The CFTC’s Bart Chilton’s recent allegations of silver manipulation in the COMEX markets definitely can be leveraged to spur further investigations of possible fraud in gold/silver markets by the bankers. I have maintained for several years now that bankers invented the SLV and GLD ETFs as part of their overall price suppression schemes enacted against gold and silver.
Can the CFTC’s bold statement now spur the SEC’s Mary Shapiro to respond to past inquiries about the legitimacy of the GLD and SLV and thoroughly investigate these two ETFs for possible fraud?
Chairman Mary Shapiro
100 F Street, NE
Washington, DC 20549
Enforcement Complaint Center
In July, 2009, I wrote an article called “The GLD and SLV: Legitimate Investment Vehicles or Not?” that pointed out the most troubling aspects of these two ETFs that led me to conclude that I would never hold either of these two ETFs. I’ve extracted and reprinted some of the most prominent points from this article below:
The appointed custodians of the SLV and the GLD, responsible for safekeeping the silver and gold bars owned by the trusts, respectively are JP Morgan and HSBC Bank USA. The GLD prospectus states, “Gold held in the Trust’s unallocated gold account and any Authorized Participant’s unallocated gold account will not be segregated from the Custodian’s assets.” Only Authorized Participants, and no shareholders, have the right to redeem shares for actual gold.
In my opinion, there are several potential huge problems with this arrangement. Physical gold held by the GLD should be held in allocated accounts specifically for the trust. The fact that physical gold held for the GLD may be held in unallocated gold accounts where gold is not segregated from the Custodian’s assets may mean that multiple entities have claims on the same gold bars. In theory, the gold held in the Custodian’s vaults may be used for delivery against shorts they hold in the futures markets while if necessary even though GLD shareholders have a claim on this gold.
The prospectus states that “the Custodian has agreed that it will hold all of the Trust’s gold bars in its own London vault premises except when the gold bars have been allocated in a vault other than the Custodian’s London vault premises” (emphasis mine). The prospectus then goes on to explain that other vaults allowed may reside at the Bank of England, Brinks Ltd., Via Mat International, and LBMA (London Bullion Market Association) market making members, and that in turn, these subcustodians may appoint further subcustodians to hold the trust’s gold if they so desire. In regard to ensuring that the gold actually exists, the prospectus then states that “the Trustee may have no right to visit the premises of any subcustodian for the purposes of examining the Trust’s gold bars or any records maintained by the subcustodian, and no subcustodian will be obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.”
In the SLV prospectus, the following claim is also made: “Accordingly, the bulk of the trust’s silver holdings (emphasis mine) is represented by physical silver.” If the bulk of the trust’s silver holdings is represented by physical silver, what constitutes the “remainder”? Clearly, the SLV prospectus states that there is a “remainder”. If you read this statement carefully, the statement clearly refers to the “trust’s silver holdings.” Thus, this statement implies that some of the SLV’s funds are allocated to something else other than physical silver. So what is the rest of the trust’s silver holdings? Paper silver future contracts, air, or something else?
About the author: JS Kim is the Managing Director and Founder of maalamalama, a fiercely independent investment consulting and research firm that devises investment strategies to protect Main Street from the fraud of Wall Street.
Republishing Rights: The above article may be reprinted as long as the text and all links remain intact including the author acknowledgment above.