Showing posts with label Sprott. Show all posts
Showing posts with label Sprott. Show all posts
Eric Sprott's Third Bar List for PSLV
Chasing Chinese Bars
GLD is the world's biggest repository of gold bars, if you remember the 'country of refiner origin' breakdown, this is the most recent snapshot (data is from a specific document issue - not an aggregate). I have also included the graphic to remind that we're only interested in the 400-oz variety.
Vainly Willing the Return of the 2011 Silver Bubble
I do. I'd previously confined my trading to stocks: oil and resources, mostly. But I wanted to branch out and thought the gold and silver charts looked good for a solid bounce back. My thesis for gold was pretty clear: a nice solid investment to hedge the rest of my portfolio against inflation. And I figured I'd take a slight gamble with silver as I imagined it would provide me with a 'volatile version' of gold. So at the beginning of February 2011 I went in at 75% gold, and 25% silver.
Boy, did us newbie silver investors get lucky! The charts had pointed to a good rise in silver, but we hadn't imagined such a move in our wildest dreams. By the end of the month it had gone from $26 to $34, and I was scaling out of gold and in to silver. With this metal swap, the profits just kept rising. By the end of April, it had all gone stupid, and it was obvious to anyone with two neurons to rub together that we were in the grip of a mania. I got out at around $45 and never regretted the decision. A few days later silver started its plunge from $50 to (eventually) $26, and has barely recovered to this day (currently at $31 and change).
What I did regret, however, was what happened to everyone who had not ejected. It could easily have been me too, had I had a bit less trading experience and a bit less fear (yes, sharp moves higher always scare the absolute bejesus out of me, more so than the plunges - fact). And this burned my curiosity. What had actually taken place? How had such a mania developed? And why didn't most retail silver investors get out? They were still buying all the way up to $49, the poor bastards.
So I started to look more deeply into the 2011 Silver Bubble, and events since, and was rather shocked by what I found.
SLV Database 3
My analysis from last year seems somewhat primitive – silver bars which swim in and out of the SLV ledger is no longer in question. For today’s article I present proof of what I’m calling ‘
Hard data is perhaps less interesting than the implications of the conclusion and the story behind getting that data. I have known for some time (from visual checks) that bars from SLV had travelled across to Perth; the real challenge was to be able to package that information to be traceable. But the computing component is straight-forward, the tricky part is formulating the framework of questions to interrogate the data. If you're interested in the background, read on ...
Manic Miners
Well hello again.
Service as normal at Screwtape is being resumed after the emotional highs and lows of last week. By 'normal', I do of course mean 'technical analysis and philosophical discussion of precious metals as presented by five prosimians who like to use metaphors such as crème-de-menthe-drinking dung beetles'. So jolly well normal, in other words. And there'll definitely be no more underhand side-swipes or bitchy remarks aimed at the silverogosphere and its noble hosts.
The Platinum/Gold Ratio is at a Critical Point
Until the latter part of 2011 that is, when platinum plunged from its highs of $1870/oz to a heart-stopping $1360/oz (27%). Although gold suffered its own drop ($1900 to $1540/oz), it was 'just' 19% - ergo the PLAT:GOLD ratio fell to below parity for essentially the first (sustained) time in modern memory. This is visually represented in these two charts:
GoldMoney and its end-of-day price 'manipulation' (updated) (again)
[UPDATE: After reading this article, you may find the reply from GoldMoney, here, interesting.]
GoldMoney is something of a darling of the precious metals community. It is a way of having a claim to ownership of gold, silver, platinum or palladium physical metal, and having it stored in a secure vault in a choice of three countries. It's not especially cheap (with premiums of 2.49% for small USD gold purchases, and 3.99% for silver, you're certainly not getting your bullion for sp(r)ot(t) price). But the premiums are not too much higher than on-line bullion vendors and coin shops, and the storage costs - at least for gold - are not extortionate.
An ambition of GoldMoney was to make gold money in a very practical way. The company foresees a time when online payments will routinely be made in gold, and had offered a facility for clients to make and receive such payments to each other. I say 'had offered', as this aspect was withdrawn on 21 January this year. So GoldMoney is no longer gold money. It's just a glorified bullion dealer.
