“Stay lengthy precious metals” .
I’m beginning to think that’s Graeme Irvine’s mantra.
He’s the company columnist on Longer Life’s Bourse page, and I’ll leave it to you to discover his reasons for this four-word chant. Amidst Graeme’s siren calls, I’ve taken notice of his recent daily listings of silver transfers. It seems that HSBC-Hong Kong is in the process of accumulating a substantially substantial percentage from the current industry inventory. The range is some thing like 60%, an achievement I locate as breathtaking as it can be intriguing.
Why would that much of the world’s investment-grade silver be moved to a single depository? So far, I’ve not been able to discover anyone willing to offer an answer. The accumulation is public information, so I’m not suspecting a conspiracy.
I consider 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 many years — and wouldn’t think of trying to duplicate that stunt.
Super-investor Warren Buffet is, of course, a lot more sophisticated. His acquisition of 130million ounces of silver approximately nine years ago was made in tranches calculated to coincide with the marketplace rather than drive it. All outward appearances indicate that he has no clandestine intentions; instead, he’s simply substantiating his confidence within the metal and achievable lack thereof within the long-term strength of the dollar.
Perhaps the HSBC-Hong Kong hoarding is a result of an announcement made in June 2005 by the United Kingdom’s Barclay’s Bank in which they filed their intent using the USA’s Securities & Exchange Commission to establish an Exchange Trading Fund (‘ETF’) for silver. Specifically, the applicant can be a Barclay’s subsidiary, iShares Silver Trust, as well as the process gained momentum in January 2006 once the SEC approved their listing on the American Stock Exchange.
The Silver ETF is meeting with strong resistance, most notably through 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 of the marketplace and held in reserve that its membership would be burdened through the metal’s greater cost. As the SUA membership processes 80% of all silver produced in the USA, they represent a significant voice in this matter.
Ted Butler is one of several 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.
Initial, let him explain how Exchange Trading Funds for commodities operate, and then describe how the Barclay’s proposal is being positioned:
“In order to establish a commodity ETF, a monetary 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 purchase 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. Within the case of the Barclay’s Silver ETF . they’ve even decided for the stock symbol, SLV. The amount of silver bought and stored would increase and decrease depending upon the expense demand for the shares, similar to how the gold ETFs currently function.”
The practicalities of your silver ETF include:
– Stock certificates are definitely easier for the investor to store than the metal itself, and
– The ‘common stock’ format enables much more categories of investors the eligibility to participate.
What is interesting about the Barclay’s proposal is that its goal is to put 130million ounces of silver into reserve, the exact level of Warren Buffet’s holdings. Could they be using that precedent like a model? Burton notes that even though Buffet was careful not to disrupt the industry, the cost of silver still doubled in the course of that accumulation. Furthermore, Burton says, “I see nothing within the Barclays prospectus suggesting such purchasing restraint, either in time or price.”
So, Butler causes, this makes the situation most favorable for involved investors:
“This silver ETF announcement is really a true win-win for silver investors. (If) their silver ETF becomes effective, the impact on the cost of silver is going to be great. That’s win number a single, obvious and straightforward.
“But if . this ETF in no way sees the light of day, that will probably be a big win as properly for silver investors. Why? Since it will prove for all to see just how critical the supply/demand and inventory situation is in silver. When the government says no way to this ETF, it is going to be for one reason only – there isn’t enough real silver in 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 another allotment of silver moves to HSBC-Hong Kong. The growth of those figures could properly be the ‘tracer’ of issues to arrive.
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