How Are They Doing It?

[beauanderos]

I've read on Zero Hedge and heard on KingWorldRadio from James Turk that China is supposedly buying up huge amounts of SLV stocks in order to "take delivery" of their silver bullion. Can someone explain to me how that's possible? If it's true... then you go Eastern Power, catalyze a silver shorts annihilation based upon physical silver bullion scarcity.

[barrytrot]

Are you sure it is "stocks" and not "contracts"?

Stocks are "units of ownership". There is nothing to deliver. Regardless of the stock type. You already own *it*. Because *it* is the stock.

"Contracts" on a commodity can be delivered. So it must be those.

That's a thought I have now and then, do a contract on silver, then have it delivered and cut it into small pieces and resell. Of course, I had that idea 2 years ago when silver was 50% off, I wish I had done it

[whatsnext]

If they were buying "huge shares" that would make the prices rise correct? So why is the price falling? Did they do it last week and stop to drop the price?

[beauanderos]

If they were buying "huge shares" that would make the prices rise correct? So why is the price falling? Did they do it last week and stop to drop the price?

Buying very large blocks of SLV wouldn't affect the price, it would just mean more shares are concentrated in fewer hands. Spot price sets the share value, not the other way around. However, SLV is supposed to track silver's price. If they have to liquidate a large portion of their holdings and sell physical silver back into the market due to investors dumping or shorting SLV, then that could effect silver's price negatively. Someone with a better understanding of this than me (MH, JFF) should chime in.

[Lemon Thrower]

i think there is some hyperbole involved but what you do is buy a future contract, pay for it in full, and then stand for delivery. Ed steer published a chart recently that showed the amount of deliverable silver on the Comex steadily falling for 2 years. They are not trying the break the bank, they are trying to get silver. You don't kill a golden or silver goose, you steal its eggs. If you assume the PTB are manipulating the price down and that the chinese are actaully doing this, then its logical that they would do it slowly. If you do too much, the price rises and you pay more for the silver. worse, you kill the golden goose (comex). eventually the comex will have so little silver they'll have to get more just to stay in business. rumor is that the amount of paper contracts traded is 100X the amount of silver that is deliverable. again, that is probably an exaggeration but the paper is many times the physical, which is ok because most people usually don't stand for delivery.

[Country]

Supposedly SLV is backed by SILVER bullion. While that may be true or not, the shares are sold to distributors in units of 50000 shares as the demand for the shares increases in the open market. With increasing demand more units (more shares) need to be created. The units can be redeemed, as long as the owner of SLV shares does so in 50000 share blocks. For stock ETFs the redemption is for the underlying stock; but for SLV the redemption of units should be for the bullion stored in the bullion warehouse. Now, since SLV shares represent one of the largest stores of bullion in the world, it does make some sense that China or some other sovereign wanting to acquire SILVER bullion could do so via unit redemption. I do not know if the administrators of SLV can substitute CASH redemption as their option upon redemption; most of that is in the fine print of the SLV prospectus.

[beauanderos]

Supposedly SLV is backed by SILVER bullion. While that may be true or not, the shares are sold to distributors in units of 50000 shares as the demand for the shares increases in the open market. With increasing demand more units (more shares) need to be created. The units can be redeemed, as long as the owner of SLV shares does so in 50000 share blocks. For stock ETFs the redemption is for the underlying stock; but for SLV the redemption of units should be for the bullion stored in the bullion warehouse. Now, since SLV shares represent one of the largest stores of bullion in the world, it does make some sense that China or some other sovereign wanting to acquire SILVER bullion could do so via unit redemption. I do not know if the administrators of SLV can substitute CASH redemption as their option upon redemption; most of that is in the fine print of the SLV prospectus.

Okay, thanks BIll.... now I understand it

[barrytrot]

Supposedly SLV is backed by SILVER bullion. While that may be true or not, the shares are sold to distributors in units of 50000 shares as the demand for the shares increases in the open market. With increasing demand more units (more shares) need to be created. The units can be redeemed, as long as the owner of SLV shares does so in 50000 share blocks. For stock ETFs the redemption is for the underlying stock; but for SLV the redemption of units should be for the bullion stored in the bullion warehouse. Now, since SLV shares represent one of the largest stores of bullion in the world, it does make some sense that China or some other sovereign wanting to acquire SILVER bullion could do so via unit redemption. I do not know if the administrators of SLV can substitute CASH redemption as their option upon redemption; most of that is in the fine print of the SLV prospectus.

