Sprott funds confirm other ETFs have metal

Regular readers will know I have a thing for Eric Sprott. Not in a religious sense (although I have read plenty of religious-like fervor surrounding the man), just a fuzzy feeling knowing the guy is a brilliant marketer. Today's article celebrates Eric Sprott because the recently released documents from the Sprott-based Palladium and Platinum funds give validation to other funds (a kind of reverse-zen thing).


Let's first talk about brand power. A few years ago our local supermarket recently started selling their own mobile SIM card - I remember being really surprised that they had launched their own carrier and for a little while I was awestruck by the power of their monopoly (which here in the antipodes includes not just grocery items but also key markets like petrol, hardware stores, etc). It wasn't until my internet service provider started offering their own mobile SIM cards that the penny finally dropped and a bit of investigation revealed that these 'brands' will piggy-back on the infrastructure of one of the major providers (for example iinet uses Optus), normally offering slightly different price packages. Bottom line it's the same service in different wrapping paper, but it's beneficial and convenient for all parties involved because it reduces overall cost and allows economies of scale while still retaining brand identity and (I presume) maximizing market share.

In the world of metals, it is common to do similar - using the vault as a custodian (the classic example is Goldmoney and BullionVault, using Viamat or Brinks). For some reason, Mr Sprott has NOT opted to get the entirety his metal shipped to Canada for safekeeping (like PSLV). Instead, he's making use of some custodians in various locations around the world. Don't just take my word for it (original link):


The bullion is described as segregated so by definition we can assume it is housed in the same facility with other bars (belonging to others). The other (stated) locations are London and Zurich, known centers for vaults. We have records in the database for 11 Palladium funds and 14 Platinum funds, so let's use the data to get some correlations.

The starting premise is that some unique bar signatures in Sprott's new list, may have been seen before in other data, especially since the funds are new ... i.e. we ought to seem some evidence of 'Jumpers', bars which appear to jump from one fund (or vault) to another*. This is easy to do with the database, we can also use our charting software to visualize the result.

We found some matches, specifically ~6 % for Platinum (35 matches from 557 bars total) and ~7% for Palladium (138 matches from 1896 bars total). Here's what those 173 bars look like when plotted together across a 365 day period. The bars go missing (dark) for a time before we see them show up on the 6th March 2013 bar list data from Sprott .... one pixel represents one day (we also have two bars show up in Sprott's which have been 'missing' since 2011 so they don't show up on this 365 day chart, appearing as a horizontal gap).


Legend. Sorry about the colors, I will get this consistent one day.

Originally I wanted to identify the vault he was using. For the time being, this remains unknown. Last I checked, JP Morgan Chase Bank is the custodian for the JPM White Metals Basket funds, while ETF Securities uses HSBC Bank USA (entity of which has vault locations in London, Zurich, etc), but it's likely the bars have been moved since most silverbugs would have an aneurism if the custodian for Sprott's metal turned out to be JP Morgan or even HSBC.

Either way, the Sprott supporters now have a conundrum - is Eric now in possession of non-existent 'paper' metal or is it the other way round ... did he get real metal once held by JP Morgan who also held real metal? Further, if you trust in Sprott's verification of the custodian then how is it possible to distrust other funds which may use the same custodian? I could go further and chart the serial numbers of each refiner to identify Eric's metal like we've done with the Johnson Matthey bars, but I think you get the picture at this point.

p.s. some of the bars are clearly marked as being manufactured in 2010, so there is no chance to re-use the 'warm from the refinery' spin, in case you were wondering.

* The 'Jumper' concept was explored in depth in SLV Database 3.
** The details of the 173 bars identified as Vault Jumpers can be downloaded from this location. You can compare these with any of the historical documents from a year ago: ETF Securities (JPM_US_Palladium Bar List) & JPM White Metals Basket for verification (you'll need to merge all the palladium and platinum worksheets).

21 comments:

duggo said...

Dear Warren,
I have tred to follow the articles about "bar verification" pretty colours and " vault jumpers" but being a simple minded chap I'm confused. Being confused is something I've come to live with but still I wouldn't mind having a simple "meaning" attached to all of this investigative data.

I get the feeling that the whole gist of what is going on is possibly a game of musical chairs.

When the music stops and Sprott, BullionVault, GoldMoney, JP Morgan and HSBC rush to the vaults to grab their bars the last man in will be left holding an empty bag.

Or am I seeing something that is not there?

milamber said...

Duggp,

My takeaway from STFU work regarding Sprott is that he alleges fraud in other pm investment vehicles as a way to sell shares of his funds. yet the other funds are way more transparent in their record keeping & access to information about the metal in their funds.