Part of its popularity no doubt stems from the near perma-presence of its spokesperson, James Turk, on the silverogosphere. It seems like hardly a day goes by without Mr Turk popping up on KWN, Casey Research, or one of a multitude of other sites, to regale listeners and readers with tales of $10,000 gold in ten days or $600 silver in a fortnight (I am paraphrasing here for effect - but only slightly). Mr Turk actually no longer owns GoldMoney, contrary to what many seem to think, but rather acts as their paid spokesperson and consultant. GoldMoney is in fact owned by a collection of investors including Doug Casey (Ed Steer's boss), David Tice, IAMGOLD (a large Canadian mining company) and our old friend, Eric Sprott. I will leave you to draw your own conclusions about the ties between the silverogosphere, the big physical metal investors and GoldMoney and its spokesman, as that is a story for another day...
Today's little mystery concerns a curious effect that I've followed on GoldMoney's charts for some time. Now, GoldMoney's advertised prices are supposedly at spot (with the premium then added on at the time of purchase). Thus, their USD/oz chart is identical to the Kitco USD/oz chart. Gold priced in other currencies should therefore follow the normal convention of converting that currency into USD according to the current exchange rate, followed by a conversion of USD into gold at spot price.
But what I've noticed is that on days when there is a big fluctuation in the GBP/USD pair (e.g. of more than, say, half a cent) then something odd happens after 18:00 GMT. See if you can spot the difference in these two charts, which cover exactly the same time period (clue: look at the end of each of the blue lines):
As is obvious, there is a spike up (of around £7/$10) in the GBP chart at around 18:00 GMT which is not replicated on the USD chart. Now on that day (10 February), the GBP had weakened considerably against the USD, so the gain in gold priced in GBP is not unexpected. What is unexpected is that although the GBP weakened gradually throughout the day, this chart implies a sudden devaluation. However, a check of the USD/GBP chart for that day shows that no such sudden devaluation took place.
Further, one can check the GBP/gold chart for 10 February on any other website, and one will find that this spike is simply not there. It only appears on the GoldMoney charts.
The effect works in the other direction too. Check out these charts from yesterday, a day when the GBP strengthened significantly against the dollar:
Same effect, different direction. The downspike (of around £5/$8) on the GBP chart is not replicated on the USD chart. But the USD/GBP charts for yesterday show no corresponding sudden USD devaluation against the pound. The GBP strengthened against the USD throughout the day. And, as with the first example, the GBP/gold charts available elsewhere show no such downspike.
I have posted just two examples here, but please be assured that this happens every time that there is a substantial shift in the GBP/USD pair. Knowing this has actual predictive power: I knew yesterday that this was going to happen, and was ready and waiting to get the screen grab when it did.
Unfortunately, I have not worked out a useful way of profiting from this effect. Although a genuine arbitrage opportunity most definitely exists, knowing that this spike is coming is not much use unless the spike will be greater than the premiums for buying. In other words, had I sold my gold just before the downspike yesterday, and then bought it back immediately after the spike had finished, I would indeed have benefited from a £5 arbitrage (roughly 0.5%). But I also would have had to pay a 2 - 3% premium on my new purchase, which more than wipes out my hypothetical gain. I suppose a change in the USD/GBP pair of more than 3% in a day might make it worth one's while to capitalise on this, but such days are mercifully rare in the FOREX markets.
Anyway, I digress. This trait is germane to GoldMoney and GoldMoney alone. It is subtle, and not avowed (I can find no mention of it anywhere on the GoldMoney site). Now, GoldMoney presents its prices as following spot, but it is obvious that this is not always the case for purchases in GBP, and perhaps other currencies too.
The only possible conclusion is that GoldMoney is regularly carrying out its own little - and sometimes not so little - 'end of day' currency adjustment. Now that's a bit cheeky, especially as clients are not warned about this. Imagine you had just bought some gold priced in GBP at 19:59 GMT on 16 February, and then immediately lost £5 per ounce thanks to GoldMoney's idiosyncratic little currency adjustment. It would hardly seem fair, would it?
More to the point, it is difficult to describe this cheeky end-of-day currency adjustment which is (a) not avowed, and (b) not done by anyone else, as anything other than a form of price manipulation. The irony of this darling of the silverogosphere effectively manipulating its price on an end-of-day whim is not lost on me.
I should stress that I do not think for one minute that GoldMoney is doing anything illegal here. I just think it's curious that they are so hush-hush about it.
Food for thought.
What's the real premium for bulk silver purchases?
