Is Goldman Sachs Thinking of Buying Silver?

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 |  Includes: GS, SLV
by: Trace Mayer

Operating a website requires monitoring to make sure there are no problems but doing so can uncover very interesting nuggets of information. For example, on 24 February 2010 at 11:15 EST in the evening someone at Goldman Sachs Company (NYSE:GS) in the main NYC office found RunToGold through Google by searching for the phrase ‘buying silver‘.

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Click to enlargeGee, I wonder who that someone was and what they are thinking. Originally, I was thinking of posting their home address, picture, resume, social security number and other websites they visited but they are not safe for work, and considering the hostile feelings towards the company, I decided against the personal information. But Eric Schmidt, CEO of Google, would probably not mind considering his statement to Maria Bartiromo:

I think judgment matters. If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place. If you really need that kind of privacy, the reality is that search engines — including Google — do retain this information for some time and it’s important, for example, that we are all subject in the United States to the Patriot Act and it is possible that all that information could be made available to the authorities.

BUYING SILVER INTENT

The brilliance of the Google Superbowl ad was in its ability to communicate an entire story with only a few lines of text.

Truly, one’s search patterns can reveal intentions. Now, what can be discerned by these virtual footprints from one of Goldman Sachs’ 36,000+ employees? Conclusively, probably not much and we [NSA] would need access to more transactional databases and the passage of S. 733 the Cybersecurity Act of 2009 but we can still speculate about talk around the water cooler or higher order drama. Who knows if that someone was the secretary, their boss or both. It was 11:15PM after all!

SILVER BACKWARDATION CLOSE

Lately I have not followed the SIFO rates closely so this was my initial suspicion and once again it appears that silver is nearing backwardation. While the paper silver market which has an unlimited supply of silver and the physical silver market is constrained by actual metal, the fractures between the two are beginning to emerge again.

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In 2009 I chronicled the silver backwardation that led to a 60% rise in silver prices over a seven month period. Additionally, the gold to silver ratio has moved over 10% in less than two months. With silver recently slipping below its 200dma it is becoming a good value. But with silver getting cheaper this move in the ratio portends a slowing of the precious metals bull. And so there are conflicting signals.

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CFTC SILVER MARKET INVESTIGATION

The slide towards backwardation is particularly enthralling given the CFTC’s three investigations of the silver market in five years. Ironically, silver analyst Ted Butler who has been particularly vehement of the CFTC’s faux investigations seems to like the new Chairman Gensler and on 10 February 2010 wrote,

I have been unabashed in my praise for Chairman Gensler since the time he assumed office. I have called him the greatest chairman in CFTC history. … I understand that disagreement [with the praise]. Yes, he was a partner of Goldman Sachs, the dreaded “vampire squid” of the financial world. Yes, he was a participant in the deregulation of 2000, which added greatly to the financial crises of the past couple of years. Yes, he is an “insider,” with connections and access to those in power.

What could Goldman Sachs know about the silver market, what might be being discussed around the water cooler and how might Chairman Gensler’s influence with his old cronies play into this?

CONCLUSION

The digital world offers tremendous opportunity to covertly monitor and draw inferences. In this case, someone at Goldman Sachs was researching about buying silver and they could have easily cloaked their behavior with anonymous web surfing. Imagine the latent power Google and the NSA have and would using it constitute ‘insider trading‘?

Yet, a former Goldman Sachs employee is the CFTC chairman who is embarking on the third investigation of the market in five years while the metal drifts towards backwardation. The paper price of gold and silver may be drifting lower but the physical silver is getting cheaper and a better value.

If you do not have a core position, to protect against the Laboon of sovereign debt defaults, negative FDIC funds, quantitative easing, etc. then yesterday was when you should have acquired. If you already have a core position then it may good to wait a little while longer for even better silver prices such as 0.95x the 200dma.

DISCLOSURES: Long physical gold and silver with no interest in sovereign debt from Greece, Portugal, Italy, Ireland, Spain, etc., GS, or the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.