Silver ETFs: Inaccurate Inventory Records

Thanks to a link on ZeroHedge, I read this report by Project Mayhem Research Inc. According to the report, the iShares Silver Trust (SLV) and London-based ETFS Silver Trust (SIVR) physical silver funds both have inaccurate records regarding the levels of physical silver inventory. The report states that there is significant duplication of silver and the actual amounts are lower than reported. This indicates a high statistical likelihood of “systematic fraud or gross negligence” in the accounting of both silver ETFs. Since silver ETFs are now accepted forms of delivery on the COMEX (futures trading exchange) proper accounting is the only way establish proper silver price discovery. No wonder prices of silver are so low! There’s fraud everywhere!

Silveretfs 1 PDF Popout

If you’re buying silver or gold as an insurance policy against financial disaster, it makes sense to hold the actual commodity in its physical form rather than a piece of paper. If you’re buying such humongous quantities that you must buy paper, buy the Perth Mint Silver Certificates instead.

For the rest of you regular folk, just buy silver coins like peace silver dollars or silver bars. And if you like to collect pretty shiny objects, silver coins are the way to go! Collecting American silver coins is a great way to introduce your kids to the value of money and savings!

Comments

[Peter913:]

If your fraud article re siver's inventory is true, why has SLV risen this a.m. by .50 cents?
Has your article been discounted?
Peter

Aug 03 11:02 AM

[Xyrus:]

Yeah, buy physical gold and silver where dealers can rip you off for a 20%-40% markup. Good investing sense right there.

Unless you're buying vast quantities, the markup on physical bullion is ludicrous. This article sounds more like a shill commercial than anything else.

~X~

Aug 03 02:36 PM

[Othello4U:]

This is good information, I have always wondered how J.P. Morgan was able to short a years worth of silver production without owning the physical silver. Well, I guess if you ask a perfectly good question you will get a perfectly good answer!

Aug 03 05:09 PM

[User 465646:]

Whaaaaa??? You can short a futures contract without owning the physical silver.

cathy


On Aug 03 05:09 PM Othello4U wrote:

> This is good information, I have always wondered how J.P. Morgan
> was able to short a years worth of silver production without owning
> the physical silver. Well, I guess if you ask a perfectly good question
> you will get a perfectly good answer!

Aug 03 05:42 PM

[snoopy2:]

It's called a naked short. You wouldn't be allowed to do it, but the big guys can and do. Presumably, such a large position has the "self fulfilling prophecy" of actually causing the market to move in a direction favorable to the position itself, pretty much guaranteeing a profitable outcome.

Also, this is likely the reason the gold to silver price ratio is more like 60:1 when fro hundreds of years it was a near-constant value near 16:1?


On Aug 03 05:42 PM User 465646 wrote:

> Whaaaaa??? You can short a futures contract without owning the physical
> silver.
>
> cathy

Aug 03 06:09 PM

[snoopy2:]

The spread between the buy and sell prices of physical gold in even small volumes (source APMEX.COM) is generally about 2-3%? You need to change dealers (or at least start buying from me - I'll only charge you 10-20% extra, LOL)


On Aug 03 02:36 PM Xyrus wrote:

> Yeah, buy physical gold and silver where dealers can rip you off
> for a 20%-40% markup. Good investing sense right there.
>
> Unless you're buying vast quantities, the markup on physical bullion
> is ludicrous. This article sounds more like a shill commercial than
> anything else.
>
> ~X~

Aug 03 06:12 PM

[snoopy2:]

More like ignored. This is not the only article to claim this. According to one article I read, even the ETF prospectus for SLV indicated that it did not explicitly allow for, or expect a third party audit of its physical reserves to ever be carried out. Wonder why???


On Aug 03 11:02 AM Peter913 wrote:

> If your fraud article re siver's inventory is true, why has SLV risen
> this a.m. by .50 cents?
> Has your article been discounted?
> Peter

Aug 03 06:14 PM

[Bigh:]

Look this article is nonsense. in fact ETF Secs has put together some good research just email them [e-mail] and ask about it. Basically bar numbers roll over and the number alone is not unique. you need to take account of weight and dates as well. all can make them unique. the guys at ETFS have pics of said bars and a letter from the custodian. The thing i like is the 2 yearly audits. this product is also pretty cheap 30 bps!

in terms of perth mint just remember thats not backed 100% by allocated metal, its a promissory note guaranteed by the WA govt. McDonalds has a better credit rating!