Strewth, cobber, the controversy surrounding premiums for bulk buys of silver continues to rumble on.The basic premise was that the seriously wealthy would face huge premiums of up to 30% if they wanted to buy silver in large quantities. This figure is not as random as it might appear: it first started doing the rounds when Sprott's PSLV hit a premium of above 30% (peaking at 35% before his secondary offering on 18 January). In other words, such an extraordinary premium had to be justified in the silverogosphere by grounding it in fundamentals, viz. such an astonishing premium must imply a huge shortage in the silver supply.
This shoddy thinking reached its glorious nadir in Zero Hedge's abysmal pump of PSLV, as discussed here by Screwtape's Brian O'Flanogan; a number of commenters also waded in to patiently add to the debunking.
If that wasn't enough, Sprott's second issue caused the premium to collapse to 6%. This really should have been the death-knell for one of the most ludicrous of all the silver memes floating around on t'internet. I mean, if a premium of 35% implies a shortage, then presumably one of 6% implies a sudden glut in supply? Which would mean that Sprott's sudden large purchase of silver had somehow increased supply! It's enough to make one weep. This chart (courtesy of gotgoldreport.com) shows quite clearly just what a bad deal the holders of PSLV got in comparison with those of SLV:
But, one should never underestimate the resilience of silver religionistas memes. The facts never get in the way of a good bit of propaganda, even if all it takes is about five seconds' thinking to realise that the propaganda makes no sense at all. The great and the good of the silverogosphere continue to chant the new axiom that silver is unobtainable for less than a 30% premium when buying in bulk. The meme has legs, and all efforts to kill it at birth by the more rational parts of the community have failed.
I'm going to have one last go, before giving up. In recent private correspondence I was challenged to find ways of buying a million ounces of silver without incurring hefty premiums. So, I borrowed $34,000,000 from GM Jenkins (using the indentured slavery of my first born as security, as per his usual terms) and decided to do a bit of silver shopping. Here's what I found:
1. I could buy some silver futures contracts on the COMEX and stand for delivery. This way, I will get the silver at a spot price that I think will be a good price in the future (e.g. a few weeks ago, I could have easily picked up some futures for silver at $28 an ounce, which would have been a great deal; but even today, I could buy some futures at $34 an ounce quite cheaply). The costs associated with this will be the broker's contract fee and commission for the trade (a tiny fraction of a percent for such a large trade) and some storage or delivery costs once the contract is closed (again, this would be a tiny fraction of my $34 million order), plus some insurance. A bonus for conspiracy fans out there is that by doing this I'll be contributing to the collapse of the COMEX [/sarcasm].
2. I could buy and redeem SLV. Basically, this needs to be done in 'baskets' of 50,000 iShares. So my $34,000,000 will get me 1,031,553 iShares of SLV (before open of play on 29 January, silver is at $33.99 per ounce and SLV is at 32.96). So, let's say that I'll buy a round million iShares which will get me 20 baskets. The 'premium' will be what the iShares prospectus describes as 'applicable fees, taxes, expenses and charges'. One of these fees is $2000, which is neither here nor there if you're splashing out on $34 million of silver with GM's hard-earned cash. The rest adds up to just a few percent [if anyone can do this calculation more precisely, then I'll be grateful, and will add it to this post with an acknowledgement].
3. The Perth Mint is (at the time of publishing) selling silver 100-oz bars at 2.4% over spot (i.e. $34.65 as opposed to their last quoted silver spot price of $33.84 spot price) So, I'd need 10,000 of those. However, the Perth Mint Depository’s standard premium for 1000-oz bars is $0.20 per ounce over spot, which in practice would usually be stored in their vault. But for buyers of size (High Net Worth individuals), they will do “cash and carry” if requested and - for delivery to the USA by sea - an additional three to five cents over spot should cover freight. So purchase and delivery would come in at a rather tasty 0.74% premium. [Many thanks to Bron Suchecki of the Perth Mint for this information.] I'm sure every other major bullion seller around the world would also have similar fees and services for HNW clients and I wouldn't be surprised if there were some quantity discounts of list prices.
4. GoldMoney: If you don't trust the evil SLV, then perhaps you'll have more confidence in a White Knight in the form of James Turk. Here you can see GoldMoney's rates. Not surprisingly, the more you buy, the lower the rate. So a million dollars or more will get you a rather nice 'premium' of 1.99% for physical silver. And they'll deliver it to your house, if you like (although that will cost you a couple of percent extra).
