Debunking Misleading Silver Posts With Pure Fact

I have stepped aside from the role of Ombudsman of the Silver Blogosphere because, well, it would be a full time job if I really wanted to do it.

Every once in a while, though, one of the precious metals blogs will write something so egregiously false or blatantly misleading that it deserves a response.   Hence, this post explaining what is so misleading about Dave in Denver’s recent missive: “Just Another Paper Bullion Scam – This Time From the Royal Canadian Mint.”  In an attempt to avoid arguments with ignorant silverbugs who don’t like being told that the reality they have created for themselves is false, I will use FACTS.  Let’s dive right in.  Dave is talking about a new offering from the Royal Canadian Mint:

1)  Dave writes:

“To begin with, like all the other paper metal trusts (except the Sprott trusts – this write up does not apply to the Sprott trusts, let me make that clear), the RCM is the custodian of the bullion and states up front that the silver which is supposed to be for the trust will be held in an unallocated account.”

Please note that Dave is quite clear that Eric “Hero to the Silverbugs” Sprott’s $PSLV and $PHYS trusts (no positions) are exempt from the criticisms to follow.   This is a common silverbug belief – that everyone else’s Trusts/Funds suck, and that Sprott’s are amazing –  and yet, as I’ll demonstrate, it’s oddly held.    I absolutely agree with Dave’s subsequent bashing of unallocated metal holding – if one is going to buy an exchange traded silver product, one should at least make sure the product owns allocated silver bullion – yet his claim that all other paper metal trusts hold unallocated metal is blatantly, factually false.   Let’s just stick with silver, cause that’s the topic at hand:

$SLV (no positions) holds fully allocated, London Good Delivery bars. pg 22:

“Silver not needed to redeem Baskets of Shares, or to cover the sponsor’s fee and trust expenses or liabilities not assumed by the trustee, will be held in allocated form by the custodian (except for residual amounts not exceeding 1100 ounces which will be held in unallocated form by the custodian on behalf of the trust).

 

$SIVR (no positions) hold fully allocated, London Good Delivery bars. pg 19:

The Shares represent an interest in physical bullion owned by the Trust (other than an amount held in unallocated form which is not sufficient to make up a whole bar or which is held temporarily to effect a creation or redemption of Shares). Physical bullion of the Trust in the Custodian’s possession is not subject to borrowing arrangements with third parties. Other than the silver temporarily being held in an unallocated silver account with the Custodian, the physical bullion of the Trust is not subject to counterparty or credit risks.

 

$PSLV (no positions) holds fully allocated, London Good Delivery bars. pg 8:

The Trust:

will store all physical silver bullion owned by the Trust at the Mint (including at a facility located in Canada leased by the Mint for this purpose) or in the treasury vaults of a Schedule I Canadian chartered bank or an affiliate or division thereof in Canada on a fully allocated basis, provided that the physical silver bullion held in London Good Delivery bar form may be stored with a custodian only if the physical silver bullion will remain London Good Delivery while with that custodian

Each of the above products publishes a bar list containing the details of the allocated bars which their respective Trusts own.  Sprott’s PSLV bar list is actually the least detailed and most suspect one, but that’s a subject for another day.  SLV and SIVR hold no more than 1 bar’s worth of unallocated silver – which they use to pay ongoing expenses.  Instead of holding a balance of  unallocated silver, PSLV holds cash, giving unitholders even LESS exposure to the price of silver, ironically.

Let’s continue:

Dave writes:

“Second, in order to make a redemption claim on the bullion, the holder must own a minimum of 5000 ETRs, or roughly $100,000 worth of ETRs.  This is another hurdle that the promoters of these trusts build into them in order to avoid creating a 1:1 physical backing and in order to try and avoid the problem created by using an unallocated account.  For most investors, $100,000 is too high of a commitment.  In other words, the RCM is hoping that most ETR holders never redeem them and instead sell the ETRs in the market in exchange for paper dollar settlement.  This issue is endemic to the paper bullion trust scam and the RCM is perpetuating and expanding the scam.”

Hmmm.  I wonder what Eric Sprott’s PSLV redemption rules are like?  Let’s check the facts, shall we? Page 6:

Redemption requests for silver must be for amounts that are at least equivalent in value to ten London Good Delivery bars or an integral multiple of one bar in excess thereof, plus applicable expenses. A “London Good Delivery bar” contains between 750 and 1,100 troy ounces of silver with a minimum fineness of 999.0 parts per thousand silver. A unitholder’s ability to redeem trust units for physical silver bullion will depend in part on the sizes of the London Good Delivery bars held by the Trust on the redemption date.