Aug 03 07:27 PM

[Xyrus:]

From apmex site: 1 oz rounds 15.63 for quantities < 100

New York spot price for silver is 14.21 according to kitco.

That's a 10% markup, and that's not even for a solid name like Engelhard. If you want Engelhard that's a whopping 18% markup.

There is not a single dealer (other than idiots on E-bay maybe) that don't sell their metals at a significant markup, and yes 10% is significant.

I've got better things to do with 10% of my money than giving to middlemen.

~X~


On Aug 03 06:12 PM snoopy2 wrote:

> The spread between the buy and sell prices of physical gold in even
> small volumes (source APMEX.COM) is generally about 2-3%? You need
> to change dealers (or at least start buying from me - I'll only charge
> you 10-20% extra, LOL)

Aug 03 09:11 PM

[Bron Suchecki:]

I don't think Investor Nirav should have published this analysis, if you read the Zero Hedge article it says that it is a working paper, which means the findings are preliminary. If Zero Hedge thought it warranted distribution, they would have published it on Seeking Alpha themselves.

I have given my comments on the paper to Project Mayhem Research (seekingalpha.com/insta...) and they will be incorporated into a future revised paper.

big h: Perth Mint is not "a promissory note" and is 100% backed by metal used in its operations.

Aug 03 09:47 PM

[Othello4U:]

So, J.P. Morgan is using money from the SLV fund to finance its short postions, and covering it up with duplications, false entries, in the SLV inventory. The findings do need to be backed up by an independent source as the article stated, but for me an investor in SLV and a account holder in Chase, this information shines a light on alot of my questions.

On Aug 03 06:09 PM snoopy2 wrote:

> It's called a naked short. You wouldn't be allowed to do it, but
> the big guys can and do. Presumably, such a large position has the
> "self fulfilling prophecy" of actually causing the market to move
> in a direction favorable to the position itself, pretty much guaranteeing
> a profitable outcome.
>
> Also, this is likely the reason the gold to silver price ratio is
> more like 60:1 when fro hundreds of years it was a near-constant
> value near 16:1?

Aug 04 12:24 AM

[Bigh:]

If perth mint is 100% backed why does it need a guarantee,. also show me the list. basically the note says its backed by allocated and unallocated metal but there is no evidence of this. they allow delivery but tahts fine as long as everyone does not want it all at once.

Aug 04 09:54 AM

[searcher:]

Silly. Very silly.

Aug 04 01:44 PM

[TheHague:]

There are so many ways to get ripped off when investing that it makes my head swim! Sure you can take the physical stuff! Then I have to lie awake nights wondering when I will be robbed! Worse yet wondering if I got the proper purity so it would be worth something other than a door stop! I could buy silver from Perth Mint. I am sure they are reputable, but what keeps them from fabricating quantities and quality! The list of possible ways to defraud me just goes on and on! I just buy SLV and hope things are going to be fine! After all isn't that what we do every day any way! No guarantees mon!

Aug 04 06:53 PM

[Art_Vandelai:]

It is impossible for the individual investor to buy silver in physical form without paying a 10 to 50 percent premium to dealers. This premium is not recoverable on sale...therefore buyers of physical silver have to make up that ground with price increases. The level of fraud detected here, itf it is fraud, seems to deal with about 0.5% of the bars in the ETF. Certainly this is an aspect for investors to watch, but doesn;t convince me that it's necessary to pay the price to go physical.

Aug 04 10:46 PM

[Bron Suchecki:]

Bigh, the gurantee is just a further level of assurance. 1st is the 100% backing against every liability to Depository holders, 2nd is Lloyds insurance, 3rd is Government Guarantee. There could easily be a situation where there is a theft and Lloyds don't pay up, then holders have the further backing that the West Australian Government will make good the loss.

There is no bar list because the unallocated metal is backed by operational metal, as clearly disclosed and explained at www.perthmint.com.au/i...