I found about a million (well, half a dozen) other ways of getting my bulk purchase of silver for a low premium, but I don't want to labour the point...
So, to answer the exam question, 'what is the rate for bulk purchases of silver', it is between almost zero and 2%. That's quite a long way from 30%, I think you'll agree. Now, the die-hard cynics amongst you might say, 'well, that's all well and good in theory, but can you give an example of someone who has actually recently bought a large amount of silver without paying 30% premiums?'
Funny you should ask that. In fact, I know of a certain Mr E. Sprott of Toronto, Canada, who - according to the publicly available records of the PSLV Trust - has just bought 8 - 9 million ounces of silver (and rumour has it that he didn't even need to borrow the fiat off GM to do so...) I don't want to blatantly plagiarise someone else's work, so please check out Kid Dynamite's analysis, which shows quite clearly that Eric picked up his shiny stuff at very close to sp(r)ot(t) price.
Now this should come as no surprise. There are three incontestable facts about billionaires. The first is that they are very, very rich. The second is that they didn't get to be very, very rich by paying a 30% premium for something that they can get for almost no premium at all. And the third is that they tend to employ very smart, efficient people, who lose their jobs very quickly if they waste their employer's money.
So Sprott probably just got his people to buy his silver on the COMEX, at virtually no premium. Sprott cheerleaders on the silverogosphere then went around implying (again) that silver was in a shortage, and the premium-to-NAV proved this (even after it crashed).
It is, in fact, precisely this level of chutzpah which distinguishes filthy-rich billionaires from unpaid small-time bloggers whose eldest children are now condemned to spending the rest of their years darning GM Jenkin's socks...
Bankster Shills
The thing I love the most about this blog is that the contributors are a collection of very different individuals, with very diverse views. I think it's fair to say that we're all generally bullish on the PMs, and that we have declared positions in gold and silver, but apart from that our only unifying trait is that we love debate, getting to the heart of the matter, and seeking to dispel myths and shoddy thinking as often as we can. If we see something we disagree with, we probe and challenge - including our fellow contributors' views.
Unfortunately, this approach has done little to endear ourselves to certain quarters of the PM community. Although that's a shame, it's perhaps understandable given that we're often a bit cheeky and polemic (or just good old-fashioned devil's advocates). However, what is less understandable is how a brand new PM meme has started doing the rounds: i.e. that the Screwtape Files is a fully paid-up psyops front for bullion banks.
Unfortunately, this approach has done little to endear ourselves to certain quarters of the PM community. Although that's a shame, it's perhaps understandable given that we're often a bit cheeky and polemic (or just good old-fashioned devil's advocates). However, what is less understandable is how a brand new PM meme has started doing the rounds: i.e. that the Screwtape Files is a fully paid-up psyops front for bullion banks.
The abuse in some parts of the blogosphere has been predictably banal and depressing, spiked by Brian O'Flanagan's recent question about the relationship between ZeroHedge and Sprott's PSLV. Here are a few of my favourite recent comments about Screwtape, taken from a number of sites, including ours (the asterisks are my addition, for those of a nervous disposition):
Tyberious: Those little piss ant, SLV, GLD, c*ck suckers[...]What the f*ck! They shall have no quarter here![...]I know these guys a paid shills for JPM, or whatever banks' d*ck they suck! Look nothing against homos, but these guys are whores! For all those that are new, these guys (KID D*CKINMYASS [sic], and butt buddies) pray on the ignorant and pretend that all is well, like there is no manipulation in the PM markets, that SLV and GLD actually have the metal they report to have and they attempt to spread misinformation and worst of all they f*cking do it for money!
PaidInFiat: Jeanne, eat a d*ck. How's that for an explanation? [and, later] Jeanne darc, gobble a donkey d*ck, you elf.
Silver Stacker: I don't doubt what you say, but I don't believe it either. It equates to me stating that the contributors to this blog like to suck each others d*cks and blow loads in each others faces.
Bay of Pigs: They are useless tools on gold or silver, IMO. Better off to ignore them. They have deadpanning gold and silver and supporting the MSM status quo since I can remember. They don't acknowledge anything being wrong/corrupted in the markets (especially the COMEX).
Green Lantern: That must be where the trolls go after they have finished flaming Turd on the main blog. I guess they need a place to wet their whistle also. From simply a journalistic point of view, did you notice that his entire blog is dedicated to flaming individuals/sites and point of views and rarely puts forth his own world views?
