Will Sprott's Brand New Physical Silver Trust Become JPMorgan's Biggest Nightmare?

Tyler Durden's picture

Following hot on the heels of his blockbuster physical gold ETF, which at times has been trading at a premium as high as 30% over NAV, indicating the willingness of investors to pay over fair value just to know that their asset claims wouldn't be diluted to nothingness on a moment's notice (here's looking at you GLD), the Canadian asset manager is launching a comparable physical ETF, this time investing with silver: the Sprott Physical Silver Trust. This is not looking good for the LBMA and JPM - since the silver market is allegedly even tighter than gold, yet just as manipulated by JPM and the LBMA (as evidenced by our earlier post on intraday gold prices) and locating physical can be far more problematic, the elimination of a few thousands tonnes of the precious metal out of circulation is sure to create quite a few sleepless nights for Jamie Dimon's PM manipulation club, who may suddenly find itself with a massive short position covered by even less actual deliverable, bringing the much anticipated monumental short squeeze one day closer. For all those wondering just how the silver market is manipulated and why control over the precious metal is so critical, we refer to a previous post: A Deep Insider's Walkthru To Silver Market Manipulation.

Here are some observations on Sprott's latest offering from the Financial Post:

As the name suggests, the issuer will use the proceeds to invest in physical silver bullion. "The Trust seeks to provide a secure, convenient and exchange-traded investment alternative for investors interested in holding physical silver bullion without the inconvenience that is typical of a direct investment in physical silver bullion," states the prospectus.

The document offers a number of reasons to invest in physical bullion: It's convenient, all the proceeds will be invested in physical silver; the silver will be stored at the mint and the trust will be able to secure lower transaction costs than investors doing it themselves. But the fund is geared to those who like their income in the form of capital gain; the trust does not intend to pay any dividends.

But one wrinkle is that once a month, unitholders will be able to redeem all or some of their units and receive physical silver. It's not immediately clear why a unitholder would want to do that, other than to provide unitholders with comfort that they can get their hands on the metal.

From Sprott's perspective, the hope is that its silver deal does better than a deal launched last year by Claymore Investments. That fund, which is not actively managed, was formed "to replicate the price performance of silver bullion, less the Fund's expenses and fees." The fund sold 3.6 million units--for gross proceeds of $36-million. Later, when the warrants were exercised, the issuer had about 7.1 million units outstanding. That fund, which hedges its US$ exposure, doesn't pay a dividend.

That fund didn't allow for annual redemption whereby the unitholders could receive physical silver. Instead it did offer an annual redemption where unitholders could receive net asset value -- less some expenses --in cash.

And some investors have taken advantage of that feature. For instance, Bermuda-based Osmium Special Silver Situations Fund announced earlier this month that it owns a 16.37% stake in the trust and has requested that they be redeemed. This new silver offering comes a few months after Sprott Physical Gold Trust raised US$442.5-million in its initial public offering via the sale of units at $10 a shot. Last month the same issuer did a follow-on offering and raised another US$279.5-million from the sale of units priced at US$11.25. Last year, Claymore Gold Bullion Trust started the process when it sold units with each unit consisting of a unit and a warrant: When the warrants were exercised, the issuer ended up with more than 83 million units outstanding. Later the entity was converted to an exchange-traded fund.

One reason for the popularity of funds that invest in physical metals is the favourable tax afforded U.S. institutions. The prospectus talks about the capital gains advantages for such buyers: The tax rate is 15% (though it will rise to 20% by year end) on such investments compared with the normal 28% tax rate. On Claymore's gold offering, more than one-quarter of the proceeds came from U.S. institutions -- an unusual situation given that most have an in-house investment management capability -- and prefer to do it themselves than pay some external manager.

For readers who would like to familiarize themselves with the silver industry, and also a tremendous reference for all those already invested in the silver market, we recommend the following section from Sprott's prospectus: Overview Of The Silver Industry.
We are confident this latest offering by Sprott will be a tremendous success in an age when actually having recourse to the assets that support a given intermediary, be it cash or stocks, is given increasingly greater value. Next up from Sprott: The Sprott Physical Bunker Trust , The Sprott Physical Spam Trust , The Sprott Physical Pitchfork Trust and, last but not least, the The Sprott Physical M-16 Trust.
h/t Mike

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Tarheel's picture

30% over NAV? Where did u find that Tyler? I thought paper gold was undervalueing physical gold?

KevinB's picture

Did you read the article? The Sprott trust only holds physical gold, and you can redeem shares for actual metal. Sprott is the closest thing to physical out there that isn't actually bullion in your hands.

