Bron Suchecki

Want to Own Silver? Forget About SLV

Jeff,

You have replied to someone else's comment which appear after mine, but ignored mine. Does this mean you conceed on the issue of the reasonableness of the storage fee?

Want to Own Silver? Forget About SLV

"your assumptions about delivery cost are only valid if you're implying that silver (and gold) goes straight from refineries into bankster vaults - rather than having to be PURCHASED by the banksters (first) on the open market, and then transferred to their vaults."

No it doesn't. There is no difference between purchasing from refineries or on the open market - refineries are all in different countries just like existing stocks. If market makers cannot acquire metal from investors or sellers already holding it in London, they will actually be able to acquire it at a discount to London spot (which is the usual state of the market), the discount equalling the shipment cost into London. Even if they have to pay a premium (or pay shipment costs into London), then they just factor this into their bid and ask prices quoted for SLV. This is why delivery is not a cost that comes out of the 0.5% fee.

"When you mention the 0.5% fee charged by SLV, my understanding is that this also (supposedly) covers their OWN administrative costs AS WELL AS all the shipping costs, transaction costs, insurance costs, and storage/security costs."

The 0.5% does cover their administrative and compliance costs, but as I have discussed above and in my previous replies, any shipping and transaction costs are recovered via market making activities, so these do not come out of the 0.5%. As I have also replied, insurance and storage/security are FIXED costs, not variable, whereas the revenue of 0.5% is variable. This means that once you cover you fixed costs, the 0.5% on any additional metal is pure profit.

"You would be hard-pressed to find any ONE bankster service (in ANY of their business activities) which they are willing to provide for a 0.5% fee. Suggesting that they are willing to REDUCE their fees (to close to ZERO) to SUBSIDIZE the entry of longs into the market is simply nonsense."

0.5% is not "close to zero". On 280moz, 0.5% = $24 million, that is not anywhere near zero. The fact is that in the wholesale market storage is offered for much less than 0.5%. Do you remember David Einhorn's Greenlight Capital exiting his GLD in favor of physical bullion? He did this because it was CHEAPER, in other words he could get storage for less than GLD’s 0.4%. In fact, quoting www.hardassetsinvestor...:

“By contrast, a $400 million player in the bullion market has substantial room to negotiate. You can be sure his [Einhorn] bullion holdings are being custodied for less than 12 basis points.”

If you believe that 0.5% is an unrealistic fee, a subsidised fee and therefore proof that SLV is a scam, then logically you must also believe that Bullion Vault, with a 0.12% storage fee, is also a scam. This puts you in a bit of a spot, because Bullion Vault is one of the most transparent operations in the market, and favoured by many goldbugs and commentators. Your stepping out on a limb here.

Want to Own Silver? Forget About SLV

"Obviously there MUST be both delivery AND insurance charges for AT LEAST 250 million oz's of silver - which could NOT have already been in vaults"

You've missed my point. Lets assume the additional 250moz is real and was bought by bullion banks to back SLV & others. In that case, the bullion banks would incur no delivery charges as the seller delivers metal to London at their cost to be able to sell it on the spot market in London. Secondly, the additional 250moz has no insurance charges - as I said, they only insure the first $1b of holdings, not the entire holdings.

"the ludicrous idea of a BANKER (holding a massive short position) SUBSIDIZING longs by providing free storage/security" & "Will ANYONE suggest that banks will provide a FREE service for precious metals longs - rather than charge someone a fee for storing other valuable assets?"

Jeff, you keep on saying they are doing it for free when SLV charges 0.5%. Some of that 0.5% goes to the custodian, they are being paid. That is not "for free" - I don't understand why you keep on saying they are providing free storage.

The question is whether the 0.5% charge is realistic, profitable assuming the volumes of metal SLV and others hold is physical. As explained in my previous reply it is. Saying this does not mean that they have physical, but nor does it mean they do not.

Want to Own Silver? Forget About SLV

Jeff,

Before I comment, just want to state upfront that I work for the Perth Mint, but I am speaking here in a personal capacity. While I’m speaking personally, obviously the ETFs are competitors to my employer’s business, both in respect of physical coins and bars as well as our own storage facility, so I’m not any apologist for the ETFs. Taking each of your points in turn.

