October 2, 2022

The Number One Risk of Owning the iShares Silver Trust SLV

Evaluating risk is a part of any investment decision process.  A quick look at the recent past reveals that every asset can fluctuate in value, sometimes very rapidly.  Housing prices declined around fifty percent during the financial/banking crisis that started in 2018.  Commodities are notoriously volatile, subject to wide swings in demand and supply.  Even stocks, which for the past two years have been on a nonstop upside ride can have long stretches without gains or sudden sharp downdrafts.  Stock returns for the decade 2000 to 2010 were just a shade above zero.

Gold and silver, the only currencies to retain value for thousands of years, will continue to shine but will also have periods during which pullbacks will occur.  Holding physical silver in large quantities can be problematic when considering the cost of storage and security.

One alternative to holding physical silver is to purchase shares of the iShares Silver Trust (SLV) which holds physical silver stored by a custodian.  The value of the SLV over time will correlate closely to changes in the price of silver which makes it a relatively good proxy for holding physical silver.

As discussed above, every asset class has risk and owning the SLV is no exception.  If you are of the opinion that the greatest risk to the SLV (and to your personal wealth) is the government, you would be right.

As discussed in the SLV proxy statement, among the various risks of owning the SLV, adverse and/or confiscatory actions by the government is the number one risk of owning the iShares Silver Trust.

Future governmental decisions may have significant impact on the price of silver, which may result in a significant decrease or increase in the value of the net assets and the net asset value of the Trust.

Generally, silver prices reflect the supply and demand of available silver. Governmental decisions, such as the executive order issued by the President of the United States in 1934 requiring all persons in the United States to deliver silver to the Federal Reserve, have been viewed as having significant impact on the supply and demand of silver and the price of silver. Future governmental decisions may have an impact on the price of silver and may result in a significant decrease or increase in the value of the net assets and the net asset value of the Trust. Further regulations applicable to U.S. banks and non U.S. bank entities operating in the United States with respect to their trading in physical commodities, such as precious metals, may further impact the price of silver in the United States.

The SLV currently holds approximately $12.25 billion in silver bullion.

No Silver Manipulation Says CFTC After Five Years and 7,000 Hours of Work

proof-silver-eagleThe case has been conclusively settled.  All those paranoid people who have been claiming manipulation of the silver market are wrong according to the Commodities Futures Trading Commission (CFTC).

After a five year investigation and 7,000 hours of investigativing silver trading the CFTC says there is no “viable case” for charging anyone with manipulating the silver market.  To prosecute a case the CFTC must prove the intention to manipulate prices along with proof of the actual trades involved in the manipulation.

Casting doubt on the CFTC’s decision was none other than CFTC Commissioner Bart Chilton who implied that even if there was manipulation, the standards for proving manipulation are so difficult that a lot of the bad guys are escaping justice.

CFTC Commissioner Bart Chilton, a vocal backer of the probe, said the decision shows it remains difficult to mount a case even after the Dodd-Frank financial overhaul eased some restrictions.

“It’s been the most frustrating and disappointing non-policy related item since I joined the CFTC in 2007,” Mr. Chilton said. “Our manipulation standard remains too high a hurdle for regulators to overcome; not enough bad actors are being punished.”

The CFTC has won recent acclaim for aggressive enforcement efforts in markets including interest rates, crude oil and platinum. But even with expanded powers to police derivatives markets stemming from Dodd-Frank, the agency has successfully concluded just one case–In the power market–from trial through appeal in its 39-year history.

The conclusion comes as policy makers reassess the banking industry’s role in commodity markets. The participation by firms such as J.P. Morgan and Goldman Sachs Group Inc. in businesses such as aluminum warehousing and power marketing have been the subject of congressional hearings and enforcement actions this year. The Federal Reserve is expected before 2013 ends to issue new rules governing banking companies’ participation in these markets.

Translation:  Even though the too big to fail banks such as JP Morgan have been found guilty of manipulating everything from the LIBOR rate to the price of aluminum the CFTC can’t find any evidence to prove that they manipulated the price of silver.

For an alternate view on silver market manipulation see How the COMEX Crashed the Silver Market and How Wall Street Pros Made Huge Profits On Silver ETF Crash As Small Investors Sold

Panic Selling Crushes Gold and Silver Prices – Bearish Sentiment Reaches Extreme Levels

goldThe precious metal markets, which have been under a constant drumbeat of negative news and bearish price forecasts for months, sold off sharply today.   Bearish investors seemed to reach the “give up” stage as gold and silver fell below key technical levels.  Panic selling continued to cascade throughout the day as precious metal investors hit the sell button and buyers stepped aside.

By the end of the trading day, gold dropped an astonishing $84 per ounce to close at $1,478, down over 5% on the day and below $1,500 per ounce for the first time since July 5, 2011.   Silver had an even worse day with a price decline of 6.5%, closing down $1.81 per ounce at $25.95.

