second half of this fiscal year, and the 300 km (186 mile) long silver zone. And they did use SRK Consultants China and BK Exploration in their resource estimate work.

SilverCorp is a new favorite of many, many newsletters — I saw a video with Martin Hutchinson where he alluded to his favorite Chinese silver miner and was clearly hinting around SilverCorp, and Matt Badiali touted the shares last Summer (I wrote about it at the time, and owned shares for a while last year as well — I don’t currently own SVM stock or have any other interest in the shares).

SilverCorp gets attention not only for being the biggest silver miner in China, with a tight relationship with the government and plenty of opportunity for additional exploration, but for being one of the lowest cost miners in the world. Thanks to significant output of both lead and zinc as “byproducts” at the Ying mine they’re able to mine silver at an effective price of something like negative $6 per ounce (meaning they make money even before they sell the silver).

Does their strike really run under the Great Wall of China? That I’m not so sure about — it’s certainly possible, the Ying mine is near the Luo River and from what I can tell from browsing a few maps the mining site is fairly close to sections of the wall. Close enough for me.

In response, I (silverax) will just repeat the comment I left on the Stock Gumshoe:

There is no worry from collapse of industrial demand for silver, the new uses (batteries, solar, etc.) will at least offset any loss from traditional uses. Instead, the main driver for silver going forward is physical demand.

With respect to the tease by “Sound Profits”, my main issue would be the extreme hype over the upside profit potential as well as the ridiculous notion that Silvercorp. have discovered billions of ounces of silver. The reader is being misled by the “stretches for 186 miles” to believe this is essentially a lateral strike whereas in reality we are talking about the combined length of workings and mapped vein structures, many of which are stacked on top of each other (there is strong evidence the Ying veins are mesothermal which means they run deeper along dip and not necessarily far along strike).

The above having been said, I personally believe Silvercorp could have very significant upside potential over the longer term (perhaps 10-bagger) but for that to happen there must be a general desire by resource investors to understand and gain exposure to Chinese mining companies. Finally, the $49 annual price for Sound Profits is a very cheap cost of entry to find out if there is actually substance behind their research once you peel away the ridiculous hype.

As with the Charlatan Exposed series, please send along any requests for particularly egregious examples that you would like to see addressed at Metal Augmentor.