silver tales

  1. 3,816 Posts.
    As nobody else has mentioned these stories on the forum I thought that I may as well. In the following article, James Turk makes mention of an increase in bullion storage fees - it may just be a case of trying to increase revenue - and discusses the pros and cons of types of bullion ownership.

    http://groups.yahoo.com/group/gata/message/1527

    By James Turk, Editor
    The Freemarket Gold & Money Report
    Letter No. 325
    May 26, 2003

    © 2003 by The Freemarket Gold & Money Report

    I continue to hear the horror stories. A subscriber tells me
    that the bank where he stores his silver announced a three-fold
    increase in fees. His bank therefore recommended that he sell
    his silver "because it is expensive to store and has been a
    poor investment." When he gave his bank notice that he
    intended to move his silver to another location, the bank
    backed down and said that his storage fee would not change.

    I advised him to move the silver anyway. My reason? It
    appeared to me that his bank was too eager to get him to
    liquidate his silver. Maybe their trading desk is short
    physical silver and is looking to get its hands on any
    silver it can. If that is the case, who knows how safe his
    silver really is?

    Another subscriber tells me that his bank raised his
    storage fees for silver to 2 percent per annum, apparently
    thinking that additional expense burden would prod him
    into selling. Again, his bank told him that silver has been
    a poor investment and should therefore be sold.

    My response was: Why has his bank suddenly taken this
    great concern for the customer's well being after having
    ignored him and his silver for years?

    And the horror stories are not just for silver. I also have
    been told things about gold that make one wonder about the
    factors that are driving some banks to act as they are with
    regard to metal placed with them for safekeeping.

    The result of their actions has directly affected their
    treatment of customers who store precious metals with
    them. It appears that these banks are eyeing up the
    metal stored in safekeeping for a purpose. And it is all
    but certain that the banks taking these steps are not
    doing it for their customers' best interests.

    The sad fact is that most people do not completely
    understand the intricacies of storing precious metals.
    As a result, many people do not fully appreciate the
    risks they are taking with their gold and silver, which
    ironically has been bought by many people in order
    to provide a risk-free way to hold some of their wealth.

    Consequently, I have prepared this primer to provide
    you with three storage basics to help you avoid
    needless risks with your gold and silver.

    1) Unallocated vs. allocated. These are the two most
    basic methods of storage. When you store on an allocated
    basis, you continue to own the gold. There is no transfer of
    title. With allocated gold, you deliver gold bars to the vault
    under a contractual agreement that the exact same bars
    will be redelivered back to you upon request. But with
    unallocated gold you become an unsecured creditor of the
    bullion bank, and thus, in an unallocated account you
    are at risk of the bullion bank's insolvency. So when you
    store gold, it should be allocated.

    2) Pool accounts. This term is used to mean that your
    gold is commingled with the gold of other people, which
    is easy to do because gold is a fungible commodity. There
    are advantages to pooled gold, generally relating to
    economies of scale and the resulting reduced fees that
    are charged when the gold of many people is pooled. Pooled
    gold can be allocated and unallocated. For example, in
    GoldMoney all gold is allocated, and each user owns his
    respective portion of the pool of allocated gold, which again
    is the way that all gold should be stored. But in contrast
    to the storage arrangements of GoldMoney, the pooled
    gold of some firms is unallocated. Thus customers of these
    firms own unallocated gold, which means that you are a
    general creditor of the firm and at risk of the firm's
    insolvency. Pool accounts are advantageous to use, and I
    do recommend them -- but only when the pool holds allocated
    gold. Avoid all other pool accounts.

    3) "Gold" certificates. These certificates are common, and
    are perhaps the most misunderstood type of storage
    because they are not storage at all. The name is a
    misnomer because you really don't own gold. All you own
    is someone's promise to pay gold to you, which is the
    basic nature of any "certificate." Let's say you have some
    dollars and you go to your bank to make a deposit. As
    evidence of the transaction, the bank gives you a
    "certificate of deposit." You no longer own the money,
    and you now become an unsecured general creditor
    of the bank. This same principle describes how the
    so-called "gold certificates" work. You don't really
    own gold. Instead, you are an unsecured general creditor
    of the bank, trading firm, or mint that issued you the
    certificate.

    In summary, everyone who owns gold has to distinguish
    between paper and physical gold, which are very
    different things.

    I recommend that everyone own physical gold, and
    there are two ways to accomplish this objective -- either
    you take possession of the gold yourself or place your
    gold in allocated storage. There are no other alternatives.

