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Ladies and
Gentlemen:
We have received an outpouring of support and interest from the recent letter
I sent the CME and the CFTC. Before I get into their response, I would like
to mention that many investors, individuals, and institutions are perplexed
by the unusually tight (in some cases non-existent) supply of
investable/deliverable silver in the world. I find it unusual that silver remains
labeled an industrial metal when in fact it has become so scarce for
investors.
The reasons for owning gold and silver have been well published by many
individuals. What I am more concerned with is the inability to invest in an
asset class in which there is currently very little availability. Unlike any
other conventional market, gold and silver, seem to be getting harder to find
as the paper price drops further.
I am worried about the confidence and perception of the paper metal markets.
With the physical supply shortage being real and physical demand being so
strong, the concern is that individuals and institutions may start to test
the exchange’s credibility through outright demand of their inventory.
Unlike the government’s bailout programs for many paper instruments, I
do not see that type of shared support for the commodities market, especially
precious metals.
Trust is a very fragile commodity, itself. Once broken, it may never be
restored. That is the risk the paper metal markets are telling me at this
point. Unless there is underlying or fundamental reasons beyond margin calls
for the drop in paper prices, my intuition is telling me that something is
very wrong. Is someone or some entity building a large position in the
precious metals? If that is the case, then you may be concerned about the
ability to get physical metal in the future. That is why I wrote the letter
to the CFTC and CME Group.
Again, the risks are real and individuals must understand the true difference
between the physical and paper world. The paper is only as good as what backs
it. In this period of history it is evident many investors are now asking
“who can I really trust”. It is that mentality that places a
premium on the physical metal versus a paper certificate. As this credit
crisis unfolds and the bailouts continue, it is only logical that many
exchanges will be tested. As a concerned investor, the last thing I want is
to be holding a paper promise that may not be fulfilled.
I would like to thank the CME Group for their quick response. In full
disclosure, this was their actual reply to me. I am still waiting to hear
from the CFTC.
Bob:
Thank you for your October 17, 2008 email where you inquired:
- "...I would like to buy and take physical delivery of 1 to 5 million
ounces
of silver a month on a consistent basis...."
The monthly volume (200/1000 contracts) which you would wish to take delivery
is currently within the Exchanges Silver “Expiration Month Limit”
and thereby acceptable to the Exchange.
-“… Would there be any obstacles or resistence from either the
CME Group/COMEX or the CFTC…”
I can only reply for the CME Group and not the CFTC.
As long as any customer follows the Exchange Rules, there would not be a
problem.
Vice President
Market Surveillance
CME GROUP
It is obvious that the rules can change at any moment and this is a concern
to many individuals. For now, I would strongly suggest if you were thinking
about owning silver, the COMEX is certainly the most cost efficient method of
procuring the metal. Please keep in mind that transportation and storage of
these bars may involve a cost. These costs have to be weighed in your
decision making. We can provide an effective and efficient alternative for
those who are not interested in dealing with these issues yet want to
participate in the precious metals.
Our programs are determined to follow the rules of the exchange and take
physical delivery of their inventory for as long as possible. The structure
of our programs and vaulting facilities are very unique and have been
designed to fully insure and segregate all physical precious metals. The
storage is independent from the financial and bullion dealer system. We
specialize in providing private storing, safeguarding, and viewing of your
assets. We have made arrangements with armored transportation carriers to
pick up, transport, and store the metal to many of our available vaults.
Please go to http://profitspluscapital.blogspot.com/ for more information.
For individuals, investment professionals, or institutions who are concerned
about the unusual nature between paper and physical gold and silver prices
and wish to create a more balanced environment that reflects the true supply
and demand imbalances in the market place, please contact me at 208-468-3600 or
email me at profitsplus@cableone.net.
Bob Coleman
Dollars
and Sense
Also
by Bob Coleman
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