<Barclays and the authorized participants doing just what they say they do.>
Sure. They use Clearstream for settlement. Want to know what they do?
Clearstream guilty of monopoly abuse charges
finextra.com
Following up on Friday's news of the Clearstream investigation of kickbacks in the sale of warships to Taiwan, money-laundering and high-level corruption
badhairblog.blogspot.com
OK, now we know the kind of people we're working with, back to details:
SLV Inception date 4/21/06
Millions of ounce in trust: 64,994,166
ishares.com
Excerpt:
It takes a long, long time, to arrange physical delivery of 42 million ounces of silver. It took CEF, the Central Fund of Canada, months to acquire 8 million ounces, and transportation arrangements take time. A convoy of up to 50 armored trucks takes time to arrange, as well as the decoy convoys. Due to the excess paper futures contracts, I wonder if the custodian of the ETF will actually end up taking delivery, without creating a short squeeze, or market default.
resourceinvestor.com
Read on, this is a slightly older article-when the trust was smaller:
QUESTIONS BEGGING ANSWERS?
Barclays Global Investors’ iShares Silver Trust [AMEX: SLV] began trading Friday, April 28. As of May 5, 2006 [six trading days later] – the trust reports it has acquired 1,368 tonnes of silver. For those of you who might be a little troubled with the conversion – that amounts to slightly more than 48 million ounces of silver bullion.
So this begs the question: how much is 48 million ounces of silver?
Because I thought none of you would ever ask, I would like to explain to folks what’s involved in “physically acquiring” a good slug of silver. But before we do that – we need to understand that there is a big difference between “buying paper silver” and physically taking possession of the same.
To get an understanding of how this all works, I contacted Mr. Stephan Spicer, President and CEO of Central Fund of Canada [TSX: CEF.NV.A]. I explained to Mr. Spicer that I was having trouble getting my head around HOW Barclays Global Investors had acquired 48 million ounces of silver in 6 trading days. It seemed logical to ask Mr. Spicer since Central Fund has been in the business of buying and warehousing unencumbered, segregated gold and silver bullion – as a publicly traded entity for investors - in Canada since 1983.
On how silver bullion is shipped, Mr. Spicer revealed to me that it is customarily moved “long haul” via rail or ship and shorter distances by truck. Anyone who’s had the experience of moving “ANYTHING” by ship would be more than aware of the time lags involved in doing so. Making arrangements for rail shipment pose equally challenging logistics. When silver bullion is delivered to Central Fund’s vault, I was told it is “trucked” into the facility ½ million ounces at a time [per truck].
As I began feverishly doing a bit of “back-of-the-envelope-math,” with visions of 96 truckloads of silver lined up outside of J.P. Morgan - London [SLV’s custodian] waiting to be off loaded – I thought to myself, “at least it’s a traffic jam with a silver lining!”
Actually, I only make light of this to highlight the logistical nightmare it is to physically move LARGE amounts of silver. So I asked Mr. Spicer how long he would expect it to take, from the time of purchase – to actually taking physical vaulted possession, of say, 20 million ounces of silver for Central Fund of Canada?
His reply was that 20 million ounces of silver could perhaps be positioned and purchased in a day – while acknowledging that such a purchase would most surely “move the market price.” For Central Fund to take physical delivery [shipping] and process [weighing and documentation] that that quantity [weight] of metal is a logistical exercise that Spicer maintains could take “as much as 3 months.”
That’s right folks, THREE MONTHS. I guess we all owe a “tip-of-the-hat” to ole Barclays – who has seemingly turned the trick on 48 million ounces in 6 days.
Buyer Beware
What all of this definitely means is “not much.” Barclays may have bought the “stash” for their ETF from one entity - who had it stored all in one place – someone like Warren Buffet. But no, Warren Buffet revealed this past weekend at Berkshire Hathaway’s annual meeting that Berkshire had not benefited from the sharp rise in silver prices, despite at one time owning a lot of the metal. In Buffet's words,
"I bought it very early, I sold it very early. Other than that it was perfect"
So where else does one obtain that quantity of silver? How about COMEX? Upon viewing data of all silver bullion stored in the COMEX warehouse complex – we see that in aggregate there is approximately 123 million ounces housed – and only 51ish million ounces currently eligible for delivery purposes. So, if Barclays silver ETF is counting COMEX warehouse receipts as part of their 48 million ounces – what are the implications for published COMEX data?
At the end of the day, we simply do not know where Barclays has secured their 48 million ounce haul of silver. Anecdotal evidence would suggest that such a purchase on such a short time line does pose severe, if not unbelievable, challenges.
Much of the marketing in the mainstream media supporting the creation of ETF’s was that they would provide investors with a transparent and efficient means to participate in the commodities bull market. It would seem, however, that transparency is EXACTLY what is lacking when one tries to discern where or how Barclays managed to secure such a quantity of silver on short notice.
As Bridgewater Investment Advisors reveals,
According to the Commodity Futures Trading Commission, "the gap between [silver] production and consumption has primarily been filled by a drawdown of stocks, which, as a result of the production deficit, have declined during many recent years." By now the United States government has already officially run out of silver and must go to the open market to purchase silver to continue its Silver American Eagle coin program (the US once had 2 billion ounces of silver). The one major country that keeps filling the deficit today by means of stock sales happens to be China and there are indications that its reserves too are coming to an end. GFMS, the world's foremost independent precious metals consultancy based in London, notes in this regard that "Chinese official sales, once again the largest source of government stock supply, came to just under 34 million ounces in 2004, representing a considerable reduction from the 61.7 million ounces calculated for 2003. The fact that Chinese sales declined this much (and continued to be a good deal lower in 2005), in spite of the higher silver prices, has been interpreted as indicating that government stockpiles are no longer abundant." Moreover, central banks and other major holders of precious metals have been 'leasing' silver (and gold) at very low lease rates. Banks, brokerages and other corporate entities that leased the silver in turn sold the metal(s) in the open market, creating an artificial supply and subsequently depressing the price. Such deals have resulted in a build-up of a huge 'short position' equal to several years of mine supply, possibly as much as one billion ounces of silver. One of the most respected silver analysts, Theodore Butler, even claims that "the short positions in COMEX silver, in futures and call option contracts [are] larger than all known silver bullion inventories in the world, a situation which has never existed in any other regulated commodity". As all leasing/short positions have to be covered sooner or later, this mechanism alone could soon cause an incredible increase in prices. For these reasons, in our view, the profit potential in silver far exceeds the downside risk in the years ahead, by a wide margin.
You see folks - there really aren’t that many places in the world that anyone can quickly acquire large amounts of silver because there are so few places where such quantities are known to exist. Anyone claiming to have done so has either “pulled off a major coup” [or a rabbit out of a hat, perhaps?] and maybe you may want to question whether or not they’ve purchased a “promise to deliver silver in the future” – which would imply another derivative – and COMEX already does that.
Until these questions are clearly answered, how can anyone buying Barclays SLV really know what it is they’ve bought?
...
Wishing you all a pleasant evening and a prosperous tomorrow!
Rob Kirby
66.102.7.104 |
