Thursday, November 8, 2012

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


  1. Increased Gold And Silver Storage In Zurich And Asian Capitals

    Gold bullion is not only supported by the uncertainty of the “fiscal cliff” but the Eurozone debt crisis is set to deepen again.

    There remains the real risk of an exit from the single currency by one or more members and of course the risk of a global recession and Depression which will be responded to by more loose monetary policies by various central governments.

    More of the world's rich are moving their gold, silver and other valuables away from the economic turmoil in the West to the Asian capitals of Singapore and Hong Kong according to Reuters (see commentary).

    This is prompting vaulting and storage specialists in the increasingly prosperous region to increase their capacity by creating extra vaulting space.

    Depositories in Asia report that there are a lot of enquiries from European banks, not because the banks themselves necessarily want to move the assets to Asia, but because their clients are asking them to.

    These clients include rich Asians who want their valuables closer to home as well as Westerners.

    Singapore and Hong Kong are two of the favoured destinations. Both have seen a significant increase in gold importations in 2012.

    With Chinese demand for gold and silver surging depositories are looking to cater to the huge growing swathe of wealthy Chinese and this is leading to increasing vaulting services being offered in Singapore, Hong Kong and now even Shanghai.

    China is on its way to overtake India as the world's biggest gold consumer this year, as India's gold demand has taken a blow on record rupee prices and higher import tax while Chinese consumers' appetite for gold remains resilient.

    We have firsthand experience of this increasing preference for secure bullion storage as we have seen an increased preference for storage in Zurich and Hong Kong.

    Zurich remains the preferred destination for most western investors and of investors internationally but we and other bullion providers are seeing some western clients opt for secure storage in Asia.

    There is a definite sense amongst some of our American and European clients that storing gold in Zurich and Asia is safer than in London, New York, Delaware or elsewhere in U.S. and this trend is set to continue.

    Throughout history capital has flowed to where it is most favourably treated and today there is a definite move to own capital and assets outside of massively indebted and near insolvent western democracies.

    Obama’s second term is likely to see Ben Bernanke continue to devalue and debase the dollar which will lead to increased investment demand and store of wealth demand for gold and to investors seeking storage in Zurich, Singapore and Hong Kong.

  2. I gotta post this link we shared earlier:

    Thanks Davey

  3. excellent analysis Dave... more seminal work not seen anywhere else.. and you do it for us for free! I will stick with my PHYS/PSLV. 1Kg Lunar Dragon

    PS.. bought an Oz of Ag and 10 Au today... never stop buying! Never stop stacking.. the end is nigh.

  4. Why am I suddenly reminded of that 1970s song by Olivia Newton John, "Let's Get Physical"?

  5. I recall the stories back in the late seventies where companies would offer to sell gold and keep it safe in their vaults, until one fine day the company and gold would vanish into the night. When a private company did this in the seventies it was known as fraud, when mF Global did the same thing it was called an unfortunate financial miscalculation but unavoidable. Now Canada's Mint wants to play this game-is it any wonder why the public is so jaded and mistrustful nowadays?

  6. I believe Sprott trusts keep their gold and silver at RCM (RCM is custodian). Does RCM sell gold and silver ETRs for the same gold and silver that ‘belongs’ to Sprott !?

  7. Not sure it's possible unless RCM commits outright fraud. Sprott has an allocated account and they have the legal right to go inspect the gold once a month (I think it's once a month from my recollection). Sprott also sources its gold and silver outside of the RCM. For gold they buy 400 oz bars, which is international standard, and for silver they buy 1000 oz bars - not sure where those are sourced.

  8. Lauren Lyster Interviews Dan Ariely on Financial Fraud and the Psychology of a Cheater

    I knew that Erskine Bowles was on the board of Morgan Stanley, but I did not know that his wife is on the board of JP Morgan. It is an interwoven world of mutual benefits at the top.

    The current climate amongst the power elite is one of personal entitlement based on rationalization as described by Dr. Ariely, and assumptions of a natural superiority, self-portraying their actions even to the point of benevolence and civic spirit, guiding the poor helpless sub-humans who are incapable of self-governance and perhaps not even worthy of freedom: useless eaters. I call it the Tsar Nicholas complex.