Pladizow's picture

I think min redemption in physical = $250K

Temporalist's picture

"An investor in the fund may take physical delivery of a minimum of one 400 ounce bar by contacting the fund on the 15th of each month outlining the details of the delivery request including number of bars and so forth. It’s up to the holder to make arrangements for delivery and this can be cumbersome. However, an investor may opt to arrange with Brinks or another armored car service to pick-up the gold and transfer it to another storage provider who will take and hold London Good Delivery bars. Currently this might cost $2500 per bar which isn’t that costly given prevailing value of a bar at around $450,000. Or, if you’re feeling man enough, you can pick bars up yourself and toss them in the trunk of your mini. Um, bring your shotgun."


Amish Rake Fighter's picture

Anyone who says JP Morgan is one of the lead underwriters is a fucking liar 


I'm not replying to your post Temporalist, just making sure that people see this

DosZap's picture


When it started, the Prospectus limited withdrawal of physical MINIMUM, 400oz. Bar.

justbuygold's picture

Actually Central Fund's " Silver Bullion Trust " is the closest thing to physical.  They were first out of the gate and have the lowest admin fees of any silver fund in the world.  Trades on TSX as  SBT.un

SWRichmond's picture

That is, of course, assuming one has access to TSX.

Spitzer's picture

I hope Eric Sprott and Andrew McGuire have good life insurance policies

bigdumbnugly's picture

if you listen closely you can already hear the phone ringing at the "Dirty Deeds done Dirt Cheap, Inc." front desk.

outamyeffinway's picture

Go cower in fear elsewhere.

Spitzer's picture

huhu, good one

Le Metropole Members,

On March 25th at the CFTC Public Hearing on Precious Metals GATA made a dramatic revelation of a whistleblower source, Andrew Maguire, who has first hand evidence of gold and silver market manipulation by JPMorganChase and who has even tipped off the CFTC in advance of manipulative attacks on gold and silver. Just as in the Madoff case the regulator has done nothing to stop such manipulation.

On March 26th while out shopping with his wife, Mr. Maguire's car was hit by a car careening out of a side road. The driver of the vehicle then tried to escape. When a pedestrian eye-witness attempted to block the driver's escape he accelerated at him and would have hit him had the pedestrian not jumped out of the way. The car then hit two other cars in escaping. The driver was apprehended by the police after police helicopters were called in and following a high speed chase.

Andrew and his wife were hospitalized with minor injuries. They were discharged from hospital today and should make a full recovery.

Temporalist's picture

And there has been no news since.  The police will not comment either.

WeeWilly's picture

What color were those helicopters, Spitz?

Spitzer's picture

My first comment was just a half assed joke.

I was just pointing out that these 2 guys are playing chicken with JPM and one of them got hit by a car.

Do I really think JPM ordered the hit ? not really

strannick's picture

Those guys, along with Tyler Durden are frickin legends. Never mind 'Dirty Deeds Done Dirt Cheap' cause they'll be blaring "Big Balls' themselves. These guys are the Andrew Jacksons of our time. Air fives to all of you

SWRichmond's picture

This is a fantastic idea and I genuinely hope it is one that will hasten the day of reckoning for the silver manipulators.  I'd like nothing better than to see JPM totally financially destroyed, even if it means (as I know it would) the possibility of printing of Trillions of new dollars and the certainty of a declaration of force majeure.  Reality is the only path to recovery here, and only breaking the oligarchy can cause reality to come to the fore.  Let the people see what's really going on.

I will be buying and holding for my retirement accounts.

DoChenRollingBearing's picture

This may be just the thing to get silver roaring.

From what I read, there are fewer physical ozs of Silver "above ground" than ozs of Gold.  But, with Silver at +/- $18, it would not take too much money to buy up a substantial amount.  And Silver is used, and not all that is / can be recycled.

Sprott may have just lit the fuse that sends Silver way up.  Sprott the man.

Turd Ferguson's picture


I love Eric Sprott. If you haven't already signed up for his newsletters, I suggest you visit his site and get it done. Great, great stuff.

maff's picture

Of course you guys have all been following the massive outflow of physical silver from the comex recently? 

nmewn's picture


196,148oz. ...yesterday...alone.


AR15AU's picture


nmewn's picture

He has done a very good job of evaluating the proceedings so far.



COMEX Warehouse Stocks July 13, 2010       Today we saw a massive drain of comex silver to the tune of 196,148 oz.   On top of that, there was another of those special announcements which saw an internal transfer of 130,000 oz from the customer inventory into the dealer inventory.  This is a lease and we have no idea what the customer received for that lease. 
JLee2027's picture

300,000 more ounces of silver reported out today.

