April 28, 2007

Just Say No to the Silver ETF

Rube Goldberg Strikes Again

I just read the recent Rubino/Turk article on SLV, the silver-backed ETF.
So it seems that the SLV Investor(1) owns the iShares(2), which are issued by the Trust (Bank of New York)(3), which hires a Custodian (JPM Chase Bank)(4), which can have any number of Sub-Custodians, Agents or Depositories(5), where the silver(6) might be held. Compare this schematic with the true silver owner(1), who owns and controls his own silver(2).

JP Morgan Chase, as I'm sure we all know, was implicated in the Enron accounting fraud, the Blanchard/Barrick lawsuit, and many other high-finance scams too numerous to recount. I guess that makes them a perfect choice for this assignment.

You might have innocently thought that all this 100+ million ounces of silver is sitting quietly in one place in a New York vault. Maybe it is.

But, if there should ever be an audit, JPMC has TEN DAYS to round up enough silver to satisfy the auditors. Even then they don't actually have to have it on hand for inspection by the auditors, or anything as tedious as that. This is the 21st Century! All they have to do is to say it is located at one of those Sub Custodians and it would be too much trouble and expense to move it.

This is just custom-made to allow real silver to do double and triple duty. If the auditor wants to get snotty and insist on seeing all the silver assembled in one place, JPMC has to be assured of payment by "somebody" for the trouble and expense of doing so.

Never happen.

On the other hand, the auditor could just accept a document swearing that a certain amount of silver located in a certain place is part of the SLV hoard. It might even be "true", on that particular day.

And to top it off, the Custodian (JPMC) is absolved in advance for erroneous accounting entries and has the explicit right to make and reverse provisional entries and to back-date any necessary corrections. So no matter how much their records may differ from reality, it can all be fixed later on with no penalty. With this kind of accounting, the question of who owns what silver on any particular day becomes extremely hypothetical.

Gosh, this kind of thing makes the CRIMEX start to look good.

Now add to this the recent publicity by Patrick Byrne of the very widespread epidemic of naked short selling of stocks. So widespread and epidemic, in fact, that the stockbroker industry has tacitly admitted that they have no hope of ever cleaning out all those counterfeit shares known as FTDs (failures to deliver the promised stock). So, just live with it. Since SLV is nothing more than another share, I’m sure it is entirely possible to naked-short the exchange traded fund as part of a program to hold down the price of silver.


The net result of all this is that precious metals are to remain stored away in vaults and under centralized control as usual, while those interested in owning precious metals are systematically separated from those metals by elaborate financial structures subject to behind-the-scenes manipulation. The whole scheme is being sold to the retail investor on the basis of Convenience, and they are taking the bait. Come to think of it, Convenience has been used as bait to sell a long list of Centrist initiatives. Even slavery could be pitched as Convenient, since you’d have no responsibility for anything ever again, and all your food, clothing and housing would be provided to you for free.

The irony is that the SLV buyer is really only interested in convenience and FRN price appreciation. But by allowing control of the metals to remain in centralized hands, they are creating the conditions for more price manipulation, which will NOT be to the upside. At the same time, they increase their exposure to accounting swindles, bankruptcy, market closings, confiscation, rule changes, special taxes and what-have-you when the Emergency arrives.

I'm not telling you anything new, but the price suppression in precious metals is aimed at people who just want to see their stuff go up - people who, essentially, just want more FRNs. If it doesn't go up, they get antsy. If it goes down, they dump it. Unfortunately, this speculator/trader mind-set is extremely easy to manipulate and control.

On the other hand, the wise investor understands the value of his assets whether they "go up" this month or not. These are the people who add to their holdings on price weakness and wait for the fundamentals to make themselves felt - people who accumulate real wealth, and look beyond the ephemeral FRN price tag on that wealth to something more like true value.


I conclude that gold and silver can only be fairly valued to the extent that physical control is decentralized. That creates the conditions for a true free market in precious metals. This is the logic of our Constitution in requiring the US Mint to provide free coinage of circulating silver and gold money.

The distribution of precious metals into retail hands seems to be happening in spite of the CRIMEX, SLV and similar pseudo-metallic schemes, but they are certainly slowing it down. Unfortunately for America, too many of those hands reside on the other side of the world. Americans have the freedom to own precious metals and thereby undo monetary centralization; they just don't yet have the understanding or the will to do so. As in so many other things, the power to break our chains lies unused in our own hands.

Or as Bob Dylan once put it:

Freedom? "Just around the corner" from you.
But with Truth so far off, what good will it do?

It is reported that in the Persian Empire, in the days before Alexander the Great, all gold and silver resided in it’s rightful place in the King's treasuries, not even guarded, while the serfs had to invent their own worthless scrip to use for exchanging their daily necessities.

