I've stated before that physical silver is my preferred investment choice over silver in the form of ETF. One obvious reason for holding physical silver is that you can do transactions in cash, thus avoiding any paper trail and consequentially any capital gains tax.
The next reason for owning physical silver is that it benefits all other silver investors, while owning silver in ETF form does not.... let me explain. JP Morgan and HSBC Bank are the custodians behind the two silver ETFs: SLV and SIVR, respectively. As custodians, they are paid and trusted to keep the reserve supply of silver to back silver ETF purchases, so that in theory buying the ETF is essentially like buying silver. Problem is, the custodians DON'T buy the necessary amount of silver to back up the quantity of silver that is sold as ETFs on paper. Example, say there's 800 million silver ETFs that people own, it would be likely that the ETFs, and more specifically, the custodians for that ETF only have about 100 million worth of silver purchased. Yes, these custodians submit to inspection, but NO THEY DO NOT ACTUALLY HAVE TO PROVE THEY HAVE THE NECESSARY AMOUNT OF SILVER RESERVES TO BACK ALL OF THE "SILVER" THEY HAVE SOLD IN ETF FORM.
Does this mean Silver ETF's are not safe? No, not really, the ETF price is still pegged to the price of silver. What it does mean is that the custodians have infinite amounts of power to manipulate the silver market. They combine short selling with buying insufficient quantities of silver to back the ETFs to make huge profits.
Example: Say Joe is a custodian for my silver ETF. I buy 1 million dollars worth of my ETF at 40$, I expect joe to take that 1 million and buy 1 million worth of silver. Instead, he doesn't buy any silver, he Shorts my ETF with 500k! Since joe didnt buy any silver, the demand for silver has fallen and the price decreases. Take your pick on why my etf falls, whether it be all the shorting or an artificial peg to silver pricing, my ETF moves down. Then while its down at say 20$, joe buys some silver, say 500k. Joe simultaneously gets out of his short positions on which he made a killer profit, and the price of silver moves back up to around 40$. After the price increase, joe has 1 mil worth of silver, an additional 500k of mine, and probably an additional 500k he got from shorting. Good Deal!!!!!!
This is exactly what happens in real life. By having simultaneous ability to effect the supply of silver that backs an ETF and the price of silver on which the ETF is backed, this type of ridiculousness is possible. The losers in all of this become people who buy into silver at high points before these manipulation runs happen. In reality it is even worse than in my example as banks can also utilize rate hikes and pretty much never buy enough silver to fully back the ETF commitments.
Point is: if you buy physical silver you are not giving the banks ammo with which to fire against the silver markets. The banks control over the market is illegal, and it is fading due to overwhelming demand in the silver market and the introduction of other outlets in china to buy and regulate the trading of silver.
Silver is the investment of a lifetime due to this unprecedented amount of manipulation to lower the price, and as soon as JP Morgans grip fails it cannot do anything but skyrocket. So buy physical silver and help the train along : )
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