Analysts had multiple reasons for the huge decline in gold and silver prices including the belief that inflation will remain subdued and the Federal Reserve would begin to slow the pace of monetary stimulus later this year.  In addition, many trend following investors are repositioning out of precious metals into other investment opportunities such as stocks which have appreciated by over 100% since the depths of the financial crisis.  By contrast, gold and silver  have been unable to breach highs reached in mid 2011.

Also weighing on investor’s mind was the fear that the proposed sale of over $500 million of Cyprus gold reserves would further pressure gold prices.  Comments in the Wall Street Journal suggested that other countries may also be forced to sell their gold reserves.

The news about Cyprus “gets people to wonder: Will there be central-bank liquidation of gold when other countries get into trouble?” said Adam Klopfenstein, senior market strategist with Archer Financial Services in Chicago. “Selling gold might be the new caveat for any future [bailout] deals.”

The match that ignited the explosive move to the downside was struck on Wednesday when Bloomberg reported that Goldman Sachs predicted sharply lower gold prices and suggested that investors actually short the gold market.

The turn in the gold price cycle is accelerating after a 12-year rally as the recovery in the U.S. economy gains momentum, according to Goldman Sachs Group Inc., which reduced forecasts for the metal through 2014.

The bank cut its three-month target to $1,530 an ounce from $1,615 and lowered the six- and 12-month predictions to $1,490 and $1,390 from $1,600 and $1,550. Goldman recommended closing a long Comex gold position initiated on Oct. 11, 2010 for a potential gain of $219 an ounce, analysts Damien Courvalin and Jeffrey Currie wrote in a report today.

“Despite resurgence in euro-area risk aversion and disappointing U.S. economic data, gold prices are unchanged over the past month, highlighting how conviction in holding gold is quickly waning,” the Goldman analysts wrote in the report. “While higher inflation may be the catalyst for the next gold cycle, this is likely several years away.”

Goldman cut its 2013 gold estimate to $1,545 an ounce from $1,610, trimmed its 2014 forecast to $1,350 from $1,490, and set year-end targets of $1,450 in 2013 and $1,270 in 2014. Goldman recommended starting a short Comex gold position, targeting $1,450 with a stop at $1,650, the analysts wrote.

Ironically, the biggest worry for gold and silver investors now comes from the precious metal ETFs, which greatly contributed to the precious metals bull market as investors poured billions of dollars in the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV).  If investors in the GLD and SLV initiate panic liquidations, a sharp rebound in gold prices may be wishful thinking despite today’s huge sell off.  According to Goldman Sachs,  “The fall in prices could end up being faster and larger than our forecast, as aggregate speculative net long positions across Comex futures and gold ETFs remain near record highs.”

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

COURTESY: STOCKCHARTS.COM

The bearish sentiment and price action on gold and silver seemed to have reached extreme levels.  Does anyone hear a contrarian bell ringing?

How To Buy, Store and Sell Gold and Silver

By: GE Christenson

You want to buy silver and gold. There is much to consider!

safe

  • Physical metal or paper promises?
  • From which supplier will you buy it? Price is not the only consideration.
  • Where do you store it? Your sock drawer, a safe, insured and secure vault, or in another country?
  • How do you sell it and when?
  • IRS Rules

 

Physical, ETF, or Paper?

Do you want actual physical silver and gold that you can hold in your hand? If you do, then buy coins or bars and skip ahead.

If you want to buy and sell easily without taking delivery of actual metal, then perhaps you should invest in an ETF (Exchange Traded Fund) for gold and silver. The fees are minimal; ETFs are convenient and good for frequent trading. The two most popular are GLD and SLV. They are also criticized by many analysts, so I encourage you to also consider PHYS, PSLV, GTU, and others.

If you want paper, then buy options or futures contracts and be careful. When elephants fight, the grass gets trampled – and most of us are merely grass in the world of futures trading.

You Want to Buy Physical Gold and Silver Coins and Bars. Good! Where?

There are many dealers who will sell over the internet and ship to your home or to a secure storage vault. Their prices will vary slightly and so will their terms for payment and delivery. See the partial list and brief comments at the end of this article to get started. There are many other fine dealers in addition to the few examples I have listed.

Storage

More important than where you buy is whether you will buy for delivery to your home, delivery to a secure domestic storage facility, or for delivery to a vault outside of the United States.

Your home – Convenient and close but vulnerable to fire and theft. Your sock drawer is not recommended – buy a safe, hide it, and tell very few.

Safe deposit box at local bank – Secure, less convenient, probably not insured, and vulnerable to a search warrant, court order, and banking shutdown. Use a local bank, not a branch of a huge mega-bank.

Secure storage in the USA – Very secure and safe but may not be close or convenient. Are you comfortable with such storage? If so, then this is an excellent choice. Choose a vault OUTSIDE the banking system.