Stephen Kovaka
Corydon, IN

April 21, 2007

Jason Hommel: How to Buy Silver & Avoid Getting Scammed

How to Buy Silver, & Avoid Getting Scammed

Silver Stock Report

by Jason Hommel, April 20, 2007

People continually ask me about all kinds of physical silver investments. I have avoided writing this article for years because people are always telling me to not say anything bad about anyone, or your competition. But I don't need to name names, and liars are not my competitors. So, here's how to avoid getting ripped off.

Never buy silver from TV ads. Ads are expensive. TV ads sell silver for up to $50 or $100/oz., up to ten times more than the silver price. They sell as "rare, limited, collectibles" things that are mass produced, and newly minted. In coin shops, you can buy the same products that were sold on TV ten years ago, right at the cost of the silver itself.

Never buy the Silver ETF. First, they may not own the silver as it is unaudited and unauditable. The nature of silver, and the reason you are buying it, is that silver is "payment in full" not a promise to pay. The ETF is not even a promise; for you can never withdraw your silver, but only sell it for dollars--if the institutions running it don't go bankrupt. See Jame's Turk's recent analysis of the ETF for more on why you probably should not trust the silver ETF:

Never buy silver "certificates" or any other form of "paper silver"; not even if guaranteed by a government. Goverments are the least trustworthy to back silver certificates. If governments were trustworthy, why would they issue unbacked paper money in the first place? Think about it.

Don't let anyone other than you, store your silver. If someone else is storing your silver, then you own a promise to receive silver, (for a fee), and you don't own silver itself.

Never buy "leveraged" silver products. I don't trust futures contracts; they can default, and I expect them to default. I believe it is a moral failure to gamble with futures contracts, and is not consistent with true Christian conduct. Futures contracts are a major scam. Minor scammers will offer you less leverage, and they will take your money and buy futures contracts for themselves, and keep the difference. Even worse, the minor scammers will talk you out of your orders, delay your orders, refuse your orders, purposefully trade you into losing positions, or confuse you with undisclosed costs and commissions.

Never attempt to buy silver or silver futures from a major brokerage house that may have a short position in futures contracts. They may offer you every excuse in the book to prevent taking your order. They may say that they must speak to a manager, or must wait for the market to open or for the "next price fix" on another day. They may bluff, saying "it's not worth my time", or that "you'd be killed by commission charges" (how contradictory!) or try to scare you with "unknown assay fees". (The assay is free at Brinks in LA.) They may try to get you to buy the ETF, or silver stocks, or futures contracts, instead.

Never buy rare coins or numismatics for investment purposes. I believe that rare coins are like idols. Stay away from idols made from silver! Up to 99% or more of the value can be in the image quality, or rarity, and not the substance of the silver. Further, you can lose up to 50% of what you paid for the item when you sell it back. As little as a $300,000 investment can be enough to unknowingly "corner" a market in certain rare coins, wildly driving up the value, because you are the only buyer, and you will have nobody to sell to. I've bought a few rare coins, a few Roman denari silver pieces for $20 that contained less than a dollar's worth of silver. But I bought them for the novelty, and curiosity, and as gifts, not for investment. Some dealers "push" rare coins because they get a larger commission on rare coins. Rare coins are illiquid and not fungible. Silver is money because it is fungible, and liquid.

Never buy a "pool" account of unallocated silver. Never let others hold your silver, either in allocated or unallocated form. A pool account is unallocated, meaning that no specific bars are yours. But even if it is allocated, and you have the serial numbers of the bars that you "own", your warehouse company can go bankrupt. Maybe you can invest a little bit into allocated silver; as a way to diversify the location of your physical silver. Two companies I would trust (but do not use) are goldmoney.com and the Anglo Far East Bullion Company; they will hold silver for you in allocated form. If you want to trust someone to hold your silver; trust your family first.

Personally, I avoid buying Silver-Eagles. Why? Because they typically cost about $2 over the "spot" price of silver.

Liberty dollars are even more overvalued. $20/oz.?! Ridiculous. And the Liberty dollar paper warehouse receipts? Even worse.

You do not have to pay more than about 7% over the spot price for your silver, in the U.S. Old silver coins are currently being sold for under the spot price of the silver content, which is 72% of an ounce in $1 worth of coins.

Shop around. Prices vary. Refiners manage to buy about 200 million ounces of silver under the spot price every year. Try to buy close to their price. Everything is negotiable. (But remember, the coin dealer also takes a risk just to sell silver, as silver prices can move up 5-10% in a single day, too!)

Beware of long shipping times. Long shipping times are a warning sign. Coin shops have been known to go bankrupt. Never buy more silver at one time than you can afford to lose. Therefore, if you buy silver from a dealer, break up your order over time, or use several different dealers at once. Diversify your investments at every stage.