1) Transaction costs. I note that SLV’s average Bid Ask Ratio is 0.08%. This is very tight but is not necessarily unprofitable for a market maker. You are right that the market maker must be purchasing (or selling) gold constantly as it sells (or buys) SLV shares. My experience with the Perth Mint’s ASX listed product (code: ZAUWBA) is that the market maker will simply set their stock exchange price for an ETF higher than their cost on the wholesale over-the-counter market and adjust this constantly during the trading day. This way they always make a profit on transactions, it is not a cost to them. If individuals bid prices under this than the market maker misses out on a trade. It is only where there are excessive buyers or sellers that the market maker’s prices will get hit.

2) Insurance/delivery costs. Delivery costs are effectively zero, as the metal is most likely already in the vaults as sellers of physical need to bring their metal to London to trade it. Insurance is a real cost, but are easily covered by 0.50%. Important to note that the metal is not fully insured, just the first couple of billion (I don’t think the prospectus says anything about the first loss limit of the insurance). Once you get to a certain size therefore, the insurance cost is a fixed cost, not variable.

3) Storage/security costs. These are fixed costs, once you have a vault and have secured it, every additional ounce does not result in any change in costs. Once you get to the point that you have covered these fixed costs, every ounce above that is pure profit and this is where custodianship can be highly profitable. At 280 million ounces, SLV is definitely there in my opinion. Storage business is a classic case of economies of scale, which is why smaller companies have to have higher storage charges (eg Perth Mint allocated silver is 2.5% pa).

I have been a bit brief on explaining the above, but my view is that they are making money with a 0.5% expense ratio. That is why I think the “free of charge” line of attack is not supported and you are better off focusing on your other criticisms.

Want to Own Silver? Forget About SLV

You say "custodians of the vast majority of all the world's bullion-ETFs – a service which they are providing free of charge" but SLV has an expense ratio of 0.50%, some of which if I remember the prospectus correctly, is paid to the custodian. If SLV holders pay 0.50% how can it be considered "free". By what do you mean free?

I agree that there is "no possible justification for adding this silver to global inventories" but I don't follow how that it means that "every ounce of ETF-silver is listed as for sale ... the bullion banks have attached a “for sale” sticker". Just because CPM Group has made a classification error on what is or isn't inventory doesn't make it available for sale. I would not be surprised if the CEF metal is included in CPM Group's inventory number along with SLV. I think CPM Group is just adding up all "known" or reported on piles of silver and saying that is inventory.

How Will Lease Recalls Impact Gold's Price?

Charles Moorehead, lease contacts are for ounces, so ounces have to be returned at maturity. I doubt many lenders would take cash settlement. In any case, the lender could/would just use the cash to buy the physical so one could argue not much difference between cash or ounce settlement of a lease. There is a catch however, which I'll cover in my next article.

Hong Kong's Gold Move Means Nothing

bindlepete, I don't see how you see my article is saying everything is fine, I'm just saying this one little 2t move is not significant. Suggest you reserve your opinion until my next article comes out

Hong Kong's Gold Move Means Nothing

Philman, remember that James slagged off on the Perth Mint without really any evidence, so that's why I'm a bit skeptical towards him.

However, I don't remember ever saying do or don't buy at $700 or any other level.

You will notice most of my commentary is critical, but don't interpret that as me being negative on gold. I don't see any need to push gold, there are plenty doing that and I wouldn't be adding anything of value. But when incorrect statements or conclusions are being made, that is when I feel I have to say something, because no one else is.

What I disagree with is those who sieze on every event as proof of their position/theory because that is intellectually dishonest and is not someone seeking the truth. Sometime events are not significant, or have other explanations. A good commentator should be looking for evidence that questions their view, always testing it. If not, if they look to twist everything to justify their view, then they will miss evidence that shows a shift and reveals new opportunities.

Institutional Gold Market's Massive Change

This article hypes an midly interesting strategic development in the gold market. There are two statements he makes which are not correct.

Statement 1: “gold demand that was previously satisfied with physical bullion through forward contracts between private parties can now be satisfied with unallocated gold accounts”

This is the key on which the whole article hangs. The problem is that a significant majority, if not all, of institutional forwards are already settled via unallocated. Accordingly, this move by CME is not “a massive change” in the market – OTC market transactions are primarily settled via London unallocated accounts, and will continue to be if they move to CME. No change here.