International Storage – You can store in commercial vaults in London, Canada, Switzerland, Hong Kong, Singapore, Australia, and other locations. The IRS MAY want to be told what you are storing and its value if you are an American citizen and storing internationally. See IRS Rules.

How Do you Sell Your Gold and Silver?

If you are buying for insurance against devaluing paper currencies, perhaps you intend to hold it for a long time or expect to will it to your family. In either case, don’t sell it.

If your gold and silver coins are in your possession, then you can sell via the internet or take them to a local coin store. Most companies that will sell to you via the Internet or a phone call will also buy back at a slight discount to sales price (they have to sell at a mark-up to stay in business). You can also sell on eBay or to private individuals. There probably will be tax implications, so consult with your tax advisor.

When to Sell Gold and Silver?

Again, there is no right answer for everyone. Some will argue that gold and silver are essential insurance against unbacked paper currencies and so should never be sold. Investors may want to hold until they see some large price, say $150 silver and $4,000 gold. Others wish to trade in and out, buying low and selling high. Your choice will help determine if you want paper silver, an ETF, coins, or bars, stored domestically or offshore. It is easy to sell paper or an ETF. It may be less convenient to sell coins and bars that you have stored in a safe deposit box. It probably will be easy to sell gold stored in Switzerland.

Jim Sinclair, legendary gold trader and investor, says buy “fish lines” and sell “rhino horns.” What he means is that markets, especially gold and silver markets, often move too far, too fast, both up and down. The down moves – the fish lines – scare out leveraged speculators and “weak hands” and usually indicate good buy points for long-term investors. When leveraged speculators, hot money, and the public drive the market higher in a parabolic spike upward, the chart looks like a rhino horn, and that often indicates a good time to sell. There will be many more signals, but most of us are overwhelmed by greed and fear, especially panic, and we often miss the signals. In 1929 the “signal” was to sell when shoeshine boys were giving stock tips. Something similar will happen at the next panic high in gold and silver, but that may be years away.

IRS Rules

The IRS has instituted new rules for United States taxpayers. We are now required to report holdings of foreign assets on form 8938 (Statement of Specified Foreign Financial Assets) and form TD F 90-22.1. Consult with your tax attorney and financial advisor, but the simple interpretation is this:

If you own financial assets in another country worth more than certain amounts, usually you must report these assets on form 8938 with your federal tax return and on form TD F 90-22.1 due June 30 of each year. It is wise to comply with IRS requirements as the penalties can be severe. There may be exceptions that your professional advisor can discuss, but these relatively new requirements may influence your choice of investments and their storage locations.

Alphabetical (partial) list of gold and silver vendors with brief comments on each.

Please do your own research before making a purchase.

APMEX – Large gold and silver bullion and coins dealer operating out of Oklahoma. They maintain a sizeable inventory and will buy and sell online in several currencies with reasonable commissions. Apmex will “lock-in” a purchase price online and accept a personal check in payment (with delayed delivery). If you wish, they will also arrange for secure storage with a subsidiary company and ship directly to that insured storage facility. Apmex will assist with the purchase of silver and gold for investment in your qualified IRA.

Bullion Vault – Secure insured vault storage in London, Zurich, and New York for both gold and silver. Purchases can be arranged quickly and online in different currencies with low costs for storage and insurance. It is easy to sell or take delivery of your metals.

Global Gold – Secure insured vault storage in Switzerland, Hong Kong, and Singapore for both gold, silver, platinum, and palladium. Purchases can be arranged quickly and online with low costs for storage and insurance. It is easy to sell or take delivery of your metals. Ownership is physical and fully allocated.

GoldMoney – Secure insured storage in the UK, Switzerland, Hong Kong, Canada, and Singapore for both gold and silver. Purchases can be arranged quickly and online in different currencies with low costs for storage and insurance. It is easy to sell or take delivery of your metals.

GoldSilver.com – Large gold and silver coin and bullion dealer operating out of California. They maintain a sizeable inventory and will buy and sell online with reasonable commissions. GoldSilver.com will arrange storage in Singapore, Hong Kong, Canada, or the USA. You can easily sell your gold and silver holdings or take delivery. They also will assist with purchasing gold and silver coins and bullion for your retirement accounts. If you have time, watch their instructional videos.

Hard Assets Alliance – This is a relatively new company that attempts to meet many needs including convenient gold and silver purchases with secure insured and allocated storage for gold and silver. Silver can be stored in the US but currently only gold can be stored offshore in several countries. Their downloadable information booklet states:

Exempt from US reporting requirements. As a domestic institution, GBI’s US customers are exempt from both the FBAR and Form 8938 filing requirements if offshore metal storage is elected.”

In some circumstances, this exemption from US reporting requirements may be important in your decision-making process.