The safest way to get silver is to buy from a local dealer, with "cash on the barrel". Get cash from your bank. If you plan to spend more than $5000 at once, order your cash from the teller a week in advance. If you withdraw more than $10,000, be prepared to help your bank fill out the CTR or "Cash Transaction Report" Federal form which asks for your social security number and occupation. In the meantime, locate various coin dealers that publish price quotes on the internet. For a start, see here: find-your-local-coin-shop.com

Take cash to a local dealer, negotiate heavily on price; & show the dealer various price quotes from other dealers on the internet! If your local dealer cannot fill your order at a reasonable price (within 1% of the lowest prices), then drive to another dealer, or break up your order, and order online from your sources.

Remember, coin dealers are the "working rich". They take the risk of having a coin shop, which can be robbed, to make money, by serving you. Most are very honest, and earn their commissions. Many have had guns pointed in their face. They are our industry's heros. Treat them with respect; and don't waste their time; they are often too busy to write articles like this one to you; and most could not afford my advertising budget to be able to reach you.

If you want to acquire $1 million in physical bullion, it will take some time, and a lot of work, and you will be one of less than probably 100 people worldwide attempting such a feat. After years of searching, I have found only 5 coin dealers in the entire U.S. that consistently have as much as 100,000 ounces of silver in their own personal inventory. Many dealers who claim to be "the nation's largest dealer" (and there are about 5-10 companies making such a claim) do not have so much in inventory. Many dealers will claim that they can access as much, but that is because they will place your order with a larger dealer, and "drop ship" directly from the other dealer, to you.

Understand the difference between a price "indication" and a price "lock". An indication is only a guess on what the price may be. A "lock" means you are committed to buy at that price, and you have struck a deal, and cannot back out. Be aware of the potential risk to bullion dealers who will give you a price lock, before they get your money, in a bull market. (That is a standard business practice.) Unless they are buying on the futures markets when they take your order with their own excess cash, or unless they have more metal than they want, then bull market conditions can eventually bankrupt them, if that is their standard business practice, and if their order volume is high enough.

This is why it is so important to do a cash for metal purchase in person. It protects both you and your dealer.

The two largest dealers in the United States are Johnson Matthey, a silver refiner, and Amark who is Johnson Matthey's largest dealer.

Johnson Matthey has "run short" of silver several times in the last few years, where delivery times increased substantially, up to 6-8 weeks, and Johnson Matthey does not take orders from the public.

Amark will make you sign all sorts of government forms; and demand your social security number, and so I have never ordered from them directly.

If you live outside the United States, it may be much more difficult for you to find silver. You might want to think about traveling to the U.S. to buy silver, and fly it back with you, or have it shipped.

Do not let yourself be confused by the flow of silver at your local coin shop. In many cases, coin shops buy more silver from the public that continues to sell. The coin shop must then "dump" this silver to another, larger dealer, or the refiners, like Johnson Matthey, who are the biggest buyers in the industry, the buyers of last resort.

It must be this way, given the market structure. The silver mines produce about 700 million ounces of silver, and industry demands about 950 million ounces of silver annually. The difference is largely met by "recycled" silver, about 200 million ounces per year. In other words, investors are selling silver to the coin shops that ends up at the refinery.

Don't let your investment opportunity to buy silver go up in smoke, because if you don't act, it literally will.

And unless you end up with silver in your hands, you don't own silver at all. Phantom silver, or a promise to pay silver, is not the same thing, and I hope you don't realize it when the promise to pay silver also goes up in smoke.

For more on what kinds of silver to buy, and where to get it, see

Thank you!

You can comment on this report at the "Hommel Forum" here:


April 17, 2007

Ted Butler: The day of reckoning

Silver market analyst Ted Butler's new commentary explains in detail how the silver market is manipulated by one or two short-sellers far beyond the manipulation of any other commodity market. Butler's commentary is headlined "The Day of Reckoning" and you can find it at GoldSeek's companion site, SilverSeek, HERE

April 10, 2007

James Turk: Can we trust the silver ETF?

GoldMoney founder James Turk, editor of the Freemarket Gold & Money Report and consultant to GATA, has studied the SEC filings and prospectus of the silver exchange-traded fund on the American Stock Exchange (SLV) and has discovered that they go out of their way to provide for not actually having allocated silver to back the shares sold in the fund. Turk's research revives the long-simmering question of whether the precious metals ETFs are secure investments or just more mechanisms to be used by the financial powers and the central banks behind them to short the metals.

You can find Turk's new report, "Can We Trust the Silver ETF?" at Dollar Collapse HERE

April 4, 2007

Ted Butler: The excellence of silver

In his new essay, silver market analyst Ted Butler makes the case for the white metal as well as it ever has been made.

Silver has done spectacularly well over the last five years but not as well as some other metals -- because, Butler says, of the huge and concentrated short position in silver on the New York commodities exchange. That short position, Butler writes, "must be resolved, and whether that resolution involves default or buying by short covering, it will have the same bullish impact on price."

(He's betting that the short position in silver will be resolved by default -- with a smile if not a hearty laugh at the commodities exchange's longs.)

You can find Butler's essay, "The Excellence of Silver," at GoldSeek's companion site, SilverSeek, HERE