Why PHYS, PSLV Instead of GLD, SLV?

The following goes a long way in describing why PHYS and PSLV are far superior for exposure to gold and silver than GLD and SLV. In a nutshell, the bullion that GLD and SLV claim has multiple claims to each ounce held in their bar lists. When everyone calls their bars home to the rightful owner, many are going to find out that their gold cannot be retrieved. When this occurs and the market discovers it, there will be a mad rush to acquire and to hold ones gold in hand. GLD and SLV will watch their bar list shrink as physical dries up. GLD and SLV will then stop tracking physical gold and silver 1:1.

PHYS and PSLV on the other hand hold only 100% allocated gold in storage. Their bars are not leased or swapped from some other counter-party. Those bars are are owned by a single entity, the Fund, and they cannot be lent or moved. The NAV for these funds is the market price for bullion times the ounces in storage, period. The share value is the NAV divided by the number of shares outstanding. The price of these funds will track physical bullion when the game of musical chairs ends.

David Morgan on Silver Price Manipulation, Delivery Default & Supply Shortage Risks

by Adam

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“I have little doubt that most of the silver that is on the SLV’s web site with a bar number is there somewhere. But what I am really concerned about is if it is hypothecated or not, meaning is there more than one owner on that same bar. And I can almost guarantee that there are multiple owners for almost every bar that they report. It does not mean that that bar does not exist.

It takes ten contracts to be a market maker. So I have got ten contracts, I have got fifty thousand ounces, and I ship it to my buddy who is a hedge fund manager over in Idaho. That is my silver. I have just sent it over to him on a lease. I have leased it to him. Now he has taken that silver and he has swapped it with somebody at the SLV, so they have got bars there. And he swapped for those and now those are on the exchange showing as part of the deal. So you can have a lease and a swap, so you could have two or three claims on those same bars. And that happens over and over again.

So the reason I used “purportedly” is that is the correct word. There are very few bars that are actually one-to-one correspondence that are sitting on the SLV and that is their only purpose. That is not the way banks operate. That is not the way the whole system operates. So I am not against the SLV, but I also state very clearly that if you follow what I teach, you would not want that to be considered a primary silver investment. That is a paper investment. That is not silver. That is paper. It only settles in paper. People ask whether I think there is going to be a default on the SLV. I say, how could there be? I mean, read the prospectus, they settle in cash. Think they have any trouble printing that stuff up? I haven’t seen any problem with that lately.”

So cautions David Morgan, publisher of The Morgan Report on precious metals and proprietor of Silver-Investor.com. More so than perhaps any other, the silver market has been loudly and visibly accused of rampant price manipulation. And more recently, suspicion is growing that the exchanges and ETFs dedicated to trading the metal do not hold sufficient volume of it to meet their obligations. Is the silver market free and fair? Chris delves deeply into these important questions with one of the best-known silver experts.

In this interview, David explains why:

  • The silver market is definitely manipulated, though likely not as rampantly as some believe. And desipte this manipulation, he believes the overall upward trend in silver (and gold) cannot be suppressed in the long run.
  • Holding phyiscal bullion as a core part of one’s precious metal portfolio is absolutely critical. Many of the bars pledged to tradable securites (ETFs, futures, etc) are assigned to multiple owners – meaning there is much less actual bullion underlying these securities than the market thinks.
  • Why his long-term outlook for silver is so bullish. Annual industrial demand for silver continues to outstrip supply from new mining, while increasing investment demand for silver as a monetary vehicle only takes more tonnage out of the market. At some point, the market will wake up to the fact that silver is in much shorter supply than current appreciated. At that point, the price will go much, much higher.

Click the play button below to listen to Chris’ interview with David Morgan (runtime 35m:58s):

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2 Responses to Why PHYS, PSLV Instead of GLD, SLV?

  1. louksy says:

    Multiple claims on each bar? I am finding it difficult to prove, given my repeated calls to iShares, reading their prospectus, and FAQ: http://us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/silver_faq.pdf&mimeType=application/pdf. The fund does not lend but can hold up to 1100 unallocated oz daily (whatever that means).

    • MatrixSentry says:

      First of all, take a look at who administers GLD. Do you trust them? Why? Second, GLD counts both allocated gold as well as unallocated gold toward its gold reserves. Unallocated gold is simply a claim on someone else’s gold. Do you trust “someone else” won’t allocate the claimed gold to another “someone else”? If so, why? The only entities that can remove physical gold from the fund are the same entities that have blown up the world, the too big to fail primary dealer banks. This should set off a lot of alarms. When the SHTF, these primary dealers will gut the fund and leave an empty shell for a long line of litigants to fight over.

      The real problem with GLD is that it is a derivative on gold and is nothing more than an investment in paper. Paper has value as long as confidence is maintained in the dollar. When confidence is lost, a share of GLD is a share of financial derivative denominated in a worthless and dead currency. Advertised gold exposure only exists while the USD still functions. You would be far better served by acquiring physical gold. Or if you must hold paper, hold PHYS, a 100% fully allocated closed ended fund.

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