Lear Capital – Large gold and silver coin and bullion dealer operating out of California. They maintain a sizeable inventory and will buy and sell online with reasonable commissions. Lear Capital will assist with purchasing gold and silver coins and bullion for IRA and 401k retirement accounts.

Liberty Gold and Silver – A smaller gold, silver, and platinum coin and bullion dealer operating out of Oregon. Liberty Gold and Silver will assist with purchasing gold and silver coins and bullion for IRA accounts and can arrange secure allocated storage in the USA, Canada, Germany, Switzerland, and Singapore.

Perth Mint – Located in Australia, the Perth Mint has been in business for over 100 years and is owned by the Government of Western Australia. The mint refines and produces a variety of products, special coins, and commemoratives in gold, silver, and platinum. The Mint receives over 70,000 visitors each year. You can purchase coins and bullion for delivery and arrange for allocated or pooled storage of your metals.

SilverSaver – Secure insured storage in the USA for gold and silver. You can make convenient periodic purchases by direct withdrawal from your checking account. This allows for a signup and forget “dollar-cost averaging” purchase plan. You can also take delivery of your gold and silver or easily sell it back to SilverSaver.

The Ultimate Gold Trust – Gold can be purchased and held in Switzerland. This storage solution is recommended by Julian D. W. Phillips, a frequent commentator on gold and gold storage options. Read his latest article on the safety of offshore storage.

GE Christenson
aka Deviant Investor

Silver’s Biggest Gains Are Yet To Come

I think I am becoming a non-fan of infographics.  Maybe it’s just me, but many infographics are getting way too long and complicated.  With that in mind, the latest infographic on silver from the Visual Capitalist is worth a look – they keep the story focused and simple while explaining the investment facts on silver.

The fact that silver has corrected from its highs of 2011 is meaningless in the long term.  Every major multi-decade bull market will have sharp corrections along the way, especially when manipulated downward as was done by the COMEX in May 2011 (see How The COMEX Crashed The Silver Market).  Long term investors can calmly accumulate silver on sell offs and continue to build their wealth.

After breaking out of a long base, silver has had double digit gains in 7 of the past 10 years but is still super cheap as a competing currency to fiat money.  With virtually every major central bank in the world flooding the markets with newly created paper currencies, the value of money based only on  the “full faith and credit” of the issuer is guaranteed to decline against the value of real assets – especially gold and silver.

Silver as an Investment - The Silver Series Part 3

Precious Metals Storage – Everything You Need To Know But Probably Don’t

By Nick Barisheff:

Worldwide economic uncertainty has created a growing interest in precious metals as a way to preserve wealth. Today, global risks for investors include currency devaluation, sovereign debt defaults, bond market collapses and stock market losses, all underpinned by ever-increasing government debt.

For protection from impending economic Armageddon, investors are turning in increasing numbers to the traditional safe haven of precious metals. Unfortunately, many today don’t know how to purchase or store bullion, and consequently may find themselves as vulnerable to financial collapse as those who didn’t purchase any bullion at all.

This increased interest in precious metals as portfolio insurance has spawned a new generation of precious metals-based financial products, many of which are paper proxies or derivatives of bullion. There are even unregulated markets for the exchange of “digital gold.”

A clear case for transparency

In 2007, former Bank of Canada Governor David Dodge gave a speech entitled “A Clear Case for Transparency”  to the Canada-UK Chamber of Commerce. “…[I]investors will have to take on more responsibility for diligent research,” he said, “so that they can better understand the nature of their investments and demand greater transparency where it is now lacking … they must do their own homework and make a concerted effort to understand what they are buying.”

Most investors do not read the fine print of the agreements they sign with respect to financial investments; they make assumptions, but do not definitively know if they own actual bullion. Some are attracted to certain bullion investments because of low premiums and low storage fees, but when was the last time Wall Street and the major banks gave the investing public a deal?

Investors who don’t do their homework may be dismayed to find that their safe haven asset has proved to be anything but. These same people perform rigorous due diligence when purchasing a home, car or boat, demanding that they have clear legal title to the asset in question. The same attention to detail must be paid when investing in bullion.

The most important concept to understand is that a financial institution CAN sell an investor’s bullion if the agreement states that it can. Banks are not raiding allocated accounts; rather, they are following the provisions of the contract, in which the bullion is not allocated despite an investor’s assumptions.

There does appear to be cause for concern regarding the transparency of bullion products. As reported by the economic news website ZeroHedge, financial services giant Morgan Stanley paid out $4.4 million in June 2007 to settle a class action lawsuit brought by clients after the firm charged them to “buy and store” precious metals, but did neither .

Similarly, a class action lawsuit filed in New York’s federal court accuses UBS Financial Services of misleading silver investors, and charging them storage fees for metals that were never purchased, let alone allocated or stored for them.

A larger problem has been brewing for several years now, that of exchange-traded funds (ETFs). These are generally viewed as a low-cost panacea that replaces almost any investment strategy, including the purchase of gold bullion, and they are giving investors a false sense of security.

