Silver—Draw the Line

[webmaster]

Subject:Silver—Draw the Line
By: David Morgan, Silver Investor

Overview: The controversy surrounding the gold and silver ETFs continues and there are proponents both for and against the GLD and SLV. In an effort to remain consistent personally, my original “take” on the silver ETF remains, which is to state that any “investment” involving silver would have an overall positive effect because it would draw more and more attention to both professional and private investors that indeed silver is not only a worthwhile investment but also has all the monetary qualities of gold and has an industrial component that will remain, under any economic conditions.

Link: http://news.silverseek.com/SilverInv...1236922191.php

[Gümüş]

Why would any physical silver investor have anything good to say about the ETF when as Morgan says, the physical silver on hand vs the paper silver do not match. I could handle it if paper silver could only be sold relative to the amount of physical on hand. But when they start creating it out of thin air, the physical holder is hurt because supply and demand can be manipulated just like the banks do with FRN's. The Comex can raise or lower the price of physical silver whenever they want, and who could ever sift through and find out what is actually on hand (supply) at any given time. All in the name of ease of transaction i'm sure. What a scam.

[ricm123]

Originally Posted by Gümüş

Why would any physical silver investor have anything good to say about the ETF when as Morgan says, the physical silver on hand vs the paper silver do not match. I could handle it if paper silver could only be sold relative to the amount of physical on hand. But when they start creating it out of thin air, the physical holder is hurt because supply and demand can be manipulated just like the banks do with FRN's. The Comex can raise or lower the price of physical silver whenever they want, and who could ever sift through and find out what is actually on hand (supply) at any given time. All in the name of ease of transaction i'm sure. What a scam.

Interesting analysis. However acquiring proof of whether things really match up or not is next to impossible. (And apparently not by accident!)
I would think that the auditors might be able to get their “reasonable assurance” that an “investment in gold/silver” exists by merely obtaining written confirmation of the invesment from the custodians or sub-custodians. This is the way that other “investments” are audited. For example, when auditing investments in equity or debt securities, auditors do not go to Smith Barney or Merril Lynch and inspect stock certificates or bond debentures.
They send a letter to the brokerage house requesting confirmation of the securities that their client claims to own. In this case, because we are talkiing about an “investment in gold/silver”, I imagine that the procedure would be about the same.
From the auditors’ perspective, the written confirmation from the custodian pushes most of the liability onto the custodian in the event that the “investment in gold/silver” does not exist.

The problem(s) seems to be in the details of the prospectus.

The purity of the metals is not guaranteed.

Some of the metals may be in different places; some in London, some in New York... investors are not allowed to visit the vaults. (Like Fort Knox; we never get full disclosure.)

The counter-party liabilities are "limited" (and very unclear) as to what happens if the metals should disappear or turn out to be counterfeit.

There is no promise / expectation for physical delivery.

Basically, investors in SLV or GLD are operating on the basis that they can liquidate their shares at the market price. The actual existence of metals is a moot issue; the investment is a speculative bet on the price going up, not on the inventory's accuracy.

This can cause a conflict of interest with a commodity price where supply and demand play a role in the price. Especially when the supply side cannot be really verified!

The legalize in the prospectus leads many to question the “reasonable assurance” and integrity of the writers and custodians as well as the FTC's approval of the ETF's. The specific refusals to allow audits certainly raises red flags. The temptation for fraud is discomforting. The opportunity for a Ponzi-like scheme seems horrific!

The shortsightedness of the FTC in the Madoff case (and many others) gives rise to tighter regulations being invoked soon (so they say...). Perhaps the day will come when both GLD and SLV are actually audited and the truth will be known?

Now, what ever happened with that Dubai Silver ETF? Did it ever launch?