MARKET WATCH
| Month |
High |
Low |
Average |
| January 2005 |
6.85 |
6.43 |
6.63 |
| February 2005 |
7.52 |
6.55 |
7.07 |
| March 2005 |
7.60 |
6.91 |
7.27 |
| April 2005 |
7.33 |
6.90 |
7.13 |
| May 2005 |
7.44 |
6.84 |
7.05 |
| 2004 |
8.21 |
5.51 |
6.67 |
ASSOCIATION NEWS
News:
Meetings:
- SUA Fall Meeting Date Has Changed
October 19-20 in Washington, DC at the Army-Navy Club.
Anyone interested in sponsoring, please contact Paul Miller at pmiller@mwcapitol.com.
Note:
SILVER USERS ASSOCIATION TAKES POSITION ON NEWLY FILED SILVER ETF
Between 1966 and 1970, U.S. Treasury sales of silver were a major secondary source of supply. Because silver had been a U.S. monetary standard along with gold, the U.S. government held the world's largest source of secondary supply in an effort to meet a growing production/consumption deficit. In 1965, it appeared that in less than two years the Treasury would effectively lose control of the price of silver. If silver had been allowed to rise above $1.40 per ounce, the silver content of U.S. coins would have been worth more than their face value, causing them to disappear from circulation. Under the Coinage Act of 1965, Congress eliminated the use of silver in coins and authorized the mining of cupro-nickel substitutes and the sale of silver to the public. The right of holders of U.S. silver certificates to redeem them for silver was suspended in 1968. The following year, a federal ban on the melting of U.S. coins was lifted, freeing anywhere from 400 to 700 million ounces for secondary recovery.
In late 1970, the General Services Administration was authorized by Congress to release the national strategic stockpile of silver to the Treasury Department, primarily for coinage of new commemorative silver dollars (40 percent silver content). The same act provided for the auction of approximately 3 million old uncirculated silver dollars (90 percent silver). In 1973, the Cost of Living council freed commercial-grade silver from price ceilings imposed the year before to allow domestic silver to advance to current international price levels.
Silver has reacted erratically to world political and economic news in recent years. The New York spot settlement price for silver has ranged from a low of $3.92 in 1975 to a high of $48.70 in 1980.
In the early 80's, the U.S. government's strategic stockpile of silver was locked in by law at 139.5 Moz. Congress has since authorized legislation to dispose of these stockpiles. In late 2000 the U.S. Defense National Stockpile Center delivered its remaining stockpile of nearly 15 Moz to the U.S. Mint for coinage programs. Since 2001, the U.S. has had to purchase silver for its coinage programs from the open market. This has boosted silver consumption by 1% annually.
Background on ETF
An ETF is an Exchange Traded Fund, created under the Investment Company Act of 1940. They are index-based products, which hold a portfolio of securities that is intended to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of the underlying benchmark index. In the case of a Silver ETF, the index would track the silver price and be backed by physically vaulted silver. Gold ETF's gained popularity in the recent commodity bull markets as investors were attracted to an alternate form of gold investment other than mining shares, options, futures and physical. Many are interested in gold from a 'buy and hold' perspective. Each unit that is bought on the gold ETF has resulted in physical gold metal being purchased on the open market and stored in a vault. In total, these gold ETF's have contributed to 250 tons of gold being purchased in the open market, approximately $3.4 billion dollars.
Impact of Silver ETF
Fortunately we do not have to look back very far to see the impact a significant amount of allocated silver would have on the market. It was 1998 when Warren Buffet purchased over 100 million ounces of physical silver and the spot price rallied over $3 dollars and one month lease rates soared over 30%.
Commodity markets such as Palladium have proven that consumers will search for alternative sources to substitute their need for metal if the market becomes too pricey or illiquid. As it is, silver can be an illiquid market because there are few central banks which own silver. Silver is inexpensive in terms of commodities, and its volatility is typically 2-3 times that of gold.
These are both reasons investors are drawn to the market. A silver ETF would only exaggerate silver's illiquidity given the sheer volume of physical silver needed to be shipped and stored. While a silver ETF might initially provide price benefits for producers, we believe it would disrupt the market in the short term and may harm the market in the long term.