False sense of security for ETF investors

ETFs started as equity index vehicles, in which brokers acting as Authorized Participants borrowed shares from institutions, hedge funds, mutual funds or their clients’ margin accounts to contribute to the Origination Basket of shares. They received ETF shares at Net Asset Value (NAV) in exchange, and sold them to investors at NAV – keeping all of the money. This is standard practice, as brokers have always been able to borrow shares from clients’ margin accounts for the purpose of shorting or for lending to other brokers.

Essentially, many ETFs hold assets that have been borrowed. Because there are no specific prohibitions to prevent the same practice from being used in precious metals ETFs, the same methodology is likely being used. Many investors are attracted by the low management fees offered by precious metals ETFs, but few understand the problems that may arise when more than one person has claim to the same asset.

ETF-based financial crisis could make 2008 look like child’s play

This ETF structure will work during normal market conditions. However, it may result in losses and disputes if the Authorized Participants, acting as market makers, become insolvent or step aside during a precipitous decline. If a bank or brokerage firm becomes an insolvent Authorized Participant, either the lender of the assets or the ETF shareholders will suffer losses. During a market crash, existing holders may be unable to sell their ETF shares.  Although this possibility was considered remote when ETFs were created, the recent and recurring failures of banks and brokerage firms make these concerns far more real .

The bottom line on ETFs is that they are tracking vehicles with multiple claims/counterparty risks on their assets as well as their shares. As debt-based stress on the global financial system continues to build, the flash-crash of 2010 may well have foreshadowed an ETF-based financial crisis that will make the subprime mortgage crisis of 2008 look like child’s play.

Own bullion with clear title

When we at Bullion Management Group sit down with clients seeking to own bullion, we present them with our Precious Metals Pyramid Chart. Moving up the pyramid increases risk; moving down the pyramid increases safety. A portfolio’s foundation should consist of physical bullion owned outright. Farther up the pyramid are proxies of bullion in one form or another that are more risky and often less liquid; in other words, the opposite of a safe haven asset you can count on in times of financial stress. Bullion should always meet two criteria: It should not be someone else’s liability, and it should not be someone else’s promise of performance.

To establish a physical bullion portfolio foundation with metals that are stored on an allocated and insured basis, one that will protect against what could be called ethical mayhem in today’s financial sector, investors must, as Governor Dodge advised, make a concerted effort to understand what they are buying. While reading legal documents and prospectuses is tedious, the truth is in the fine print and investors must do their own due diligence, and beware of complex investment structures.

Demand documentation that transfers title directly to the purchaser

For a bullion product, be it a fund or actual bullion bars, to earn its place as the foundation of a portfolio, the bullion purchaser must demand documentation that legally transfers title of specific, physical bars directly to them. Do not accept IOUs, paper proxies or derivatives. It is important to read the purchase documents carefully to ensure they convey legal title. Only after the purchaser has legal title can they enter into a binding custody agreement for bullion storage on an allocated, insured basis. In that agreement, the purchaser must be able to identify all terms and rights concerning insurance and secure, allocated storage.

Proper insurance and allocated storage in a credible, guarded vault costs money, so steer clear of bullion products promising low fees. If the deal appears too good to be true, the physical bullion may not exist. What the investor may have is paper bullion that will not offer protection when it is most needed; they may simply be an unsecured creditor of the dealer. It is hardly prudent to be tempted by low storage fees that will save a fraction of a percentage point while risking an entire bullion holding. Short cuts and penny pinching are inadvisable strategies for any asset intended as an ultimate safe haven of wealth protection.

Home storage not worth the risk of invasion or physical assault

Many people think that storing their bullion at home is a good way to economize on physical bullion storage fees, but be aware that any sizeable amount of home-stored bullion will not be covered by a household insurance policy.

Keeping a modest—and secret—stash of small-denomination gold or silver for barter purposes is recommended in the event that ATM machines aren’t working, or a ‘bank holiday’ is announced. This may seem like an excess of caution until you consider that, earlier this year, the Bank of Italy authorized the suspension of payments by Bank Network Investments Spa (BNI) without first advising depositors .

Unless absolute secrecy is maintained, home storage means putting yourself and your family at risk of a home invasion. There has been an increase of home invasions in England during Asian wedding season, when gold gifts are stored in homes, and street gangs and professional thieves are only too happy to relieve people of their precious metals .

Even in peace-loving Canada, a British Columbia man lost his life savings of $750,000 in silver bars to knife-and-gun wielding thugs who arrived at his door disguised as police officers. When he let them in, the ‘officers’ forced him to open his vault and stole the silver . For any sizeable amount of bullion, home storage is clearly not worth the risk.