It is just that the average "investor" doesn't take the time to read the various prospectuses (sp) to understand exactly what their exposure is to counter party risk when they invest in said funds.

Sprott is either stupid beyond reason (not likely in my opinion) or smart enough to understand that there is considerable money to be made exploiting the legitimate (as well as illegitimate) concerns pm investors have about various funds.

Milamber

milamber said...

Sorry, Duggo

Louis Cypher said...

@ Duggo,
"I get the feeling that the whole gist of what is going on is possibly a game of musical chairs.

When the music stops and Sprott, BullionVault, GoldMoney, JP Morgan and HSBC rush to the vaults to grab their bars the last man in will be left holding an empty bag."

That's one way of looking at it. If any of these places get Corzined or one goes bankrupt everyone (Sprott incl.) will be left a few bars short for their funds.

But really the starting premise for all this is to figure out what happens to the gold bars when they are sold? Are they really sold or do they go into a dark pool only to pop back up again in the same ETF?
Hopefully as the database fills and bars are tracked it will prove more useful than pouring over almost useless COT reports because we will be tracking physical and not paper.
I could drone on but really just trying to separate fact from fiction
when it comes to GLD has no gold etc.

Make sense?
Warren's baby but seeing as he is probably sleeping in the cellar or slopping out GM's rat stalls right now I figured I would jump in.

Warren James said...

Hi all - I apologize that my article was difficult to reach, Milamber pretty much got it ... I'll try and clarify.

1. Sprott misled many people during 2011 with his blatant exaggerations about the silver market and I've never forgiven him for this. The entire (brand differentiation) about his 'phyiscal' funds is the inference that his is different to all the rest (which 'may not be based on real metal').

2. Now he is capitalizing on his 'brand' to sell other products (like any business will do), but in doing so given validation to the other funds. He has, in effect weakened his brand.

3. People buying into the PSLV/Physical Funds because they thing he's the only one with physical metal, are just buying a brand name - same as paying a premium for a name printed on a set of sneakers from the same Chinese factory. But just like anyone buying a brand, they don't mind that they've been sold because they are buying the image and feeling - they don't care that the underlying product is the same as what they might have gotten elsewhere. They may possibly feel this way because they've been influenced by Sprott's social media advertising (which again is just another brand device). I say this because Milamber is correct - the other funds are way more transparent than Sprott's (who hasn't updated his PSLV and PHYS list since September 2012), but hype trumps fundamentals.

4. The underlying point is that Sprott is just a brand differentiation game, which follows its own (marketing) rules. If hyping the shortage is part of that marketing strategy then it will be done regardless of shortage or oversupply.


@Duggo, This musical chairs thing, I'm not seeing it anywhere in the data - there seems to be veritable craploads of metal swimming around, which is kind of the point of this article as well. I originally started the project to try and prove the misdeeds of the bullion banking industry, so far the project can be considered a monumental failure because I've found no evidence to support my previous views.

But perhaps you see a little bit of my challenge, taking a complex topic and making it easily digestible. I am, learning. I promise the next graph will be a bit more exciting (and understandable).

milamber said...

Warren,

When you get a moment, can you take a look at what I posted over at FOFOA in the comment section?

I am trying to understand GLD & I think that your talents would be much appreciated

http://fofoa.blogspot.com/2013/02/checkmate.html?showComment=1362696248462#c5431348868675286538

many thanks,

Milamber

victorthecleaner said...

Warren,

Sprott's (who hasn't updated his PSLV and PHYS list since September 2012)

But this is because the list of bars has been unchanged since then. His funds are closed end. Unless there is a secondary offering, neither the amount of metal nor the number of shares changes.

Victor

Warren James said...

@VtC, good point - I am perhaps too quick on the trigger. In my defence his document release is neither timely nor complete (over 20% PSLV bars still do not have refiner specified). My Sprott-based axe-griding is pretty much done anyway - even Eric himself is distancing himself from the 'shortage' rhetoric ... in a sense he is forced to.

@Milamber, yes I spotted your comment and your charts. In my view, the answer to your question is that the bullion banks source the metal from stuff already in the vaults. They have a lot more there than what we see in the public registry. IMO They are playing games with all of us. The inventory graphs will make more sense to you with the dark bullion effect factored in.

... this again is a huge concept and I'm busy trying to bring it out in a way that will be understood (it's why I created my custom charting software). Stay tuned :)

Warren James said...