Ledbedder: Looks like the boys and girls at the other blog are green with (fake gold) envy.They think because they write "articulately" that they can fool some folks. Go right ahead, try. I honestly do not know anyone that can make an argument against the PM's not going higher over the next few years. Yes, 2011 wasn't their best, but look at the 10 years before that. Guess a decade isn't enough data to go on. That was my roughly written 2 cents as I didn't get a degree from Brown or HAAAAAAAAAAAAAAAvard. One last thing, look down your noses at us because we type swear words, who cares? Tell us you don't let out a good "F*CK" when you bang your shin on the coffee table. Liar.
SGS: Yeah. These morons, especially kid dynamite [sic] are part of a paid JP group to discredit us.
Anonymous: Screwtapefiles is just a front site run by the Bankers. Zero credibility there.
Anonymous: screwtape has zero credibility. The people authoring there have been exposed and countered many times before. It's a site of the banking shills, by the banking shills and for the gullible.
SGS: Dont come back here. You realize that I know who you are now. My tech seems shitty on the front end, no[t] so bad on the backend. You've been warned.
Lovely. What is very striking about such posts (and there are many more) is the level of visceral hatred for those who do not necessarily share their world view or - more importantly - the world view of their heroes. It is also hard not to pick up on a certain amount of deep-seated auto-erotic tension, which I imagine would be better released in a more amorous rather than aggressive way - but I'll leave that train of thought to the psychologists.
However, what is utterly conspicuous by its absence is any attempt to engage with the question at hand, to refute it through evidence, or to present a coherent counter-argument. Responses are limited to either "you're a c*ck sucker" or "you're a bankster shill".
Now that's a bizarre approach. Let's say for a moment (for the sake of argument) that they're right, and the only things we love in life are violent oral sex and getting fistfulls of dollars from JPM. How, exactly, does that refute the facts we have pointed out, or answered the questions we've posed? It's simply a diversionary tactic to avoid answering the difficult questions. So we are forced to ask: why would such diversionary tactics be used by certain elements of the PM blogosphere? If what they say is an open-and-shut case, why respond with abuse and allegations, rather than simply presenting their evidence and explaining their reasoning?
It is obvious to anyone who has ever read Screwtapes that we are not paid up Bankster Shills. We all give our time free to this site, despite us all having extremely busy day jobs and family lives. You will notice that there are no adverts on this site, and there is no donation button either. We make not one penny from this site by any means. We strive to hold the highest levels of integrity, and make full disclosures when necessary.
Sadly this cannot be said for other elements on the web. Some sites earn serious cash from their traffic, and others have direct links to those with a corporate interest in promoting precious metals. Not all sites - and I want to stress that. There are good guys out there. But suffice to say that the supposedly 'independent' content and advice peddled on certain PM sites is often as partisan and sponsored as that which emanates from certain parts of the MSM about which they scream foul on a daily basis. Corporate shills by any other name. I will expand on some of these themes in future posts.
Most of us are long the PMs, and most of us accept that there is a degree of manipulation in the PM markets. But we refuse to subscribe to the cartoon version of evil empires and wicked witches; a world of Zionist plots and farting bears. If a claim is made, such as Sprott's delivery problems or DSK's imprisonment at the hands of the Cartel, or a problematic gold bar in a vault, then we will investigate it. If we find it to be true, we say so. If we find it to be false, then we say that too.
This refusal to blindly accept all we're told, or to unthinkingly cheerlead the latest silver memes does not make us 'anti gold' or 'anti silver'. It does not make us 'perma bears'. And it certainly does not make us Bankster Shills. We value your comments, and we want you to challenge us (politely). If shown the evidence we will change our views on the spot.
We are beholden neither to the banks and Wall Street, nor to those with an interest in selling as many coins and bars as possible.
And it is that which makes us the most independent PM site on the web.
Eric's Delivery (updated x 2)
Mr Eric Sprott likes to talk about how long it took him to get the first lot of silver for PSLV. Three months he said, which supposedly tells you how tight the physical market really is. His delivery is top notch – after all he’s a successful fund manager. But let’s take a closer look at his actual silver delivery. What I hope to demonstrate here is that rather than being sensational, his story is actually quite boring.