It is important to note that Perth Mint is an actual user of gold, unlike a custodian for GLD. To a custodian, holding gold is a cost, it provides no benefit and hence I suppose one can argue this means there is a temptation not to back everything 100% because this will save you costs. Alternatively, the custodian may do the right thing, but the fund manager may be tempted to keep cash and not buy gold as they can use the cash for other things.

In the case of the Perth Mint it make no logical sense for us to take people's cash and not buy gold - we don't want cash, we want the gold, because we are a Mint not a bank. We have a need for physical gold in our operations. The more gold Depository gold clients leave with us, the bigger inventories we can run so we can do longer production runs etc etc. When you can sell a 1oz coin for 6% premium, why would you want to sit on cash instead?

I've dealt in more detail with the lack of logic of the view that the Perth Mint would not back its metal liabilities here goldchat.blogspot.com/...

Aug 05 10:02 PM

[Bron Suchecki:]

Bigh, the gurantee is just a further level of assurance. 1st is the 100% backing against every liability to Depository holders, 2nd is Lloyds insurance, 3rd is Government Guarantee. There could easily be a situation where there is a theft and Lloyds don't pay up, then holders have the further backing that the West Australian Government will make good the loss.

There is no bar list because the unallocated metal is backed by operational metal, as clearly disclosed and explained at www.perthmint.com.au/i...

It is important to note that Perth Mint is an actual user of gold, unlike a custodian for GLD. To a custodian, holding gold is a cost, it provides no benefit and hence I suppose one can argue this means there is a temptation not to back everything 100% because this will save you costs. Alternatively, the custodian may do the right thing, but the fund manager may be tempted to keep cash and not buy gold as they can use the cash for other things.

In the case of the Perth Mint it make no logical sense for us to take people's cash and not buy gold - we don't want cash, we want the gold, because we are a Mint not a bank. We have a need for physical gold in our operations. The more gold Depository gold clients leave with us, the bigger inventories we can run so we can do longer production runs etc etc. When you can sell a 1oz coin for 6% premium, why would you want to sit on cash instead?

I've dealt in more detail with the lack of logic of the view that the Perth Mint would not back its metal liabilities here goldchat.blogspot.com/...

Aug 05 10:10 PM

[Bigh:]

If its unallocated how do you know who else has a claim to it. By definition unallocated means credit risk.

Your comments about ETFs are wrong. There is no fund management. Creation and redemption is done against metal. No cash at all. Thats what worries me with the PMC. Face it when people want their gold its when the world is collapsing not normal times. With an ETF there is by definition enough gold there and its on call i.e Authorised Participants can redeem to demand as long as they have the ETFs. With PMC if all investors want gold all at once what guarantee do they have tehy can get it.

Thats my issue.


On Aug 05 10:10 PM Bron Suchecki wrote:

> Bigh, the gurantee is just a further level of assurance. 1st is the
> 100% backing against every liability to Depository holders, 2nd is
> Lloyds insurance, 3rd is Government Guarantee. There could easily
> be a situation where there is a theft and Lloyds don't pay up, then
> holders have the further backing that the West Australian Government
> will make good the loss.
>
> There is no bar list because the unallocated metal is backed by operational
> metal, as clearly disclosed and explained at www.perthmint.com.au/i...
>
>
> It is important to note that Perth Mint is an actual user of gold,
> unlike a custodian for GLD. To a custodian, holding gold is a cost,
> it provides no benefit and hence I suppose one can argue this means
> there is a temptation not to back everything 100% because this will
> save you costs. Alternatively, the custodian may do the right thing,
> but the fund manager may be tempted to keep cash and not buy gold
> as they can use the cash for other things.
>
> In the case of the Perth Mint it make no logical sense for us to
> take people's cash and not buy gold - we don't want cash, we want
> the gold, because we are a Mint not a bank. We have a need for physical
> gold in our operations. The more gold Depository gold clients leave
> with us, the bigger inventories we can run so we can do longer production
> runs etc etc. When you can sell a 1oz coin for 6% premium, why would
> you want to sit on cash instead?
>
> I've dealt in more detail with the lack of logic of the view that
> the Perth Mint would not back its metal liabilities here goldchat.blogspot.com/...

Aug 07 01:38 PM