@VtC,

While it's true I don't keep a close eye on Sprott's silver any longer, I did a quick check just now.

This PSLV document claims ounces held as of January 31st 2013 to be 49,287,863 oz.

The PSLV bar list at September 2012 shows 40,472,905.

So we don't have details for about 8.8 million silver ounces. But I'm here to learn ... does the closed end fund structure allow him to do that? (I'm not a markets person - I only look at these things as a data anomaly, nothing else).

costata said...

Slow Loris Larry,

Re: your question from the previous thread

There was no URL. I was quoting a comment from Warren to VtC asking to sit in on the discussion about GLD which Warren is setting up.

The spam filter has been eating my comments so this is also a test of the new computer I'm using.

Cheers

duggo said...

Thanks for the clarification. Always bear in mind simpletons like me when you write and you can't go wrong.
FOFOA hints at "dark forces" that will relieve people of their Gold when his hoped for Freegold reset comes. He hints at people's Gold stored in all the above funds that I mentioned will "disappear" but he will never explain why he thinks this.
As for the FOFOA comments section Milamber you can forget it. It is just a never ending circular discussion that goes nowhere imparting more heat than light.

victorthecleaner said...

Warren

you are right, it seems there is at least an update to the bar list missing.

Perhaps you can get Zero-Hedge to publish a quick note saying that the Sprott silver fund is lacking about 20% of its physical. That should get you the update within 24h I would guess.

Victor

Kid Dynamite said...

VtC & Warren -

by now you've probably already realized that PSLV did a secondary in November, and thus the stagnant bar list is, to put it mildly, IRONIC.
-KD

milamber said...

@ Warren,

Sounds intriguing. I think that comment about the BB's being the spider in the web is on the mark. I think without knowing where the majority of the 160,000 Tons of above ground gold is, then all once can do is speculate.

I can't wait to see what you are able to do with quantifying dark bullion.

Milamber

Bron Suchecki said...

Imagine if any of the ETFs had 8.8moz difference between the ounces of the number of shares issued and the ounces on their bar lists for 3 months.

The blantant bias of the blogosphere has never been so clear.

Hats off the Sprott brand marketing machine.

Kid Dynamite said...

someone copied me on this KWN tweet today:

"@KingWorldNews: John Embry - I Believe Global Silver Stockpiles Are Now Exhausted tinyurl.com/aby4adm "

plenty of VISIBLE silver stockpiles in SLV... and PSLV...

duggo said...

@ Kid Dynamite.

"Embry, who is chief investment strategist at Sprott Asset Management"

Being a simplistic cynic this says to me "Please buy more Silver we need the money".

What does it say to you Kid?

duggo said...

I really beginning to feel sorry for BrotherJohn. I hope for his sake Silver makes a jump to the upside soon.
He really is struggling to create stories that fit his idea that there is a huge dastardly plot that's keeping all of his followers from becoming billionaires overnight.
His latest effort is a rambling exercise in confirmation bias called Visualising Silver.
There must be mutterings of discontent in the ranks that the story he continually puts forward never seems to happen. When you only have a one trick pony it must be difficult to sustain a following and thereby keep the momey coming in from advertisers.

Kid Dynamite said...

Duggo -

your last two comments are interesting to me, because what that Embry quote means to me is that the Big Boys (a la: Embry) are just as willing to make up absolute nonsense as the small time hucksters (aka: brotherjohn) are...

Gary said...

On the subject of nonsense, many freegolders seem to believe that the GLD inventory decline of late indicates that the physical gold is all flowing to the East, never to return. As ever, no evidence is provided for this speculation.

It'll be amusing to watch their incredulity as the GLD tonnage builds back up again as the price rises over the next year and onwards (as has happened many times in the past).

Maybe the East are either selling it back for a profit ;) Or more likely that there is simply plenty of physical gold floating around for everyone, including the GLD boys, (which is what my dealer tells me).

Amusing, if nothing else.

77 said...

op-ex friday hasn't been kind to gold lately... this is because there are so many perma bulls on the metal they have plenty of GLD SLV calls to expire worthless..

the last low of year on gold around 1555 was made on uber high volume like 250k contracts on all months, so yest. gold went up on 130k contracts...today a higher high on 132k contracts(that don't fly!)... every low of year this year or late last year low of move has been on high volume like 250k... and every low has finally been smashed thru on high volume yet again..

gold needs a retest of 1555 on lower volume, then spring up (gonna be difficult for gold to do it, maybe 1500 is needed to clean it out)... gold was up 12 years in a row this is probably good for it to stay red 5 months like it has.

cheers!