Just Another Paper Bullion Scam - This Time From The Royal Canadian Mint

This one is absurd.  I just read through the prospectus for the new Royal Canadian Mint ETR, priced on Monday at $20 per unit.  Each unit initially entitles the holder to a .619525 share of 1 oz. of silver bullion, to be safekept by the RCM.  Notwithstanding the complicated formula required to calculate the share of bullion ratio on an ongoing basis for several reasons - the new RCM paper form of silver has several embedded issues which can create the inability of the holder to actually receive the physical silver which they think they are investing in.

The RCM does not directly link the prospectus on its website.  In fact, it made it a pain the ass to track down and get a copy of it.  My bet is that I'm one of the few people out there who has actually undertaken this task and read the prospectus.  I've linked it below.

To begin with, like all the other paper metal trusts (except the Sprott trusts - this write up does not apply to the Sprott trusts, let me make that clear), the RCM is the custodian of the bullion and states up front that the silver which is supposed to be for the trust will be held in an unallocated account.  This may seem trivial right now, but if and when silver bullion becomes scarce and more people demand physical delivery of bullion that is being safekept by the RCM, the RCM ETR has NO LEGAL STANDING FOR A SUPERIOR CLAIM on the bullion.  In other words, let the lawsuits begin and wait in line if there's more claims on the silver flooding into the RCM vault than the RCM can produce.  This is the number one and most egregious problem with all paper bullion trusts.  Quite frankly, it would not cost any more money to create a separate, allocated storage section which legally specificies that all silver in that part of the vault belongs to the ETR trust.  Why do they not do this?  Because this security is a fractional bullion scam.  Also, don't forget that it was just a couple years ago that both the U.S. and Canadian mints had to suspend production of bullion products because of a shortage.

Second, in order to make a redemption claim on the bullion, the holder must own a minumum of 5000 ETRs, or roughly $100,000 worth of ETRs.  This is another hurdle that the promoters of these trusts build into them in order to avoid creating a 1:1 physical backing and in order to try and avoid the problem created by using an unallocated account.  For most investors, $100,000 is too high of a commitment.  In other words, the RCM is hoping that most ETR holders never redeem them and instead sell the ETRs in the market in exchange for paper dollar settlement.  This issue is endemic to the paper bullion trust scam and the RCM is perpetuating and expanding the scam.

Third, the redemption process itself is quite burdensome.  The person redeeming has to follow a mult-step redemption process perfectly, or the RCM can cancel the redemption.  Besides the paper work involved, the redeemer ALSO has to provide for a Carrier to go to the RCM vault and pick up the silver.  This includes the fact that redeemer bears all the risk and expense of pick-up, transfer and delivery.  While on the surface not unreasonable, typically the delivering party will take the responsibility of this step, including any insurance involved.  The way this part of the ETR is structured tells me that the RCM was looking to erect yet another hurdle in order to discourage actual physical redemption and further reinforce the fractional scam that has been created.

Finally,  just in case the holder seeking redemption successfully clears the above hurdles, the RCM has added a very broad clause giving it the power to suspend or cancel the redemption.  This provision is directly from the prospectus:  The Mint may suspend the right of an ETR Holder to redeem its ETRs or postpone the date of delivery or payment of the redemption proceeds (whether physical  silver bullion and/or cash, as the case may be) for any period during which the Mint determines that conditions  exist which render impractical the fabrication, evaluation or sale of  silver  or which impair the ability of the Mint to determine the value of the  silver  bullion owned by the ETR Holder or the redemption amount for the ETRs. Any declaration of suspension  made by the Mint shall be conclusive.

I don't think I need to restate the obvious there.  At the end of the day, when you  buy an RCM ETR thinking that you are investing in physical silver and thinking that you can take actual delivery if you want, the RCM has made it extremely burdensome to take actual delivery and can cancel your right to take delivery pretty much at its discretion.  I don't know about anyone else, but if I want to own physical bullion, I would not take the risks embedded in the Royal Canadian Mint ETR.  It is nothing more than another version of the fractional ownership paper scam.  Wash, rinse, repeat. 

Here's a link the prospectus: RCM Prospectus