Many precious metals dealers do not trust banks for storage, and prefer private vault facilities. They may rethink this approach on reviewing a British case where authorities raided three private safe deposit box centres, and opened 6,717 private boxes . The owners of the boxes were required to provide proof of the contents of their box before their possessions were returned. Most could not do so, and much of the cash involved went missing while other items are in dispute. The ensuing litigation will likely last for decades; in the meantime, those who stored bullion in their boxes have been relieved of their metal, and may only receive compensation in the amount of the value of the bullion at the time of the raid.

Another consideration is that safe deposit box contents cannot be insured, and there is no proof that anything is actually in the box. Investors who are still interested in private vaults or safe deposit box centres should perform due diligence on the financial condition of the operator and the owner of the vault, since stored assets may be at risk in the case of a private vault’s insolvency.

Storing bullion at home, in a safe deposit box or in a private vault is another form of false economy, wherein investors put their safe haven asset at risk to save a small amount in storage fees.

LBMA bullion in LBMA member vaults

Another important aspect of due diligence for a proper foundation of wealth preservation is the assurance that your bullion is in the form of Good Delivery bars, and stored in the vault of a London Bullion Market Association (LBMA) member.

The LBMA is a wholesale, over-the-counter market for trading gold and silver. Its members include the majority of the bullion banks that hold gold, plus producers, refiners, fabricators and other traders throughout the world.

The reason for insisting on LBMA bullion is that it assures the purchaser of the quality and fineness of the bars. Once gold is outside a chain of integrity such as that of the LBMA, it may need to be re-assayed before it can be sold. This prevents gold-plated Tungsten bars from entering the chain of integrity. Re-assaying is time consuming, engenders extra cost and once again defeats the purpose of a safe haven store of wealth that offers efficient liquidity.

We constantly hear stories of discount bullion, or bullion sold at no premium to the spot price. The likelihood that this is pure bullion from an ethical source is slight to none.

In case of fire, you need an extinguisher, not a picture of one

Bullion demand is clearly growing as both sovereign nations and the world’s largest financial institutions buckle under the burden of unserviceable debt, leaving helicopter-loads of new money printing and associated currency devaluation as the only way out.

Investors can protect their portfolios by purchasing physical bullion. Just as with any large asset purchase, demand documentation that confers legal title to the bullion you are purchasing, review a written custodial agreement that specifies insured, allocated storage without giving the custodian the right to deal with the bullion in any way, and insist on Good Delivery bars.

When the next financial firestorm erupts, you need real, physical bullion and not a paper proxy; just as in a fire you need a real fire extinguisher, not a picture of one.

Nick Barisheff is President and CEO of Bullion Management Group Inc., a bullion investment company that provides investors with a cost-effective, convenient way to purchase and store physical bullion. Widely recognized in North America as a bullion expert, Barisheff is an author, speaker and financial commentator on bullion and current market trends.  His first book, $10,000 Gold: Why Gold’s Inevitable Rise is the Investors Safe Haven, will be published in the fall of 2012. For more information on Bullion Management Group Inc. visit: www.bmgbullion.com.

Gold And Silver Bullion Coin Sales Plunge In February

The latest production figures from the U.S. Mint show a dramatic decline in the sale of both gold and silver bullion coins.

According to the U.S. Mint, sales of American Gold Eagle bullion coins in February 2012 totaled 21,000 ounces, a decrease of 83.5% from January sales of  127,000 ounces.  Gold bullion coin sales declined by 77.3% from the prior year when a total of 92,500 ounces were sold in February 2011.

Sales of the American Gold Eagle bullion coins during February is the lowest since June 2008 when the Mint sold 15,500 ounces.  During 2011, the U.S. Mint sold an average of 83,333 ounces of gold bullion coins each month and rang up annual sales of 1,000,000 ounces.  During 2011, sales of the gold bullion coins declined for the third consecutive year.

Sales of the American Silver Eagle bullion coins also declined dramatically during February.  The U.S. Mint reports total February sales of 1,490,000 silver bullion coins, down 76.6% compared to 6,107,000 during the previous month.  Sales of the silver bullion coins during February declined by 54% from February 2011 sales of 3,240,000 ounces.  Sales of the American Silver Eagle bullion coins were the lowest since November 2011 when the U.S. Mint sold 1,384,000 ounces.

Gold and silver sales detailed above do not include U.S. Mint gold and silver numismatic coins which are sold directly to the public.

The American Gold and Silver Eagle bullion coins cannot be directly purchased by the public from the U.S. Mint.  The U.S. Mint sells the gold and silver eagle bullion coins only to a network of authorized purchasers (AP’s) who in turn resell them to the public and secondary retailers.  The U.S. Mint determined that the AP distribution system was the most efficient means of retailing coins to the public at competitive prices.

Total yearly U.S. Mint gold bullion coin sales from January 1, 2000 to February 29, 2012 are shown below.