SUA Position
The Silver Users Association opposes the creation of a silver ETF because of the concerns that doing so will require the holding of physical silver be held in allocated accounts, thus removing large amounts of silver from the market. By doing so, the ETF will cause a shortage of silver in the marketplace. If this happens, it will ultimately be the economy that suffers due to the negative impact taking large amounts of silver out of the market will have on industry.
SENATOR OFFERS AHP REFORM PRINCIPLES
Sen. Michael Enzi, chairman of the Senate Health, Education, Labor and Pensions Committee, has developed principles aimed at guiding the development of legislation to increase the availability of health insurance for workers in small businesses. The principles endorse a form of association health plans (AHP).
He calls for insurance plans to be free or largely free of state mandates and that most oversight of insurers should remain with the states. Enzi pledged to help small businesses with the rising cost of healthcare and challenged opponents to put forward any alternative plan aimed at helping small businesses obtain affordable health insurance.
Enzi plans to introduce new AHP legislation by the August recess. Blue Cross Blue Shield, opposed to AHPs, said they will use three criteria in assessing the new plan: whether it would allow cherry picking of healthy consumers by AHPs; whether state regulation would apply to the entities; and whether the plan would contain adequate consumer protections.
SUA continues to lead the way with AHP reform legislation on behalf of its members. As the Enzi legislation makes its way to the floor, SUA will keep you updated on its progress and what you can do to ensure this or similar legislation passes this year.
INTERNET SALES TAX
Thirteen years is a long time to get a pass. A 1992 Supreme Court decision has exempted Internet retailers from the obligation to collect most sales taxes on the grounds that it would be unduly burdensome. Back then, the country's thousands of state and local taxing jurisdictions all had differing rules.
But times have changed, and the law of the land should, too. Last week, 18 state tax collectors met in Chicago to announce an interstate agreement establishing uniform sales tax rules. Starting in October, the group will offer free software that will allow any business to easily collect the required taxes online.
The states' demonstration project will drive home the point that online sales-tax collection can be done nationwide. Many retailers already collect the taxes. Now Congress should step up and pass a law overturning the court's exemption in states that have streamlined their tax systems. That would allow hard-pressed states to take in roughly $20 billion a year in annual sales tax revenue that is rightfully theirs, and perhaps much more, depending on the growth in online shopping. It would also help level the playing field between local and online retailers.
No one in Congress has proposed legislation yet, but Senator Byron Dorgan, a North Dakota Democrat, and Senator Michael Enzi, a Wyoming Republican, are working on the issue. Still, anti-taxers are already grousing. Among their complaints is that collecting sales taxes online would represent a tax increase, which they oppose on principle. That's disingenuous. Online sales have always been taxable. But it's impossible for states to collect any sales tax directly from shoppers unless the shoppers voluntarily send in the tax. For the tax to be enforceable, it must be collected by retailers.
A related objection is that federal legislation should not be used to resolve a state-tax issue. That's totally off the point. The only way to address the Supreme Court ruling is for Congress to pass a federal law.
As if sensing the hollowness of those arguments, Web merchants are already gearing up for the day when they'll be required to collect sales tax. The New York Times reported last week that eBay and Amazon were duking it out over the level of online sales at which tax collection should apply. An eBay spokesman quoted in the article said businesses selling "in the range of $5 million" should be exempt from any collection obligation. Noting that a company doing $5 million in online sales is hardly a mom-and-pop, Amazon says that if there is an exemption, it should be much more limited. We don't see why any business should be exempt.
Lawmakers should not become distracted. Sales tax collection by online retailers is an idea whose time is way overdue.
HOUSE ENDS FCC ATTEMPT AT FAX RESTRICTIONS
The now infamous "Fax Rule" came to an end yesterday when the House passed legislation that allows businesses to continue sending unsolicited faxes to customers with whom they have an established relationship. Just in time, as the Federal Communications Commission's Fax Rule, which would have required written authorization from a customer before sending a fax, was set to take effect on Friday, July 1.
The legislation (S 714) is now on its way to the White House where President Bush is expected to sign the measure.