    It is a culture of narcissism, self-indulgence, exclusion, and self-reinforcement through separation from the other. The private discussions that were exposed in the recent presidential elections were a brief view into the mindset and groupthink. Their words betray them.

    And it always ends, often badly.

    Crandall Close

  9. Great detective work, Dave!

    Amazing, the chutzpah of the Money Mafia and its hired lackeys, the government (and military).

    Call me a nut, but I have read lots of interesting (and convincing, to me) things pointing to big, positive changes coming (David Wilcock, 'The Source Field Investigations'), and soon (Dec. 21).

    These evil folks will have to repent, or face karmic justice.

  10. They have resources and are impoverished. We have financialization of paper instruments and we're rich...odd, no?

    How to Rob Africa

    The world's wealthy countries often criticise African nations for corruption - especially that perpetrated by those among the continent's government and business leaders who abuse their positions by looting tens of billions of dollars in national assets or the profits from state-owned enterprises that could otherwise be used to relieve the plight of some of the world's poorest peoples.

    Yet the West is culpable too in that it often looks the other way when that same dirty money is channelled into bank accounts in Europe and the US.

    International money laundering regulations are supposed to stop the proceeds of corruption being moved around the world in this way, but it seems the developed world's financial system is far more tempted by the prospect of large cash injections than it should be.

    Indeed the West even provides the getaway vehicles for this theft, in the shape of anonymous off-shore companies and investment entities, whose disguised ownership makes it too easy for the corrupt and dishonest to squirrel away stolen funds in bank accounts overseas.

    This makes them nigh on impossible for investigators to trace, let alone recover.

    HSBC's troubles mount with Jersey client probe

    British banking giant HSBC has been accused of providing accounts on the island of Jersey for alleged drug dealers and gun runners.

    HM Revenue & Customs, the U.K. tax authority, has obtained details on every British client of HSBC in Jersey after a whistleblower leaked the data, according to the Daily Telegraph.

    The newspaper claims that the list of more than 4,000 clients includes drug dealers, gun runners, bankers accused of fraud and cyber criminals.

    HMRC confirmed Friday that it has received and is studying the data. The tax authority did not comment on specific HSBC clients, but pledged to "crack down" on tax cheats if it finds evidence of wrongdoing.

    "Clamping down on those who try to cheat the system through evading taxes and over claiming benefits is a top priority for us and we value the information we receive from the public and business community," said an HMRC spokesman in a statement.

    Jersey, a 5-by-9-mile island just off the coast of France belonging to the British Crown, is one of the richest tax havens in the world.

  11. Dave, I religiously read your blog and share your position on 99% of the topics you discuss, however, KidDynamite posted a legitimate rebuttal to your RCM post that I suggest you respond to.

    1. LOL. KD needs to spend more time going thru the prospectuses. His blog post is more a criticism of PSLV than it is of my view on RCM. I should have clarified upfront that PSLV is a big-boy fund if you want to take delivery. But if you read the PSLV trust from front to back, you'll find the physical audit mechanism is clearly defined.

      There is NO defense of SLV and GLD. They have no bona fide physical audit mechanism. None. The accounting for SLV and GLD is purely paper. Read thru the prospectus. Just by virtue of the fact that at any given point in time, roughly 10% of each trust is sold-short means that there is a substantial amount of each trust that has ZERO metal backing. None. Sprott's fund are always 100% backed by metal and you can not borrow the certs to short them. IF SLV AND GLD WANTED THEIR TRUST TO BE BONA FIDE PHYSICAL METAL TRUSTS, THEY WOULD NEVER ALLOWED THE SHARES TO BORROWED FOR SHORTING PURPOSES. That fact in of itself de-legitimizes GLD and SLV.

      The one time the public had a chance to see into the GLD, and the GLD prospectus is largely the same as the SLV prospectus, Bob Pisani was taken to a stack of gold bars that was supposed to be GLD's stack, he picked up a bar randomly and it turned out that the bar didn't even belong to GLD. Anyone who saw that episode and owns GLD or SLV should have sold their holdings immmediately. An accounting of serial numbers means nothing. We've seen random studies that have show that the serial number list of GLD and SLV at any given time has several errors on it. That's just for starters.

      I don't believe than any non-instutional investor should invest in ANY paper bullion trust. But if you have to, the Sprott fund is the best one.