Gold Bullion U.S. Mint Sales By Year
Year Total Ounces Sold
2000 164,500
2001 325,000
2002 315,000
2003 484,500
2004 536,000
2005 449,000
2006 261,000
2007 198,500
2008 860,500
2009 1,435,000
2010 1,220,500
2011 1,000,000
2012 148,000
7,397,500
Note: 2012 total through February 29, 2012

Shown below are the yearly U.S. Mint sales figures since 2000 for the American Silver Eagle bullion coins.   Sales totals for 2012 are through February.

American Silver Eagle Bullion Coin Sales
YEAR OUNCES SOLD
2000 9,133,000
2001 8,827,500
2002 10,475,500
2003 9,153,500
2004 9,617,000
2005 8,405,000
2006 10,021,000
2007 9,887,000
2008 19,583,500
2009 28,766,500
2010 34,662,500
2011 39,868,500
2012 7,597,000
TOTAL 205,997,500

The U.S. public has acquired over 200 million ounces of American Silver Eagle bullion coins since 2000 which are now valued at roughly $7.4 billion.  By comparison, the iShares Silver Trust ETF (SLV) currently holds 313 million ounces of silver bullion valued at $11.7 billion.

Silver ETF Holdings Increase Slightly In January As The Stealth Silver Advance Continues

Silver has started off the new year with a scorching performance

For the month of January, silver gained $5.42 per ounce closing at $33.60, up 19.2% from the 2011 closing price of $28.18.  January’s gain has more than erased the 8.1% loss on silver during 2011.  Silver has far outperformed gold which closed at $1,738.00 on January 31st, up 10.4% on the month from the 2011 closing price of $1574.50 (all prices from the closing London PM Fix Price).

The large gain in silver’s price has been somewhat of a stealth advance, with little coverage in the press.  In addition, an apathetic response to silver by investors can be seen in the volume statistics and bullion holdings of the iShares Silver Trust (SLV).

Silver holdings of the iShares Silver Trust reached a record 11,390.06 tonnes on April 25, 2011, shortly before silver reached its peak price of $48.70 on April 28th.  The value of silver held by the SLV on April 28th was $17.3 billion compared to its current value of $10.4 billion, representing a decline in both the price of silver and total ounces of silver held by the Silver Trust.

Although silver prices have soared since the beginning of the year, holdings of the SLV have increased only modestly.  At the end of 2011, the SLV held 9,605.79 tonnes of silver compared to 9,608.95 on January 31, 2012, a negligible increase of only 3.16 tonnes.  The small increase in silver held by the iShares Silver Trust indicates that investors are not participating in the silver rally, a very bullish sign from a contrarian point of view.

The silver ETF is structured in a somewhat complicated manner in which authorized participants (AP) buy or sell shares of the SLV depending on the discount or premium of the SLV to the market price of silver.  High buying demand for the SLV results in premium pricing which results in the accumulation of physical silver by the trust due to hedging activity by the APs.

SLV - courtesy yahoo.com

Investor indifference to the silver rally can also be seen in the low volume trading of the iShares Silver Trust.  We are nowhere close to the high volume seen last May that preceded the rapid correction in silver prices.  The low trading volume in the SLV, despite rising prices, is bullish from a contrary viewpoint since it suggests that many investors are still on the sidelines.  As these sideline investors start buying, prices will continue to advance.

Also supporting future price advances by silver is the relentless physical demand for silver as seen in the record purchase volume of the American Silver Eagle bullion coins.  Sales of the silver bullion coin hit at all time record of almost 35 million coins during 2011. Large demand continues in January with the U.S. Mint reporting sales of over 6 million ounces.  2012 could turn out to be a sterling year for silver.

Gold And Silver ETF Holdings Remain Steady As Gold Plunges

Gold’s non stop advance since early July saw a rapid reversal on Wednesday as gold lost $104.20 to close at $1,752.30 in New York trading.

Gold prices have soared this year on fears of another financial crisis and the continual debasement of paper currencies by governments that are tottering on the brink of default.  Gold began the year at $1,388.50 and by early May traded over $1,550.  After consolidating for two months, gold broke out of its trading range in early July and breached the $1,900 level earlier this week.  Despite today’s sharp sell off, gold is still up $363.80 or 26% for 2011.

As short term trend traders, hedge funds and speculative buyers jumped into gold, prices became overbought with gold trading $423 above its 200 day moving average.  The same traders playing gold for short term profits jumped out just as quickly when prices started to reverse.  Two factors that encouraged profit taking in gold were reports that the Fed would not immediately announce another round of money printing and the sharp hike in margin requirements on gold futures by the CME Group.

On a short term basis gold was overbought and due for a correction after an almost vertical rise from $1,500 as can be seen below.

 

Gold - courtesy stockcharts.com

A view of a longer term chart gives a different perspective – the long term bull market in gold remains intact and the fundamental reasons for owning gold have not changed.