Small businesses are pleased with the action taken on Capitol Hill. Like most things in Washington, it took time, but the wait was worth it. A 2004 survey by the Chamber of Commerce estimated that the FCC Fax Rule would have cost small businesses an average of $5,000 the first year and $3,000 each year thereafter.
CONGRESS COULD COMPROMISE ON DEATH TAX
The "Death Tax" has been a hot debate on Capitol Hill in recent years, but new talk of compromise has some thinking a deal could be made this summer that would be mutually agreeable to both Senate democrats and republicans.
Under current law, the Death Tax is decreasing each year until it is completely repealed in 2010. One year later, however, in 2011 the Death Tax returns in full force. Senate republicans have been trying to permanently repeal the tax, but Senate democrats have been throwing up road blocks.
There are many compromise options on the table, but there are two main variables consistent with each option: the tax percentage and the exemption amount. One possible compromise would be to reduce the tax rate to 15 percent - the same as capital gains taxes - and increase the exemption amount to any estate between $5-10 million.
Republicans argue that the Death Tax is unjust. They argue the estates left behind after someone dies have already been taxed once, by imposing a Death Tax - whether 15 or 45 percent - is taxing the same money twice and therefore unjust.
Democrats are hesitant to cut the Death Tax because of the money it brings to the federal government to fund other programs. A permanent repeal of the Death Tax would return $290 billion to the American people over 10 years rather than fund government-run programs. At a time when deficits are at record highs, even moderate democrats that once supported a total repeal are hesitant.
SEC URGED TO AMEND SARBANES-OXLEY
Witnesses testifying before the Security and Exchange Commission's (SEC) Advisory Committee on Small Public Companies last week urged the committee to ease the compliance burdens of the Sarbanes-Oxley Act on small business. In one instance, the compliance cost for one small business was 50 percent of profits.
Committee Co-Chairman Herbert Wander described the testimony as beneficial and said the input will be instrumental in crafting recommendations to the commission. The recommendations - designed to streamline existing regulations and make them more user-friendly - will be formally presented to the SEC in April 2006.
The Co-Chairman also indicated that an additional year would be granted to the phase-in period for those small firms to meet compliance.
ISSUES WITH NEW MANUFACTURING DEDUCTION
Treasury Tax Legislative Counsel Helen Hubbard said this month that a recent Capitol Hill document highlights issues under a newly enacted manufacturing deduction that may need technical corrections.
The report highlights several issues under the new tax break that Congress still may have to address in a technical corrections bill to adequately reflect what law makers intended. Among them are:
- limitations on wages that can be deducted
- the definition of an expanded affiliated group
- the intended meaning of the term "directly allocable"
- calculations of the deductions by partnerships and Subchapter S corporations
- the application of the break to construction projects and to engineering and architectural services
- issues affecting the alternative minimum tax
RELIABLE SILVER ACHIEVES ISO CERTIFICATION
Reliable Silver, Inc. has recently achieved ISO 9001:2000 Certification. According to Reliable's president Robert Audette, "Achieving this goal required a concerted effort by everyone at Reliable and we are very proud of our accomplishment. The process of certification and continual vigilance has strengthened our company internally and will most certainly improve our working relationship with customers and prospects."
FEDERAL AGENCIES RELEASE NEW GUIDELINES FOR BANK SECRECY ACT
Federal financial regulators late last month issued long-awaited examination guidelines under the Bank Secrecy Act, giving financial institutions the most unified set of expectations to date on how to comply with federal anti-money laundering laws.
The document, which runs more than 300 pages, also includes exam guidelines issued by the Office of Foreign Asset Compliance, the Treasury Department unit that tracks and enforces trade and anti-terror sanctions against foreign nations and individuals. Although the guidelines do not set new standards, they do compile and consolidate a wide array of regulatory requirements, supervisory expectations, and recommended practices.
The Financial Crimes Enforcement Network (FinCEN), the government agency charged with developing the rules for anti-money laundering plans for our industry, has published an ?interim? final rule. You will have until January 1, 2006 to put a plan in place. The rule is designated as ?interim? as the FinCEN has not made a final decision on some issues described below. Nevertheless, you will be expected to comply with the rule. Significant changes were made to the definition of who must comply with the rule. As such, this will probably reduce the number of smaller businesses that are required to comply.