      I find it to be be quite facetious that KD has to deflect the real issues by pejoratively referring to professionals who spend, and have spent the last 11 years in my case, researching and studying every aspect of the bullion market as "silver bugs" or "gold bugs." It's the same bullshit Dennis Gartman pulls out when his only defense of a view is to throw the term "gold bug or bug" at the metals investing community. Laughable at best and highly unprofessional

  12. Thank DD, I refuse to own paper metal and ignore the "bug speak." I find KD entertaining and your blog informative. I appreciate your response.

  13. Well the blogger version of the onion just eviscerated Dave's reply:

    As an interested observer, I think it would be beneficial if you (Dave) would take KD's "facts" and prove them wrong.I think he makes a very compelling argument.


    1. I don't get paid for this and I don't have time. This issue is settled for those who have been exclusively studying/trading this precious metals market for the past decade. KD is a mere child operating in an area of the world meant for adults.

      Here, read this:

    2. If you ever do have time, I would be interested in your direct response. I am just starting to learn about commodities and metals in particular, so I would be vary curious to see if you two could keep going back and forth to come to an agreement.

    3. We will never agree. He's the type that is dogmatic and superficial in his analysis - his bombastic writing style reflects that. For me it's mind over matter - I don't mind and he doesn't matter.

      If you search this blog, I reported on the entity that "audits" the SLV/GLD trusts. It's not anymore trustworthy than Ernst. Please note that KD freely and unprofessionally mocks Ernst but finds Inspectorate fine for his purposes.

      If you read the details, Inspectorate supposedly conducts a physical count 1 time per year. Big deal. How about if we have an independent auditor, not hired by Blackrock to go in and conduct an audit. Hell, Bob Pisani in front of national tv picked up a bar that was supposed to be GLD's, in a GLD's part of the HSBC vault, and it wasn't GLD's. I'm sorry, but if all the bars are counted and audited, the probability of that being a random event is way too low for that happen coincidentally when CNBC is in the vault.

      The other audit is based on paperwork sent to Inspectorate by Blackrock. Blackrock hires Inspectorate, Blackrock gives Inspectorate most of the data used to conduct the audit.

      All that aside, if you read thru the GLD report I wrote and posted on this blog a few years ago, you will see that legally there is no valid, bona fide legal mechanism of accountablity regarding the safekeeping of the bars. None.

      If you trust that, fine. I do not, nor do many others who have analyzed the GLD/SLV legal structure.

      You said you want to learn about commodities. First, gold and silver are not commodities. They are monetary metals. Second, what does SLV or GLD have to do with commodities? Nothing.

      I erred in saying that PSLV could not be shorted. It can be but it's hard to borrow and it's expensive to borrow. I tried borrowing some for my fund the other day just to test it and could not find a borrow at Fidelity or Schwab.

      The short interest in PSLV at any given time is very very low. Negligible. The short interest in SLV often hovers at around 10% of the float. Theoretically, that means that IF all the holders turned in their shares for delivery of physical, SLV would be short 10% of the bullon represented by those shares. So if there's 315.6k bars of silver, and 100% of the shareowners want their silver and turn in their shares, it means that SLV would be required to deliver 347k bars. It would be short roughly 32,000 bars and would have to go out to the market and find those bars. To put this in perspective, there's currently 33.9k bars of "registered" silver at the Comex. "Registered" means bars that can be delivered. If SLV were to get a 100% call on its silver, the amount of silver required to be delivered would wipe out the Comex.

      32k bars of silver is a little over $1 billion worth of silver. When Sprott does a deal for a couple hundred million it moves the market quite a bit. Imagine what it would do the price of silver if Blackrock had to stick a bid in the physical silver market for 32,000 bars, the total amount of deliverable, non-customer-owned silver at the Comex...ROFLMAO

      That's not what owning gold and silver are about. Not even close. I preface my GLD report by stating clearly that GLD is fine if you are a short term trader looking to index the price of gold. But if you get caught long "when the music stops" your trading postion will plummet in value while the price of gold goes parabolic.

      Do yourself a favor and due your own due diligence. You see the work that KD puts out, with much bombast and flamboyance. Read my GLD report - use the search function at the top of my blog and you'll find it. Google "GLD James Turk" and see the work he's published on GLD. Then decide for yourself what you are comfortable with.