Uh oh – ten 1,000 ounce bars = 10,000 ounces, which is about $300,000, or about THREE TIMES the amount that Dave was complaining about for the RCM product.     I wonder if Dave would object if I re-wrote his paragraph above as follows:

“Second, in order to make a redemption claim on the bullion, the holder must own a minimum of 10 silver bar equivalents of PSLV , or roughly $300,000 worth of PSLV.  This is another hurdle that the promoters of these trusts build into them.  For most investors, $300,000 is too high of a commitment.  In other words, Eric Sprott is hoping that most PSLV holders never redeem them and instead sell the PSLV shares in the market in exchange for paper dollar settlement.  This issue is endemic to the paper bullion trust scam and the PSLV is perpetuating and expanding the scam.”

Why do I feel like that paragraph would result in outrage from the Sprott Silver Minions?   Rhetorical question.. moving on. Dave writes:

“Third, the redemption process itself is quite burdensome.  The person redeeming has to follow a mult-step redemption process perfectly, or the RCM can cancel the redemption.  Besides the paper work involved, the redeemer ALSO has to provide for a Carrier to go to the RCM vault and pick up the silver.  This includes the fact that redeemer bears all the risk and expense of pick-up, transfer and delivery.  While on the surface not unreasonable, typically the delivering party will take the responsibility of this step, including any insurance involved.  The way this part of the ETR is structured tells me that the RCM was looking to erect yet another hurdle in order to discourage actual physical redemption and further reinforce the fractional scam that has been created.”

Whatever – PSLV’s redemption process, outlined on pages 6 and 7 of its prospectus, seems no less burdensome.  These processes have to be “burdensome” and thoroughly detailed.    The redeemer will bear the expense of the delivery no matter what – I would personally prefer the option to arrange it myself rather than rely on the Trust’s delivery mechanism and delivery pricing.  But this point is largely irrelevant – so let’s move on.  Dave writes, emphasis HIS:

“Finally,  just in case the holder seeking redemption successfully clears the above hurdles, the RCM has added a very broad clause giving it the power to suspend or cancel the redemption.  This provision is directly from the prospectus:  The Mint may suspend the right of an ETR Holder to redeem its ETRs or postpone the date of delivery or payment of the redemption proceeds (whether physical  silver bullion and/or cash, as the case may be) for any period during which the Mint determines that conditions  exist which render impractical the fabrication, evaluation or sale of  silver  or which impair the ability of the Mint to determine the value of the  silver  bullion owned by the ETR Holder or the redemption amount for the ETRs. Any declaration of suspension  made by the Mint shall be conclusive.

I wonder if any of PSLV’s unitholders have read the PSLV prospectus, which contains THE SAME PROVISION…  page 14:

The Trust may suspend redemptions, which may affect the trading price of the trust units.

        In certain circumstances, the Manager, on behalf of the Trust, may suspend the right of unitholders to request a redemption of their trust units or postpone the date of delivery or payment of the redemption proceeds of the Trust (whether physical silver bullion and/or cash, as the case may be) with the prior approval of Canadian securities regulatory authorities having jurisdiction, where required. Such circumstances include any period during which the Manager determines that conditions exist which render impractical the sale of assets of the Trust or which impair the ability of the Manager to determine the value of the assets of the Trust or the redemption amount for the trust units. See “Business of Trust — Redemption of Trust Units for Physical Silver Bullion” and “Business of the Trust — Redemption of Trust Units for Cash”. This may affect the trading price of the trust units at a time when an investor wishes to sell his, her or its trust units on the NYSE Arca or the TSX. Accordingly, trust units may not be an appropriate investment for investors who seek immediate liquidity.

Now, readers, the point of this post is positively NOT to advocate on behalf of the Royal Canadian Mint’s  new silver product.  As I noted above, if I were going to trade “paper” silver instruments – $SLV, $PSLV and $SIVR are ALL paper silver instruments that represent shares in trusts which own physical silver bullion – I would make sure that there was allocated bullion underlying the Trust.

In case you still missed the point of this post, it was to demonstrate the grossly misleading (if not blatantly factually inaccurate) nature of a typical precious metals blog post.   The author of the post I was responding to claimed that

1) All other paper metal trusts…store their silver in unallocated accounts.  This is false, as I explained above.

2) That the onerous redemption requirements of the RCM product typify a “scam.”  Meanwhile, I showed that  Eric “Silver Saint Who Can Do No Wrong” Sprott’s $PSLV Trust has even more onerous redemption requirements

3) That the RCM product will be able to prevent you from getting your silver when you most want it – which is something that ALL of the silver exchange traded products – including Eric Sprott’s PSLV-  have the ability to do.

Oh, by the way… I wonder who maintains custody of the PSLV silver…. I’m sure we can find that out if we look, right?  pg s-5

The Royal Canadian Mint acts as custodian on behalf of the Trust for the physical silver bullion owned by the Trust.

The same Royal Canadian Mint that Dave in Denver described as perpetuating a paper silver scam with its new product?  Of course…

*sigh*

-KD

related:  my prior posts on silver

 

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