 

Gold - courtesy stockcharts.com

The non stop “gold bubble” chatter by talking heads who missed participating in the decades long gold rally are focusing on a short term price movement instead of the fundamentals that will continue to drive gold prices higher.  Every bull market has corrections and are an opportunity to add to positions.  As a long term investor in gold since the early 1990’s, I have seen other investors trade in and out, losing money each time, instead of simply going with the long term bull trend.

Many analysts have expressed concern that investors might be panicked out of the GLD causing the price of gold to plunge.  This does not seem to be the case despite the large drop in gold prices this week.  As of Wednesday, the GLD gold holdings declined by only 39.67 tonnes.  In addition, when silver spiked in early May, trading volume in the SLV exploded by 750% above the daily average trading volume.  Despite the volatility in gold this week, trading volume in the GLD expanded by only 350% above average trading volumes.  This would seem to indicate that investment in the GLD is a core holding by long term gold investors who are not inclined to sell on normal price corrections.

The SPDR Gold Trust currently holds 39.6 million ounces of gold valued at $70.1 billion.  There has been much hype about the value of the GLD exceeding that of the SPDR S&P 500.  A more proper context for comparison is to compare the value of the GLD to the increase in sovereign debt and money printing.  Bernanke’s latest episode of QE2 money printing was 850% larger than the entire value of the GLD and you can count on additional Fed currency debasement in the future.

GLD and SLV Holdings (metric tonnes)

August 24-2011 Weekly Change YTD Change
GLD 1,232.31 -39.67 -48.41
SLV 9,836.18 +109.08 -1,085.39

The iShares Silver Trust holdings gained 109.08 tonnes for the week ending August 24, despite the slide in silver prices.  The SLV has been building a base in the $35 to $40 range since the May correction.   Many analysts proclaimed that the “bubble” in silver prices had burst after the sharp price correction in May.  From a long term perspective, the May correction did little to diminish either the bullish fundamentals or the long term upward trend in silver prices.

 

SLV - COURTESY YAHOO FINANCE

The SLV currently holds 316.2 million ounces of silver valued at $13.3 billion.

SPDR Gold Trust And iShares Silver Trust Holdings Decline

Gold holdings of the SPDR Gold Trust (GLD) declined slightly on the week by 24.54 tonnes after a gain of 10.22 tonnes in the previous week.   GLD  gold holdings have declined by 8.74 tonnes since the beginning of the year.   The all time high holdings of the GLD occurred on June 29, 2010 when the Trust’s holdings reached 1,320.47 tonnes.

As measured by the closing London PM Fix Price, gold started the year at $1,388.50.  Gold closed in Wednesday trading at $1,790.00 for a gain of $401.50 or 28.9% on the year.  Gold has been in a steady, virtually uninterrupted uptrend since late 2008.  At the beginning of July, the price trend of gold entered an accelerated uptrend.

 

GOLD - COURTESY KITCO.COM

Although a pullback is possible after an almost vertical rise of $256 since July 1st, it is just as likely that gold could confound the skeptics and continue to rise.  The increase in gold prices for the past  decade has reflected widespread apprehension over the value of paper currencies.  The world economy never recovered from the financial crisis starting in 2008 despite the borrowing and printing of trillions of dollars by world central banks and governments.  The increase in the price of gold is reflecting the growing realization that governments and central banks no longer have the ability to contain a second full blown financial crisis.  Under this scenario, gold effectively has no ceiling price.

The GLD is the largest gold exchange traded fund with 40.9 million ounces of gold.  According to Bloomberg, the total holdings of all  major gold  ETFs worldwide amount to 70.7 million ounces of gold.  Holdings of all gold ETFs worldwide have increased by 4.1 million ounces or 6.2% since the beginning of the year.

The SPDR Gold Trust currently holds 40.9 million ounces of gold valued at $73.2 billion.  For perspective, the entire value of the GLD would fund less than 18 days of US Government deficit spending which is projected to exceed $1.5 trillion this year.

 

GLD - COURTESY YAHOO FINANCE

The GLD closed the day at $174.42, fractionally below its all time high of $175.13

GLD and SLV Holdings (metric tonnes)

August 17-2011 Weekly Change YTD Change
GLD 1,271.98 -24.54 -8.74
SLV 9,727.10 -45.46 -1,194.47

Holdings of the iShares Silver Trust declined by 45.46 tonnes on the week after a decline of 86.36 tonnes in the previous week.  Since July 1st, the SLV has gained 190.95 tonnes.

After a price correction in early May, silver has recovered in price and is building a base in the $40 range before the next move up.  Silver has gained $6.17 or 18.2% since July 1st, rising from $33.85 to $40.02.

 

SLV - COURTESY YAHOO FINANCE

The SLV currently holds 312.7 million ounces of silver valued at $12.5 billion.  Investors in the SLV have had an annual rate of return of 25% over the past three years.