Wednesday, November 10, 2010

Grave Warnings to Precious Metal Investors - Buyer Beware!

I am a palladium bug, not a silver bug or gold bug. Although I do like silver and gold and I like all precious metal investments. My favorite remains palladium. But regardless what precious metal you like best, I urge all precious metal investors to own ONLY physical metals and stocks of their favorite precious metal mining companies.

I strongly discourage owning any Exchange Traded Funds, ETFs that invest only on future contracts or other paper instruments. I cited UNG and USO as perfect bad examples. At a point of time UNG was once the second largest long position in my portfolio, right after SWC. I still can not help but pad myself on my back for promptly realizing the fundamental problem with a paper based "commodity" ETF such as UNG, and sold without hesitation. Had I held UNG till this day I would have been much poorer. Unfortunately such ETF funds continue to make many unsuspect investors poorer by the day. So I urge every investor to carefully read why paper based ETFs do not work.

I do expect that 99% of the people will attack my view point that paper ETFs will not work. I don't mind as I know 99% of the people simply could not grasp the concept until they have lost all their money. I will be very happy if 1% of people feel that I have helped them to avoid costly mistakes and to make smart investment decisions.

Like advocators Jim Sinclair and Ted Butler, I always encourage people to directly own physical precious metals. I do not trust the physical gold ETF, GLD, and the physical silver ETF, SLV. Like some other folks I expressed skeptism whether these funds actually hold the physical precious metals as they claimed. These ETF funds were hosted by entities known to be hostile to precious metal investors and known to have large short positions in silver so why should people trust them? At one point I went so far as scrutinizing the almost 10,000 pages long silver bars list posted by iShares Silver Trust (SLV), and discovered plenty of red flags.

But what I just discovered may shock the raw core out of every SLV investors' shells. If you read the following and you still feel comfortable investing in SLV, and do not feel a need to scrutinize the fund a little bit more yourself, then maybe you are too numb to even invest money in the dangerous marketplace of today, and it is probably a good thing you lose money, if indeed this is exposed to be one of the biggest scam of our time.

This is a nuclear bomb I am dropping, so before I continue let me make a few things clear for my own legal protection. I am a US Citizen with constitutional right to free speech, and conscious forces me to speak out. I do not have a short position in SLV and stands for no monetary gain out of this disclosure. I am a supporter of precious metal investments and want to see higher silver price. I have no vested interest against any entity involved, other than that I insist seeing honesty and integrity of all involved parties.

That said, I have noticed that iShare recently hired an independent auditor to inspect the silver bars in their vault, and issue audit certificates such as this most recent one. I urge you to follow the link to immediately download a copy of the inspection certificate and save it on your computer, lest it disappear soon! The auditor, Inspectorate International Limited, is a very reputable commodity inspector for 150 years in the business. Very good! I welcome iShare's move to hire a reputable auditor to look at their silver bars and disclose it to the public. If you trust Inspectorate, and they visited iShare vaults and come back to tell us they see all the silver bars stored in the vaults, then it should put all skeptism at rest and people should feel safe to invest in SLV shares, right?

Not so fast! Not so dandy fast and easy, I say folks! Look at this Audit Certificate once again. It's only two pages. Print it out, friend. But Inspectorate is a big company and it just so happens that the same Mr. Paul Alston, a nice and respectable English gentlemen, was also hired to do audit for, and issued audit reports like this, this, this, this and most recently this.

Do you see anything unusual, folks, when you compare the two pages SLV audit report and the 14+ pages GoldMoney audit reports, alleged done by the same Mr. Paul Alston?

1. SLV has a two page lousy report that says almost nothing, while GoldMoney has much more elaborate reports detailing every aspect of the inspection process, including such seemingly unimportant information like the brand of the sale used for weighing, even though SLV has way much more silver to be inspected.

2.Inspectorate issued a paper audit certificate to GoldMoney and they have to use an awkward optical scanner to scan the image of the paper certificate and post on the web. More awkwardly, the brits use a paper size narrower than standard American letter size, thus the scanning exposes the ugly paper edge, telling the size of the margin to the edge of the paper. Wouldn't it be nice to do like what iShare did, create a nice and clean electronic PDF document, leaving no trace of the paper, and just digitally embed the Inspectorate logo, and an image of Mr. Paul Alston's signature? Except that anybody with a computer can do it. It's not hard to find a sample image of Mr. Paul Alston's signature off the web, right? (Don't try it at home, kids!)

3.Unfortunately Bank of New York Mellon is in America and speaks a different kind of English than the one spoken by Mr. Paul Alston, a nice British gentleman. And the vaults are supposed to be in England. They forgot such unimportant details and let a lousy American created that Inspectorate Report. Congradulations on getting the paper size to be the correct A4 size, but they need to work on small details, for example Inspectorate would not begin the sentence with "The Bank of New York" as the sentence subject and would not use the ® mark when referring to third party names, and the British would refer a date as 7th of July, 2010, not in the lousy American style July 7, 2010. I encourage them to really spend some time studying how Inspectorate issue their audit certificates. They should have done that before they post it.

I will stop here and let people draw their own conclusions. But I do NOT for a single bit believe that Mr. Paul Alston himself personally counted and inspected 308,542 pieces of silver bars, and sampled and measured each one bar out of each pallet of 30 bars all by himself and his gangs, and issued that SLV audit certificate and signed his name on it. Not a bit at all.

Full Disclosure: The author is fully invested in mining stock SWC, PAL and precious metal palladium. The author also holds physical silver and silver mining stocks like SSRI, CDE and HL, but has no position in ETF funds GLD, SLV, UNG and USO.