So as a second part of our series to encourage us all to question more closely the claims of those who promote silver as an investment, we turn to one of the most oft-repeated silver memes on the net: “Sprott had trouble sourcing silver because of how long it took to get his physical delivered”. And before anyone accuses me of being anti-silver, please read my recent ‘Silver Bulls’ post [link] where I basically speculate that the price of silver is about to smash all records. What I really want to do is question the dogma where people lap up the story (including me) and interpret it as being indicative of a tight physical silver market.
The PSLV bar list [pdf] says 22,298,542.936 fine ounces of silver. In round figures [calculator], this is 632 tonnes (or 632,153 kilograms).
Taking delivery of that much material is not the same as taking a delivery from Pizza Hut. Anyone who has taken delivery of a monster box (which you guys have in America) has would have an idea of how heavy physical silver can be. Anyway, shipping that much weight is a logistical challenge, so let’s explore. But let’s ignore insurance paperwork and shipping ports, customs, etc., since I still don’t know where Sprott bought his silver from, although it stands to reason that some of it must have come from overseas. I DO have knowledge about the weight limits for a shipping container, and it’s really easy information to find if you want to check for yourself [search].
A 20-foot shipping container can hold approximately 20 tonnes maximum. This is both a structural limitation as well as a road-transport maximum (the road tonnage limit varies from country to country). A 40-foot container is double the size but similar restrictions apply – i.e. not necessarily double the weight – my research shows one 30-tonne limit for a 40-foot container.
Using our average, if Sprott had to get his stuff to the Royal Canadian Mint for storage – he would have needed approximately 31 shipping containers to do it. Here is the visualization (using 20-foot containers) of what that looks like, and my digital people have loaded the first one onto the truck already, thirty to go!
Then there’s the forklifting involved. In my research I found a picture of the vault of the ZKB Silver ETF, which shows an example of silver stacking which should make us all envious. This isn’t an article about ZKB, I just wanted to show a photo of what silver bars typically look like when they are stacked on a pallet (e.g. for transport).
What you’ll see above in this picture roughly confirms my research:
“a 1000oz silver bar is approx 12cm x 9cm x 33cm (width x height x length) and they pack 1t per pallet in two layers of 2 bars wide by 8 bars deep = 32 bars, so excluding the height of the pallet, 1t would take up approx 96cm x 18cm x 66cm.”
Let’s say we have 1 tonne per pallet in rough figures, that means that Eric’s delivery required lifting and shifting approximately 632 of these babies – and requires pack and unpack. Here is another visualization of what that looks like (click for large version). The bulk of these are stacked 5 pallets high (each stack weighs 5 tonnes), except for the row at the end (32). Please note this is a visualization only - it is not likely that the silver was ever in a big pile until it was all stacked inside the vault (still on pallets inside?)
And the same view, different angle (click for larger versions of image)
From the above picture, it's pretty clear that this is one heck of a lot of silver to shift. No really – think about it … even if the refinery were just across the road from the Royal Canadian Mint, it would still be a huge job just based on the forklifting effort. Then add shipping times, road haulage, different suppliers, customs clearance, security, whatever else. Stepping back and looking at the practicalities of getting 632 tonnes of silver from multiple sources to Canada, the only thing I now find surprising about the fact that it took Sprott three months to get his silver is that he was able to do so quickly!
So even disregarding the stories of still-warm-metal-bars … if there are any experienced logistics managers out there, please let me know your opinion of whether taking 12 weeks to ship and pack these is about right or way off. Please anyone let me know if my mathematics is wrong, I'll happily adjust the figures or (and publicly amend my statements) if I’m proven wrong with my calculations.
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Updated 17th August 2011 - thanks for all the opinion and feedback from everyone. I received a comment from Bron Suchecki by email, am adding the content to the bottom of this post because the blogger comments system seems to be malfunctioning at the minute. Bron introduces a rather excellent twist to the plot - the possibility that Sprott himself got diddled by whomever he bought the silver from - and to that extent Eric fully believes the 'shortage' association by virtue of his PSLV purchase experiences:
Bron said .."Having trouble posting this comment to your post, could you put it up for me:--------------------
Precious metal vaults are not like distribution warehouses with space for 20 trucks to load up a one time. Most would have one dock or two.
And yes it isn't just unload, thanks mate, see you later. You are checking off each bar against the supplier's bar list.
So even if the metal was across the road it would take some time.
As to the purchase, I think what Victor and Kid guess is probably how it was done. You would certainly buy in smaller lots over a few days so no one in the market knows you are a large buyer. My guess is he bought it loco USA, not London.