Where did you get this information?

Naturally for any ETF they will increase and decrease "available shares" if the managers desire to do so. The same is true for a "real stock", i.e. Google may decide to buy back shares or issue more shares any time they feel like it. (One of the big dangers of owning exchange traded stock.)

However, converting the shares into anything other than cash would alter the type of investment and therefore make it more difficult to own in an IRA, Annuity, or other controlled investment environment.

Please show me the documentation on converting SLV shares to "real silver".

[argent_pur]

[/quote]Please show me the documentation on converting SLV shares to "real silver".[/quote]

From the iShares Silver Trust Prospectus Page 23:

"Authorized Participants, acting on authority of the registered holder of iShares, may surrender Baskets of iShares in exchange for the corresponding Basket Silver Amount announced by the trustee. Upon the surrender of such iShares and the payment of the trustee's applicable fee and of any expenses, taxes or charges (such as stamp taxes or stock transfer taxes or fees), the trustee will deliver to the order of the redeeming Authorized Participant the amount of silver corresponding to the redeemed Baskets. iShares can only be surrendered for redemption in Baskets of 50,000 iShares each."

The full context is on the rest of page 23.

Edit: Second to last paragraph under "Redemption of Baskets of iShares; Withdrawal of Silver" says: Unless otherwise agreed to by the custodian, silver is delivered to the redeeming Authorized Participants in the form of physical bars only (except that any amount of less than 1100 ounces may be transferred to an unallocated account of or as ordered by, the redeeming Authorized Participant).

[Country]

Thanks for digging that out. It's cold, dry stuff looking through a prospectus. The SLV and GLD ETFs have similar surrender procedures for units (50000 shares) of stock. I'm still not sure if the trustee can substitute CASH equivalent for the PMs due the owner of the ETF stock.

It works the same way with stock ETFs. An owner, can surrender (I don't know why they would) a unit (50000 shares) of an ETF for the underlying stock the trustee holds for the ETF trust. Can you do this in your IRA? Maybe, but why bother?

[argent_pur]

1100 ounces is kind of an odd number to my way of thinking. What's a person to do if their 50,000 shares total 1200 ounces? Page 22 says the bars are supposed to be London Good Delivery bars (~1000 oz bars). How is the difference made up? Anyone have any info on this?

I'm assuming that AP's (which include brokers/dealers) CAN redeem these shares on behalf of their private clients???

Edit: As far as I know, a basket has always consisted of 50,000 iShares and yet the prospectus says that on the day of the creation of the trust, a basket required delivery of 500,000 ounces of silver! That would be 10 oz./iShare---is that a typo??? What does one iShare represent in silver ounces today?

[barrytrot]

Please show me the documentation on converting SLV shares to "real silver".[/quote]

From the iShares Silver Trust Prospectus Page 23:

"Authorized Participants, acting on authority of the registered holder of iShares, may surrender Baskets of iShares in exchange for the corresponding Basket Silver Amount announced by the trustee. Upon the surrender of such iShares and the payment of the trustee's applicable fee and of any expenses, taxes or charges (such as stamp taxes or stock transfer taxes or fees), the trustee will deliver to the order of the redeeming Authorized Participant the amount of silver corresponding to the redeemed Baskets. iShares can only be surrendered for redemption in Baskets of 50,000 iShares each."

The full context is on the rest of page 23.

Edit: Second to last paragraph under "Redemption of Baskets of iShares; Withdrawal of Silver" says: Unless otherwise agreed to by the custodian, silver is delivered to the redeeming Authorized Participants in the form of physical bars only (except that any amount of less than 1100 ounces may be transferred to an unallocated account of or as ordered by, the redeeming Authorized Participant).[/quote]

Very cool. I'm glad to be wrong about that. I wonder if other commodity related funds also have a similar provision. If so, it makes them really close to the "real commodity" which is good.