As a result this so-called "scheme" provides no support for his conclusions that it "will allow for gold demand to be shunted into gold substitute products" or "the reason for this move is that physical gold bullion is getting increasingly scarce".

Statement 2: “Why the CFTC would allow supposedly gold-backed ETF shares to satisfy the physical commodity component in an exchange of futures for physical transaction” and "like settling either COMEX futures contracts or OTC forwards with GLD ETF shares"

That announcement is about Exchange of Futures for Physical (EFP) transactions, not physical settlement of a COMEX futures contract. I checked COMEX rule 113.02 and there is no mention of ETFs being allowed - only physical is allowed. See also seekingalpha.com/user/...

The issue with EFPs is explained better by Tom Szabo (silveraxis.com/todayin.../). His key point is that an EFP is an "exchange" and there is no change in the number of futures at the end of the transaction - so how can an EFP done with an ETF "settle" a COMEX futures contract as Trace claims?

Gold Retains Its Value, as Usual

idiot bureaucrats - agree, never underestimate the stupidity of others. Of course there could also be idiot evil bureaucratic criminals at the helm. Either way gold is your only protection.

Six Important Gold Price Indicators

In the fight for truth, kohalakid, I know you can't be everywhere so just doing my bit to help.

Six Important Gold Price Indicators

Good point jambo. However, I have made a prediction in my blog article "Gold to break $1000 but then down to $500!" (goldchat.blogspot.com/...). Quote: "I have kept my super secret system a secret for many years, but I have to let you in on it now because a great calamity will befall gold shortly – once it breaks $1000 it will be downhill to $500. The chart below does not lie!"

I would have published this on Seeking Alpha, but I didn't think they (or the readers) would have a sense of humor. Seeing the reactions the article got on my blog and Kitco, it was the right decision.

Six Important Gold Price Indicators

"Comex recently permitted gold futures contracts to be settled not only with physical delivery, but with delivery of shares of gold exchange-traded funds like GLD" - this is incorrect, I would suggest reading kohalakid's comments seekingalpha.com/user/... specifically seekingalpha.com/user/...

yellowhhoard: "Watch for the spreads on one ounce gold coins to widen as we move forward, as the "official" price of gold becomes less and less realistic."

I assume by "official" you mean spot? The price of coins reflects the price of wholesale (ie 400oz bar) gold PLUS manufacturing capacity. There is nothing unrealistic about the official or spot price, wholesalers can always acquire metal at this price. The price of coins merely reflect retail demand. See goldchat.blogspot.com/... and goldchat.blogspot.com/...

Why Buying Gold Is a Political Statement

Interesting point you make about competition within and amongst. Gold advocates would say that the problem with (fiat) money is that there is no competition - the Government enforces a monopoly on using its money.

Reviewing the 'New' Kid on the Gold Block

I have to say I find these comments interesting. I could have just included the holdings of the ETFs but I added the total privately held gold figure to make the point that as big as GLD is, it is small compared to the rest of the gold out there.

I did say "small" window, maybe I should have said "some" transparency". However, the fact is that there was zero transparency before ETFs, now we have some. Yes, at 6.5% it is a small amount of volume, maybe my problem was that I assumed people could make that conclusion themselves without me having to spell it out. I did not want to drag the article out by going on about it, and thought it better to wait for (inevitably) a contributor to write something about how a change in GLD's holdings was good/bad for the gold price, and then use that as the hook to make the point that GLD is too small to matter.

"ETFs instead of physical?" where do you get this from my article. All I have done is state the facts, you have made that interpretation. And a "rant"? Compared to some of the other crap from contributors who have no experience in precious metal markets, this article is far from a rant.

If I was advocating ETFs over physical, why would I include in my table the Central Fund of Canada, or GoldMoney, both of whom are strong on physical and transparency? Why would draw attention to Turkey and India and finish with "preference for physical over paper"? You are seeing what you want to see instead of what I am actually saying.

I work for the Perth Mint, we make a lot of money from physical coins and bars as well as Depository services. The ETFs are competitors of ours taking away money from coin and bar sales and competiting against our Depository for those customers who don't want to personally store gold. Therefore your accusation that I am advocating ETFs over physical has no basis.

By drawing attention to the fact that ETF's are less than 6.5% of investment, I am telling people that there is another 90%+ of the market that is physical, either personally held or with custodians. As I said, very interesting that you get it completely the wrong way around.