As this been going on for a couple weeks - a run "on the bank" is underway.

nmewn's picture

It appears so.

However, I long ago lost faith in accounting...I generally err on the side of caution and take delivery in physical, but I do own some PHYS shares.



JLee2027's picture

Silver Stocks on the bottom of this page.  It's updated every day about 3PM EST.


But remember, this is Crimex we are talking about and these numbers are unaudited.  No one knows how much metal they really have.  


DosZap's picture

The Mugambo Guru, link at post bottom of page.

From SLV

"since February 26, “17.9 million ounces…have been withdrawn from the ETF by authorized participants.”

DoChenRollingBearing's picture

1000 of those ounces were mine...  Took the paper profit, will never buy a PM ETF ever again.

DosZap's picture


I knew you were a smart cookie....LOL

Internet Tough Guy's picture

As long as he takes delivery and doesn't use leverage, he can break them.

Internet Tough Guy's picture

Not sure if you are agreeing or disagreeing with me. The Hunts did break the bagged silver contract, and it never traded again.

Dr. No's picture

I guess I am saying dont hold your breath the manipulators will be exposed.  The rules of the game will be changed if things get out of hand. The FED is an old hat.

From http://www.buyandhold.com/bh/en/education/history/2000/hunt_bros.html

" Once the silver market was cornered, outsiders joined the chase but a combination of changed trading rules on the New York Metals Market (COMEX) and the intervention of the Federal Reserve put an end to the game. The price began to slide, culminating in a 50% one-day decline on March 27, 1980 as the price plummeted from $21.62 to $10.80. "

Internet Tough Guy's picture

I understand your point, and if he were playing the paper game I would agree with you. The Hunts were successful when they took physical silver. They were broken when they tried to use leverage in paper silver. I am sure Sprott knows this and won't play their game.

JLee2027's picture

Exactly.  They can change the rules in a paper market all they want. If you hold the Physical metal, it won't matter.

Freebird's picture

Hey we got that % drop in the last meltdown -18 bucks something down to 9. I was on that train.

Cognitive Dissonance's picture

I suspect "he" won't break anyone. Because when this begins to get out of hand, the "National Security" card will be pulled out along with a few Jokers and Sprott and investors will be handed physical fiat and ordered to hand over their physical Gold and Silver.

We really can't be thinking these Powers That Be Ponzi guys will just hold up their hands and surrender, do we? Really?

Internet Tough Guy's picture

In my mind, your scenario would still break the link between the paper and metal. Once you admit you can't deliver what you sell, it's over.

Cognitive Dissonance's picture

My apologies if I came off as flippant. I didn't really think you were saying the PTB would give up easily or without a fight but I worried that some readers might take that away from your comments.

I agree that breaking the link between paper and physical is key because it exposes the scam. And I've personally purchased a large amount of Silver because I feel that physical Silver has a much smaller chance of being taken/confiscated from me than my Gold. And the Gold I purchase is in ounces or smaller, so that it will be easier to barter/exchange for goods and services on the black market that is coming soon to your local street corner.

Goldust's picture

CD, doesn't the fact that Sprott is located in Canada provide him some protection from the US jackboots that would force confiscate in exchange for Fed TP were he here?  Were he leading a physical silver squeeze, that is...

LePetomane's picture

The silver fund's minimum requirement for physical redemption is approximately 10,000 ounces or +/-$200,000 initial investment.  There is also an additional clause giving the Trust power to revoke physical redemptions.

DosZap's picture


"There is also an additional clause giving the Trust power to revoke physical redemptions."

Then their ass worthless as tits on a Boar Hog.

NO different than the others.

Screw em'.............

I smell a rat, ALSO.

Cognitive Dissonance's picture

It might. But it's clear that Canada is connected politically with the USA and if the USA demands Canada protect the USA "interests" I suspect Canada will do so. I have great respect for Canadian citizens but their government has turned a dark ugly corner over the past few years.

It also appears Canada is playing the same PM shell game so I suspect they will play along. I just don't see the international Ponzi folding without destroying those around them.

DosZap's picture


I agree, they will do whatever their PROTECTOR tells them.........

Roll over, do tricks, you name it.

Bought,Sold, and Paid For.

Arius's picture

CD - good points if i might say, but in my humble view this game will soon be over...not because of Sprott but because of 6000 years of history....government always tried but at the end....it seems the game will be over soon