Want to Own Silver? Forget About SLV

| About: iShares Silver (SLV)

As a writer, it's always a disappointment when something which you see as being among the best or most important examples of your work receives less attention than other pieces. Sometimes this can be due to nothing more than a poorly-worded title, however, what it usually means is that a writer did not do a good enough job of explaining or highlighting the material which is of greatest significance.

It is with this in mind that I have decided to repeat a discussion which I had focused on in a previous commentary. In that commentary, I discovered what I believed (and still believe) to be the most important piece of data I have unearthed since I started writing about this sector.

It came from one, simple graph – on global silver inventories, over roughly a 50-year time horizon. The chart was compiled by the CPM Group, a private consultancy that is one of two quasi-official sources for supply and demand data in the precious metals sector, which we all must rely upon.

It shows a dramatic decline in inventories, which began in 1990, when global silver inventories totaled approximately 2.2 billion ounces. Inventories fell by more than 90% to less than 200 million ounces. The decline apparently ended in 2005, when (as the chart shows) inventories began trending higher, to approximately 600 million ounces, as of the beginning of this year.

This is roughly triple the total inventories for 2005, although still little more than a quarter of what was available in 1990. However, what immediately grabbed my attention was a note attached to the graph: “Inventories include Silver-backed Exchange Traded Funds (ETFs)”. I was flabbergasted to see this, for two reasons.

First of all, there could be no possible justification for adding this silver to global “inventories”. When (for example) a person buys a unit of SLV, the world's largest (so-called) bullion-ETF, you are supposedly buying one ounce of silver – which SLV claims to be holding for you, virtually free of charge.

By definition, that ounce of silver is now privately-held, with SLV acting as both custodian and trustee on your behalf. In theory, at least, that means that you are the only person with the legal right to sell that silver. Unless and until you decide to sell that ounce of silver, that silver is officially off the market – or is it?

As most holders of SLV should know, SLV holds no silver. Instead, it has custodians who (supposedly) hold all this silver on their behalf – again, virtually free of charge. These are the very same bullion banks who have been accused (unofficially) by myself, and most other precious metals commentators of deliberately manipulating and suppressing the price of gold and silver – in order to conceal their reckless mismanagement of the world's financial system.

These are also the same bullion banks who officially hold the world's largest “short” positions. In the case of silver, the short positions of these bullion banks now total nearly 500 million ounces (according to the latest tally from Ted Butler) – and in proportionate terms represent the largest concentration of positions in the history of commodity markets (on either the “long” or “short” side). As Mr. Butler has pointed out on numerous occasions, this fact alone is compelling evidence of manipulation.

However, let me return to my point. The same bullion banks who are the largest “shorts” in the history of commodities also claim to be custodians of the vast majority of all the world's bullion-ETFs – a service which they are providing free of charge – to help small investors enter the silver market on the “long” side (getting suspicious yet?).

Apart from the entirely ludicrous notion of a banker doing anything for free, what kind of “short” would provide huge trading vehicles (free of charge) to facilitate the entrance of longs into the market? Again, the very idea completely defies rationality...unless these bullion banks are only pretending to hold silver for these funds.

If they were merely pretending to hold silver on behalf of the ETFs, then first of all this explains both how and why they could do it for free. In addition, if this silver is truly nothing more than “paper silver” as I have alleged on many occasions, then every dollar wasted by investing in this imaginary silver dilutes the total number of investment dollars invested into this sector. This would make bullion-ETFs the perfect weapon for these bullion-bank shorts and, indeed, is the only way that any rationality can be attached to this market and these numbers.

It also explains why virtually every ounce of ETF-silver is listed as for sale, as part of global “inventories”. SLV-holders can crow all they want about how they have lists of serial numbers, and pictures of bars, but what those pictures don't show is that on the back of every one of those bars, the bullion banks have attached a “for sale” sticker.

Anyone can walk up to these bullion banks, at any time, hand them the prevailing “spot” price, and buy your silver ETF. There are a few legitimate, bullion-ETFs – who actually buy and hold real bullion for their clients. You will immediately be able to separate these from the bogus ETFs – because they do not claim to be able to buy and hold infinite amounts of bullion, virtually free of charge.

The other point which is of huge significance is that this entire (supposed) tripling of inventories only occurred because the bullion banks (and the bullion-ETFs) have conned people into buying over 400 million 'ounces of paper', while pretending to be selling silver.

If you want to own silver, then buy real silver. Thanks to the manipulations of the bullion banks (including their massive scam with the bullion-ETFs), we can all still buy real silver at a ridiculously low price – for a very limited amount of time.

If you're buying a bullion-ETF, or holding a bullion-ETF, then very likely all you are holding is paper.

Disclosure: I hold no position in SLV or any bullion-ETF