However, it did not need to be done as forwards. Each lot could have been done as spot unallocated and on t+2 requesting immediate conversion to allocated (held in London). Then you take 3 months to get it shipped from London to Canada. This means you have no counterparty risk as it is off balance sheet allocated and all at the cost of about 3 cents per ounce for shipment.
Contrast to the forwards, where if the counterparty fails, you now have price exposure. Yes you still have your cash, but have issued shares at a price based on the forward deals which you now have to scramble to buy at current spot prices. If Sprott did forwards, then as Victor says he was backing PSLV with "paper" temporarily and exposing PSLV holders to counterparty exposure to bullion banks.
There are a few possible reasons why it was done this way:
1. Kid's reasons - it allows Sprott to talk about the 3 months delivery time and let the bugs misinterpret that.
2. He relied on his bullion bank counterparts to structure the deal and got played. They would have recommended forwards as they can make more margin on the forward points and it takes pressure off their physical books as they just sub contract with refineries to deliver over 3 months ex-US as and when the refinery has the physical.
The best thing Sprott could do for the silver bugs would be to open a London metals account with a bullion bank. Buy silver in lots from different counterparties, with settlement to his London account. When all done call up the bullion bank and ask for a 600t allocation - shouldn't be a problem as SLV has done numbers like that on a number of days. That way he finds out if the daily huge movements in SLV are real. My guess is he'll never do it this way because they will deliver it. Then he has no story to tell.
Alternatively, Sprott's organisation is just not that cluey on the PM markets and just take their banker's advice. With the size Sprott is dealing in, he could just contact refineries directly and cut the bankers out. Better still, just do a deal with a miner to buy the next 600t of their output. Thinking creatively there are many ways to structure this and minimise or eliminate exposure to banks."
Updated 29th April 2012 - Over at the Chris Martenson blog there has been some great discussion about the bullion markets, with contributions from Eric Townsend, Bron Suchecki, Victor the Cleaner and Jeff Christian. It's quality stuff and worth a read (just the comments section) in it's entirety. However relevant to my own research, I spotted this quote from Jeff, which basically vidicates Bron's theory in the paragraph above. For the comment itself, one must take Mr Christian at his word but it's so beautiful it made my eyes water. This is just one paragraph of a larger comment about silver:
"... Regarding Sprott: They got hosed. We spoke with Sprott people about their delivery problems, as well as with bankers. They handled it dreadfully, and did not require the banks to behave in standard market operating procedures. Why, we don’t know, but they did everything wrong the way many rank amateurs do. Sprott is an eminent salesman, however: He turned lemons to lemonade, saying not that he was an amateur in buying all that silver, over-paid, and was messed over in delivery. Instead, he said it was because there was a problem getting the physical silver. There was no problem with the silver; he just did not negotiate and handle the bank properly. No surprise there to anyone who has watched his funds over the years. ..."
My comments on this are: (1) Bron's interpretation appears to be correct :). (2) Sprott, however resourceful and clever, still presented a deceitful story about what occurred. If this were about a delayed BRIE delivery then I suppose it's fine but it's not - common people are searching for ways to protect their wealth from financial armageddon and many good people have been hoodwinked by Sprotts story. Perhaps at the time they bought an overpriced PSLV which later had its premium collapse. A transfer of wealth from your pocket to someone else's courtesy of hype and spin. Or as Kid Dynamite would say, 'sold to you, Sucka'.
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Addition 30th April 2012 - Kid Dynamite in the comments section added a good point, which is worth highlighting in the main article body.
"Warren - I just want to re-emphasize the point that Sprott's counterparty: ie, whomever was responsible for delivering PSLV's silver to PSLV - did NOT default on their side of the trade. this is important, as an uncareful reading of JC's explanation could conclude "just as we thought - the banks didn't give him what they owed him" which is false... "And just remember, the primary issue is here is not whether Sprott is a great marketer (he is) or whether buying silver is good (it can be), or any kind of character judgment (irrelevant). My focus is purely that the story about the delivery taking a long time because of silver shortages, as popularly portrayed during the initial PSLV offering, is false. And consequently, whether newbie investors were influenced into a particular investment because of a false portrayal. And that it's okay to explore the human element of being duped and feeling poorly about it. Bear in mind that the PSLV 'delayed delivery' story was one of the underpinning 'shortage of silver' proofs.
Be sure to read the rest of the Martenson comments thread, which is still ongoing.
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