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Are you paying storage fees on silver that doesn''t exist?
By James R. Cook and Ted Butler
Investment Rarities
Wednesday, November 17, 2004
Last week we had two prospects tell us that they had
silver stored with major New York brokerage firms.
One man had 50,000 ounces he'd bought from them
years ago. The other had 20,000 ounces with another
well-known firm. They have both been paying storage
fees. But neither had any kind of proof that they owned
real silver. They could not get a storage receipt with
the exact size and weight of the bars. Nor could they
get serial numbers for the bars.
According to silver analyst Ted Butler, if you can't get
proof that real silver is in your name, then the silver
doesn't exist. quot;Why wouldn't they give you the serial
numbers if they had the bars?quot; asks Ted. quot;It's easy
enough to do that and it's something that silver
buyers who store silver should insist on.quot;
A few years ago Ted Butler addressed this very issue
as follows:
* * *
By Ted Butler
The same careful thinking and analysis that goes into
the decision of whether to invest in silver is often not
present in the decision of where and how the silver
will be stored. Here I think many silver investors may
be making a big mistake. That mistake is in assuming
that just because you may have a piece of paper that
reads that you own silver, there is real silver backing
that piece of paper. In fact, I would assert that the vast
majority of silver pieces of paper, such as foreign bank
silver certificates, pool accounts, and all leveraged
contracts have no real silver behind them. How could
they? No one can provide evidence of more than 150
million ounces of verified silver bullion in the world,
yet we have billions of ounces of silver promised by
various pieces of paper..
What they have been doing, issuing and letting their
silver certificates remain unbacked by real silver, is
an immensely profitable business. For 20 years or
more by not having to go out and buy and store real
silver whenever a customer buys a silver certificate,
the foreign bankers have been printing profits for
themselves. Their customers give them cash upfront,
and not only do these banks have full use of that
cash, they do not have to pay any interest on that
cash, and get this -- they charge storage fees for
silver that doesn't exist. It's better than stealing,
because if you just stole the money from someone,
you wouldn't get to charge additional storage fees.
It's a racket.
Now I have surmised that there may be a billion
ounces of silver involved in these certificates, but
I think the figure may be much, much more. Here's
my reasoning. While a billion ounces of silver may
be a lot of silver, it sure isn't a lot of money. Five
billion dollars over 20 years and all the banks that
are doing this is peanuts. One man, Warren Buffett,
bought almost a billion dollars' worth of silver by
himself (of course, he couldn't get full delivery when
it came down to it).
I recently witnessed one transaction where one entity
bought 10 million (paper certificate) ounces from a
major Swiss bank. You don't think, over the span of
20 years and the hundreds, or thousands, of banks
involved in this silver certificate scam, that there
haven't been a hundred others like this entity? What's
$5 billion spread over hundreds if not thousands of
banks worldwide?
There are two things that should come to every silver
investor's mind.
First, is there silver behind my certificate? There most
likely is if you a have a certificate that spells out the
serial numbers on the bars or a specific description of
the silver held (bags of coins, for instance). There
probably is if the storage function is separate and
distinct from the dealer selling you the silver. There
probably is if it's registered in your name and not the
name of your dealer. If you have all three, no sweat.
But if you hold a certificate where the silver is not
described specifically, or is unallocated form, or is
in a pool account, or there are no storage charges,
you would be wise to assume that the silver doesn't
exist.
That doesn't mean that you will automatically lose
when silver takes off, but it becomes a question then
of the credit quality of the entity you are doing business
with, which is a very different analysis than the merits
of silver. You then would be betting upon the financial
viability of a dealer whose books you have not analyzed.
Appearances can be deceptive. Remember that a few
years ago the largest silver refiner in the world, Handy
amp; Harman Refining, suddenly went bankrupt and all
silver pool owners and depositors were left in the cold.
Also, there may be small print wording in these
unbacked silver certificates that may prevent you from
getting your silver in physical form or that may deny
you the true world price at the time you may wish to
sell.
The second thing concerning silver certificates that
should come to every silver investor's mind is the market
implication that a silver price rise would have on those
issuing non-silver-backed certificates. This is what I was
mainly referring to in my mention that these certificates
are a separate and distinct short position.
Even if you are not worried that your dealer may renege
or go out of business (in the case of a large Swiss bank,
for instance) if silver rises in price dramatically, the
implications for the silver market will be profound.
While those who have been issuing these non-backed
silver certificates have profited immensely over the
decades by having free use of their silver depositors'
money, there is a cost to be paid for those profits in
the event of a silver price spike. Even if the depositors
don't demand their silver, many will want to cash out
at high silver prices. The issuing banks will be liable
for those profits, and the only way the banks can limit
their liability is to offset their suddenly very naked
silver exposure and buy silver in some form, paper or
physical. At some price trigger point -- $8, $12, $20
-- these banks will panic and buy en masse.
Ask yourself this: If the silver short sellers that these
banks have been for decades suddenly turn collective
buyers at any price, to the tune of hundreds of millions
or billions of ounces, who will be there to sell to them
such quantities?
Still think that $50 or $100 per ounce is unreasonable?
My advice here is not aimed only at new silver buyers.
I am speaking to those who have bought silver already,
over the years, with no input from me. My advice for
those holding paper silver in questionable form is to
get your silver into unquestionable form. Get out of
pool accounts and unallocated silver and into real and
allocated silver. Hold your silver in hand or with
someone you trust. The additional costs will prove well
worth it.
Make the switch now, while you can. Don't wait for the
price to rise, for then it may be too late. I can't think of
a worse outcome than for someone to have invested
in silver for a long time only to be denied a profit when
the price rises because he held the wrong form of stored
silver. Please don't let that happen to you.
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