The principal term used in the rule is ?dealer.? The term "dealer" means a person engaged as a business within the United States in the purchase and sale of covered goods and who, during the prior calendar or tax year purchased more than $50,000 in covered goods; AND received more than $50,000 in gross proceeds from the sale of covered goods. FinCEN replaced the ?or? between purchased and received and replaced it with an ?and.? If a dealer does not meet both the purchase and the sale thresholds, the dealer does not have to comply.
The term? covered goods? is new. Within that definition are jewels, precious stones and precious metals as well as a new ?finished goods? section that derive 50 percent or more of their value from jewels, precious metals, or precious stones contained or attached to such finished goods. The effect of the new finished goods definition is to actually eliminate the need for some dealers to comply. The rule includes a retailer exemption. Basically, a retailer is exempt unless the retailer, during the calendar or tax year, purchased more than $50,000 in covered goods from persons other than dealers or other retailers (that is, the retailer purchased the goods from members of the general public or foreign sources of supply.) If you meet the definitions and must comply, you have four principal responsibilities.
First, you must have a written plan. You must incorporate policies, procedures, and internal controls based upon your assessment of the money laundering and terrorist financing risks associated with your line(s) of business. Policies, procedures, and internal controls developed and implemented must include provisions for complying with the applicable requirements of the Bank Secrecy Act. For purposes of making the risk assessment, you must take into account all relevant factors including, but not limited to:
- The type(s) of products you buy and sell, as well as the nature of your customers, suppliers, distribution channels, and geographic locations;
- The extent to which you engage in transactions other than with established customers or sources of supply, or other dealers subject to this rule; and
- Whether you engage in transactions for which payment or account reconciliation is routed to or from accounts located in jurisdictions that have been identified by the Department of State as a sponsor of international terrorism; designated as non-cooperative with international anti-money laundering principles or procedures by an intergovernmental group or organization of which the United States is a member and with which designation the United States representative or organization concurs; or designated by the Secretary of the Treasury as warranting special measures due to money laundering concerns.
Your program must incorporate policies, procedures, and internal controls to assist you in identifying transactions that may involve use of your business to facilitate money laundering or terrorist financing, including provisions for making reasonable inquiries to determine whether a transaction involves money laundering or terrorist financing and for refusing to consummate, withdrawing from, or terminating such transactions. Factors that may indicate a transaction is designed to involve use of your business to facilitate money laundering or terrorist financing include, but are not limited to:
- Unusual payment methods, such as the use of large amounts of cash, multiple or sequentially numbered money orders, traveler's checks, or cashier's checks, or payment from third parties;
- Unwillingness by a customer or supplier to provide complete or accurate contact information, financial references, or business affiliations;
- Attempts by a customer or supplier to maintain an unusual degree of secrecy with respect to the transaction, such as a request that normal business records not be kept;
- Purchases or sales that are unusual for the particular customer or supplier, or type of customer or supplier; and
- Purchases or sales that are not in conformity with standard industry practice.
Second, you must designate a compliance officer who will be responsible for ensuring that the anti-money laundering program is implemented effectively; the anti-money laundering program is updated as necessary to reflect changes in the risk assessment, requirements; and that appropriate personnel are trained.
Third, you must provide on-going education and training of appropriate personnel concerning their responsibilities under the program.
Fourth, you must provide for independent ?testing? to monitor and maintain an adequate program. The scope and frequency of the testing shall be commensurate with the risk assessment. Such testing may be conducted by an officer or employee, so long as the tester is not the compliance officer or a person involved in the operation of the program.
FinCEN is asking for additional input before making the rule "final" final. Should silver be removed from the definition of a "precious metal?" Should "precious stones" and "jewels" be defined more specifically, for example, by reference to a minimum price per carat, and if so, how? Is 50 percent the appropriate value threshold for determining whether finished goods containing jewels, precious metals, or precious stones should be subject to the rule? Any input on these and the other questions in the rule is welcomed.
About SUA
The Silver Users Association is a non-profit organization that was established in 1947 to represent the interests of companies that make, sell and distribute products and services in which silver is an essential component.
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