    If you take possession of the gold, you must then be
    willing to manage the responsibilities of holding physical
    metal, and to take those required steps to make sure
    that it is safely stored and insured. You also have to be
    certain that you are purchasing gold from a reliable
    dealer so that you are not receiving gold-plated bars
    of lead or other base metal.

    If you place your gold with others for storage, I
    recommend that your gold be allocated. Do not place
    your gold at risk in any way, and do not hold gold
    certificates.

    Gold certificates are not gold, despite what banks,
    firms, or mints may tell you. These companies will
    usually offer you all kinds of inducements to take
    their certificates -- free "storage" being the most
    common. But there is no such thing as a free lunch.
    If a bank or mint is storing gold for you for free, it's
    because you are a general creditor of that bank or
    mint, which is now using your gold to generate
    income.

    Unallocated gold and certificates are not gold. It is
    just someone's promise to pay you gold, and in a
    crisis -- which is precisely when you need that gold --
    it is likely that there will be a default on their payment
    of gold to you.

    The bottom line here is quite simple: Make sure your
    gold is allocated. Do not take the risk of "gold
    certificates."


    Also, Ted butler provides a commentary of silver movements at the Comex. You can get the warehouse stocks at

    http://www.nymex.com/jsp/markets/sil_fut_wareho.jsp

    On 29/06/2000, the stockpile consisted of 75 mozt in the Registered category and 27.5 mozt in the Eligible category. On 06/02/2003 the stockpile consisted of 55 mozt in the Registered category and 51.5 mozt in the Eligible category. On 04/06/2003, the stockpile consisted of 46 mozt in the Registered category and 60 mozt in the Eligible category. So while the stockpile has increased by about 6 mozt in the last 2 1/2 years, the makeup has changed quite appreciably.

    http://www.investmentrarities.com/06-02-03.html


    WEEKLY COMMENTARY

    June 3, 2003

    James Cook’s essay follows this article.

    The COMEX Silver Shuffle
    By Theodore Butler



    (The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

    In the silver world, nothing is more closely observed than the COMEX warehouse inventories. For good reason. These silver stocks, at a little over 100 million ounces, are the largest known inventories in the world, making up the vast majority of total world visible inventories of under 150 million ounces (and maybe the vast majority the unidentified total, as well). Even more important, since the COMEX publishes daily statistics that not only show changes in total silver held, to the ounce, but also by category (eligible and registered) and by individual warehouse, they are the most visible inventories of all.

    The COMEX silver warehouse stocks, due to their size, prominence and visibility, greatly influence the perceptions of traders and investors. Sudden dramatic changes in inventory totals can, and do, impact silver prices. For instance, if COMEX silver inventories experienced a sharp, notable decline, many would be quick to equate that to a confirmation that the silver deficit had finally come to the most important stockpile in the world. If that did occur, nothing could be more bullish for the price of silver, especially considering how stable COMEX silver stocks have been over the past two years, hovering around the 108 million ounce level. Usually, there is very little silver coming into, or going out of the COMEX inventories. There are many more days when these stocks are unchanged, showing no movement, than there are days of any movement in or out. The silver just sort of sits there.

    Last week, the physical movement of silver in the COMEX warehouses, both into and out of, changed sharply. The changes were so dramatic, so as to provide yet another proof that the price of silver is being manipulated by a few COMEX insiders.

    I'd like to clearly state for the record, that while I do criticize the COMEX and the CFTC frequently, regarding the ongoing silver manipulation, I recognize that both are important institutions that are vital to the silver market. Both serve an important public role and are staffed, in the majority, by people dedicated to doing the right thing. It is not my intent to damage, in any way, these vital institutions, but rather to rid them of manipulative practices by a small number of individuals. I am even going to ask you to assist me in fulfilling that stated intent.

    Over the last week or so, roughly 10 million ounces of silver were physically withdrawn from the COMEX, from one warehouse (HSBC), in the registered category, with 7.5 million ounces being withdrawn on the last two days of the week, May 29 and 30. My guess is that this represented a payoff on a lease due on June 1, but in reality, the reason for the withdrawal isn't that important, as there are several potential legitimate reasons as to why someone would withdraw silver from the COMEX warehouses. But if my hunch is correct, and this 10 million ounce withdrawal was for a lease repayment, the ramifications could be staggering. Here's why - while 10 million ounces is a drop in the bucket, only 1% of total silver lease obligations of 1 billion ounces, this same 10 million ounces is nearly 10% of the largest remaining silver stockpile in the world, the COMEX stocks. What would happen if the silver lessors wanted back even 5% or 10% of their leased silver back? Where would they get 50 or 100 million ounces of real silver? From the COMEX? What if the lessors wanted back 20%, or 200 million ounces? Still think $50 or $100 silver isn't coming?

