I was doing some research recently with my friend, Tim Staermose over at Sovereign Man, and we decided to have a proper look at the iShares Silver Trust ETF (NYSE-SLV) prospectus to see what all this GATA nonsense about it being a fraud was all about.
WOW. What a scam.
Here are just my top five most serious concerns about this iShares Silver "Trust me" ETF.
1. Weasel out clauses. The prospectus is full of 'em.
I know that, according to the prospectus, “Authorized Participants” can demand to take delivery of silver from the SLV trust in baskets of 50,000 shares (50,000 ounces of silver at a time). But, in practice, if there were ever a true shit-hit-the-fan scenario, the mechanism could be suspended.
Just one example from the prospectus is: “The sponsor and trustee may rely upon any documents they believe in good faith to be genuine and to have been signed or presented by the proper party.”
That means, in reality, that all they need from the custodian is a written statement that they have the silver. If the silver isn’t there, then iShares can simply say, “Sorry, your shares are worthless.”
And, as a small fish, with less than 50,000 shares, you don’t have a leg to stand on. As Tim noted, SLV is a paper security, just like any other listed on the stock market. It may offer a “claim” on silver. But, its not the same thing as silver.
2. There's no way of knowing if the silver is really there.
It seems obvious to me that you’d store the silver in the same country as you list the ETF. Well, it’s listed in New York, but according to the prospectus, the silver is stored “in England and other locations that may be authorized in the future.”
The only reason I can fathom for this clause is to avoid reporting requirements. America’s COMEX, for example, is the world’s largest silver market. And at the end of each business day, it is required by law to report precisely how much silver went in, went out, and how much remains.
England has no such reporting requirements. And if they were to introduce them, iShares can simply move the silver to “other locations.”
3. The custodian doesn’t even have the silver.
This isn’t speculation. This is right there on the prospectus: The custodian may “use subcustodians to discharge its obligations to the trust under the custodian agreement.” In simple English, that means the silver could be anywhere. Or, more likely, could be imagined to be anywhere.
4. The custodian doesn’t have to make good any silver lost to “terrorism.”
That’s now such a broad term, that a simple heist could be labeled terrorism and the custodian doesn’t have to make up even one ounce of the lost silver. The custodian did have insurance against this initially, but once again the prospectus offers the most incredibly blatant weasel out clause I've ever seen: “The custodian has the right to reduce, cancel or allow to expire without replacement this insurance coverage.”
Smelling yet? Does to me.
5. The custodian is JP Morgan, banker to the Federal Reserve.
JP Morgan is Ben Bernanke's banker and has long been criticized by GATA, Eric Sprott, Ed Steer, and Jason Hommel for manipulating the silver market by selling silver it doesn’t have.
I can’t prove that the silver's there or not because I can't get into its vaults. But I do know that JP Morgan’s sister company, Morgan Stanley, paid out $4.4 million to settle a lawsuit three weeks ago in which clients claimed the bank charged storage fees for silver that wasn’t even in its vaults. A similar lawsuit is pending with UBS.
I may be wrong about all this, and I hope I am. But this stinks to high heaven. If you want to have silver handy for a rainy day, the only way to do it is to buy silver coins and store them in your safe or nearby your house, so when banks shut their doors, you still have your emergency funds.
My own stashes are spread around four countries... in gold silver and platinum that make a reassuring clunking sound when I run them through my hands. That alone makes holding physical metal all the better!
Cheers,
Peter.