“Stay long precious metals” .
I’m beginning to think that’s Graeme Irvine’s mantra.
He’s the enterprise columnist on Longer Life’s Bourse page, and I’ll leave it to you to discover his causes for this four-word chant. Amidst Graeme’s siren calls, I’ve taken notice of his recent every day listings of silver transfers. It seems that HSBC-Hong Kong is within the process of accumulating a substantially substantial percentage from the current industry inventory. The array is some thing like 60%, an achievement I locate as breathtaking as it is intriguing.
Why would that a lot from the world’s investment-grade silver be moved to 1 depository? So far, I’ve not been capable to locate anyone willing to provide an answer. The accumulation is public knowledge, so I’m not suspecting a conspiracy.
I believe most investors recall the Hunt brothers’ clumsy attempt to corner the silver market three decades ago — driving their Texan empire from billionaire to bankrupt within eight years — and wouldn’t believe of trying to duplicate that stunt.
Super-investor Warren Buffet is, of course, very much much more sophisticated. His acquisition of 130million ounces of silver approximately nine many years ago was made in tranches calculated to coincide while using industry rather than drive it. All outward appearances indicate that he has no clandestine intentions; instead, he’s merely substantiating his confidence inside the metal and feasible lack thereof within the long-term strength with the dollar.
Perhaps the HSBC-Hong Kong hoarding is really a result of an announcement made in June 2005 by the United Kingdom’s Barclay’s Bank in which they filed their intent with the USA’s Securities & Exchange Commission to establish an Exchange Trading Fund (‘ETF’) for silver. Specifically, the applicant is really a Barclay’s subsidiary, iShares Silver Trust, and also the process gained momentum in January 2006 when the SEC approved their listing for the American Stock Exchange.
The Silver ETF is meeting with strong resistance, most notably from the Silver Users Association (SUA), who represent entities who make, sell and distribute products related to silver. Their complaint is that to be able to support the ETF, so very much silver would have to be taken out with the marketplace and held in reserve that its membership would be burdened by the metal’s greater cost. As the SUA membership processes 80% of all silver produced within the USA, they represent a significant voice in this matter.
Ted Butler is one of the most respected silver analysts in the world. His opinion is that, no matter what the outcome from the Barclay’s application, the entire episode is really a positive development for silver investors.
First, let him explain how Exchange Trading Money for commodities operate, and then describe how the Barclay’s proposal is being positioned:
“In order to establish a commodity ETF, a financial institution buys and stores a quantity from the commodity in question and then issues shares of common stock at a fixed unit of conversion to represent fractional ownership of that commodity. In the case of silver, Barclays would acquire the metal, in industry standard 1000oz bars, have them stored in London and elsewhere, and issue common stock shares in a ratio of a single share of stock for every ten ounces of silver. The shares would then be traded on a recognized stock exchange, hence the name, exchange traded fund. In the case of the Barclay’s Silver ETF . they’ve even made a decision on the stock symbol, SLV. The amount of silver bought and stored would increase and decrease depending upon the purchase demand for that shares, similar to how the gold ETFs currently function.”
The practicalities of the silver ETF include:
- Stock certificates are definitely easier for the investor to store than the metal itself, and
- The ‘common stock’ format permits more categories of investors the eligibility to participate.
What is interesting about the Barclay’s proposal is that its goal would be to put 130million ounces of silver into reserve, the exact level of Warren Buffet’s holdings. Could they be using that precedent being a model? Burton notes that even though Buffet was careful not to disrupt the market, the cost of silver still doubled during that accumulation. Furthermore, Burton says, “I see nothing inside the Barclays prospectus suggesting such purchasing restraint, either in time or price tag.”
So, Butler factors, this makes the situation most favorable for involved investors:
“This silver ETF announcement can be a true win-win for silver investors. (If) their silver ETF becomes effective, the impact for the price tag of silver is going to be great. That’s win number one, obvious and straightforward.
“But if . this ETF never sees the light of day, that is going to be a big win as nicely for silver investors. Why? Because it will prove for all to see just how critical the supply/demand and inventory situation is in silver. When the government says no solution to this ETF, it will be for 1 reason only – there just isn’t enough real silver inside the world to fund it.”
Either way, it’s a development worth watching. Graeme lists the Comex figures daily at the end of his column and usually mentions when one more allotment of silver moves to HSBC-Hong Kong. The growth of those figures could nicely be the ‘tracer’ of issues to come.
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