    What is much more important, in my opinion, about the dramatic movement in COMEX warehouse stocks last week, is that before, during and after, this 10 million ounce withdrawal, about 8 million ounces of different silver was moved into the COMEX, almost simultaneously. There was, most definitely, no way that this in and out movement was coincidental. Those who monitor COMEX silver inventories know that, taken separately, a 10 million ounce withdrawal, or an 8 million addition, in a week or so, would have attracted close scrutiny. That's because either would have been the biggest weekly movements in 2 years. That the movements involved occurred simultaneously, and are not somehow connected, is virtually impossible.

    Stated a different way, what I am saying is that while there could be several legitimate explanations for why 10 million ounces went out, there can be no legitimate reason why 8 million ounces came in. There can be only one reason why someone moved in 8 million ounces at precisely the same time that 10 million different ounces were going out, and that reason isn't legitimate. The 8 million ounces came in when it did, solely to camouflage the 10 million taken out. There's no other plausible explanation. This COMEX silver shuffle was not a bookkeeping event and involved separate shipments of real silver. This is the point I am trying to make - the biggest story is not the 10 million going out (a very big story in its own right), but the 8 million coming in (as of 6/2/03).

    Why the shuffle and camouflage? Real simple - if COMEX silver stocks begin to decline in earnest, most silver investors and users would take that as a sign we were about to run out of silver, and bid the price accordingly. Because the level of these stocks has not dropped below 100 million ounces for a couple of years, the breaking below of such a round number would be noteworthy. I'm saying that the 8 million came in to prevent such a noteworthy event. I'm also saying that I think the few individuals responsible for the camouflage were the big shorts, the dealers who are and were short the excessive amounts. They are the same kingpins of the silver physical and leasing worlds. These insiders were notified, in advance, that the 10 million was coming out, and they made arrangements to blunt the market impact by transferring in a like amount.

    If I'm correct, this is a separate and specific proof of manipulation in silver. The great thing is, my allegations are incredibly simple to prove. No complex investigations here. All the regulators have to do is to ask the very few big traders involved in the 8 million ounce transfer why they brought the silver in when they did. The CFTC and COMEX management wouldn't even have to ask if these traders were short big, at the time, as they would already know that. I'm talking a few phone calls here. It could turn out that I am wrong. In that case, I will apologize. It could turn out that there were very legitimate reasons for the 8 million ounces to come in when they did, although I can't think of any. Can you? I think it wouldn't hurt to ask.

    I ask you to help resolve this issue quickly. I've found I generally get quicker answers from the CFTC and the COMEX, when many people write in, asking the same questions. I don't know about you, but I am tired of this silver manipulation. I'm not giving up, I'm just tired and impatient. I want to put this on fast/forward. I don't want the CFTC or the COMEX to drag this out for months.

    Please contact the CFTC and COMEX (addresses at the bottom). Please ask them to confirm the legitimacy of the 8 million ounce transfer of silver into the COMEX, including any premium paid for this silver, if purchased and not owned prior to the transfer. And whether these few traders were short silver. Keep it simple.

    If you do decide to contact the CFTC and the COMEX, let me ask another favor, since you're writing in anyway. Ask them how a market can be in a structural deficit, for more than a decade, without rising prices, and still be considered free, and not manipulated? They've been ducking me on that one for months. Thanks in advance.


    This is a very specific issue that I am writing about here. I am not referring to COMEX silver warehouse movements in the future, or in the past, but only for the past week or so. I think if the regulators shine a light on this 8 million-ounce transfer, they will find something. As I said, if I'm wrong I'll apologize. If I'm right, and the regulators don't try to sweep it under the rug, it could end the silver manipulation.

    Michael Gorham
    Director of Market Oversight
    Commodity Futures Trading Commission
    [email protected]

    Neal L. Wolkoff
    Executive Vice President and Chief Operating Officer
    New York Mercantile Exchange
    [email protected]


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    And did anyone else note Rene Rivkins visual silver plug on Denton? Maybe it was only self delusion by a silver bull.



    Billy
 
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