  14. Dave,

    Thanks for your reply. It does illuminate quite succinctly the breadth (and depth) of your counter-arguments to KD's post.

    And a big thank you for letting me know that the issue is settled. I am not a trader, so I didn't know that it had been settled (but apparently only if you have been trading/studying the precious metals market for at least 10 years).

    I do not know KD's age. I do agree that his humor tends to be juvenile (kind of like mine) so you could be right there.

    To the link that you posted, I do follow Alasdair, but I am not seeing how that disproves KD's SLV/PSLV facts?

    But since it is settled, what does it matter?

    I guess that GATA can stop posting their findings and Sprott will have to find a different way to market his fund.

    Sucks for them! But dems the breaks!


    1. Look, your sarcasm is not appreciated. If you want to pay me to write an in-depth piece which pulls together everything written on this topic over the last 10 years (at least), then I'd be happy to do it.

      Your althernative is, if you don't want to do a little of your own work, to place faith in me/GATA or KD. Do your own work and draw your own conclusions. You have two benchmarks now. I've done many posts over the last 3 years on this blog which talk about the topic.

      This blog is a aide-bar for me and do not receive any compensation other than therapeutic outlet.

  15. Dave,

    OK so sarcasm is allowed only when you call someone else a child or the blogger version of the Onion?

    I am sorry, but KD has obliterated your analysis. Your response to his argument has been, shall we say, lacking. If you want to stand on your prior posts (which don't address KD's points) then, I say again, that decision illuminates the breadth & depth of your arguments.

    As to who I should put my faith in?

    On the internet?

    Are you serious?

    I do my own research (even though I don't have 10 years of PM trading experience), and I am proud to say,I put my faith in no one when it comes to reading things on the interwebs.

    However, I respect demonstrable facts & I consider well reasoned opinion.

    As it relates to the issues that KD brought up regarding PSLV/SLV, you have provided neither.

    Good luck


  16. I don't have time for this. Do your own due diligence. Enough comments on this matter - it's going nowhere.

    My email address is linked to the blog if you want to negotiate an hourly rate for me to really do a full-blown report. I will probably require about 20 hours of solid research and writing. I can turn it out quickly if I'm paid for my time.

    Otherwise, I can't make money on this endeavor.

    I was not being sarcastic when I labelled KD an child or his blog The Onion.

  17. Grant (from downunder :)Tuesday, 27 November, 2012

    G'day Dave

    sorry to be the next person to bring up KD, but there was something he said about redemptions (ETR vs PSLV) that I found curious.

    In your fourth paragraph you point out that to make a redemption claim from ETR it is a minimum of (about) $100,000 and you seem to be making the point that is set so high as a nefarious way to stop people from redeeming bullion.

    KD claims that on page 6 of PSLV prospectus where it sets out the the minimum redemption, it is, when converted to $$$, is about $300,000.

    Is that true?

    and if not, what is the minimum redemption for PSLV? (in $$$)

  18. Yes the minimum redemption amount on PSLV is probably what he says it is. For PHYS you have to own enough shares to take delivery of one 400 oz. bar minimum.

    I said in my write-up that PSLV is a "big boy" fund. When they issue shares, they do offerings because most of it is pre-sold to big institutions who understand that PSLV has a bona fide accountability mechanism.

    SLV is held by large proportion of retail size investors who don't understand how to due diligence. With the Royal Canadian Mint thing, why make redemption so large if they are using silver maple leafs in part of back the certs? Why even bother using 1 oz. Mapes if they are limiting fungibility.

    Look, all these ETFs are "faith" securities. They are still derivatives, because they are securities who's value is derived from the underlying asset. Not only are you placing faith in the sponser, trustee and custodian of the trust, you are placing faith in your brokerage firm as custodian of your securities. That's counterparty risk x 2.

    I have said all along that the ETF's are fine for indexing the underlying but not in lieu of owning physical.

    And one more comment. I know for a fact that David Einhorn of Greenlight Capital, who one time was the largest holder of GLD, was shown my GLD report. My report got him looking at the legal structure and custody issues embedded in the prospectus. After doing his own due diligence, he unexpectedly announced in July 2009 that he had sold his GLD and replaced it with physical that he was safekeeping privately. Word got to me a couple years later from someone who is very visible in our market that my report got Einhorn to really look at the problems with GLD. SLV is basically the same legal structure.