Posts Tagged ‘Morgan Stanley’

Possible fuses that can ignite silver prices: unbacked silver certificates

Thursday, June 25th, 2009

In our previous article, we talked about the silver leasing rort that has the potential to ignite silver prices. Today, we will talk about another rort- silver certificates.

There are many trusted financial firms that provide precious metal storage to their customers who have bought the precious metals from them. For example, you may buy 2 kg of gold from XYZ Bank. In return, XYZ Bank will issue a certificate to officially state that you own 2 kg of gold in their storage facilities. In return for storing your gold, you have to pay XYZ Bank storage ‘fees.’ Sometimes, these ‘fees’ are ‘paid’ by running down your gold balance over time. For example, after 10 years, you will find that you own, say 1.65 kg of gold.

The problem is that these financial firms are selling imaginary precious metals. Ted Butler, in his article titled “Money for Nothing”, reported that Morgan Stanley was sued for not really storing the precious metals that they charge their clients for the storage ‘fees.’ Worse still, Morgan Stanley had the gall to even not bothering to refute the claim! Instead, they claimed that there’s nothing wrong with it as it is a “widespread industry practice.” In other words, a silver certificate that charges their client storage ‘fees’ is fraud.

It is possible that some of these un-backed silver certificates are backed by silver futures. If, for whatever reason, physical silver prices spike up (could be due to the other silver fuses that we mentioned in previous articles), there could a run on the physical silver. Since there is not enough physical silver to match the silver certificates, the next best thing the banks will do is to demand physical delivery on their long silver futures position or buy the silver at whatever price in the spot market. This will tighten the short squeeze on the silver futures market even more, exerting more upward pressure on physical silver prices.

Those who hold physical silver will laugh all the way to the bank (note: in reality, you may not want to bank your silver profits).