[argent_pur]

Yeah, I would not be of the camp that thinks there is NO silver backing these things up, but the hefty requirements for redemption in addition to the language of the prospectus in other places tells me that it would be no skin off their nose to have only a fraction of the shares backed by physical since redemption in it is discouraged by the legalese. In other news, JP Morgan Chase is the custodian that holds SLV silver ...the amount they hold is designed to decrease with time, meaning each share will represent less and less real silver over time. It's specifically stated in the prospectus that if the price of silver doesn't rise fast enough to keep up with depleting supply, you will lose money.

I'll take physical in my hand any day of the week

[Lemon Thrower]

there is some silver and the rest paper.

big firms arbitrage tiny differences between the ETF and Comex prices.

but we are talking about apples and oranges.

Eric King says the Chinese are taking silver off of the Comex. In fact, Comex stocks are going down.

ETF ounces are volatile but they are generally up.

I would not assume that "Siver basket" means silver ounces. It could, but it might also mean a comex future.

Comex changed their rules a year or 2 ago to allow settlement in ETF shares. So you could buy a future, stand for delivery, and receive a piece of paper (ETF shares). But wait, if you have enough, you can redeem them to the ETF sponsor, who might pay you in a Comex future. aboslutely brilliant. there could never be a bank run because everyone in going in circles.

[argent_pur]

The prospectus I quoted from was current as of Dec. 1, 2009---so that would account for the difference. There was no language at that time that indicated any other option was available (except an unallocated account for amounts of physical less than 1100 oz. at the discretion of the Authorized Participant). But since that has apparently changed, that makes me even more concerned that these vehicles may be just another way to fabricate extra "silver" to keep the price down.

[Lemon Thrower]

the last prospectus filed was march 9, 2010 and says you can get silver but only by redeeming 50,000 iShares at a time. So I stand corrected, slightly. However, we are still talking about apples and oranges because I believe the amount of ounces in the ETF have been increasing, so the ounces are not leaving the ETF.

Redemption of Baskets of iShares; Withdrawal of Silver

Authorized Participants, acting on authority of the registered holder of iShares, may surrender Baskets of iShares in exchange for the corresponding Basket Silver Amount announced by the trustee. Upon the surrender of such iShares and the payment of the trustee’s applicable fee and of any expenses, taxes or charges (such as stamp taxes or stock transfer taxes or fees), the trustee will deliver to the order of the redeeming Authorized Participant the amount of silver corresponding to the redeemed Baskets. iShares can only be surrendered for redemption in Baskets of 50,000 iShares each.


Before surrendering Baskets of iShares for redemption, an Authorized Participant must deliver to the trustee a written request indicating the number of Baskets it intends to redeem and the location where it would like to take delivery of the silver represented by such Baskets. The date the trustee receives that order determines the Basket Silver Amount to be received in exchange. However, orders received by the trustee after 3:59 p.m. (New York time) on a business day are treated as received on the next following business day.


The custodian may make the silver available for collection at its office or at the office of a sub-custodian if the silver is being held by a sub-custodian. Silver is delivered at the locations designated by the trustee, in consultation with the custodian. All taxes incurred in connection with the delivery of silver to an Authorized Participant in exchange for Baskets of iShares (including any applicable value added tax) will be the sole responsibility of the Authorized Participant taking such delivery.


Unless otherwise agreed to by the custodian, silver is delivered to the redeeming Authorized Participants in the form of physical bars only (except that any amount of less than 1100 ounces may be transferred to an unallocated account of or as ordered by, the redeeming Authorized Participant).

Redemptions may be suspended only (i) during any period in which regular trading on NYSE Arca is suspended or restricted or the exchange is closed (other than scheduled holiday or weekend closings), or (ii) during an emergency as a result of which delivery, disposal or evaluation of silver is not reasonably practicable.

[oktyabyr]

Redemptions may be suspended only (i) during any period in which regular trading on NYSE Arca is suspended or restricted or the exchange is closed (other than scheduled holiday or weekend closings), or (ii) during an emergency as a result of which delivery, disposal or evaluation of silver is not reasonably practicable.[/i]

There's your answer. If there is too much being redeemed, just declare that it is not reasonably practicable.