December 2010 By - J.S. Kim the editor of Smart Knowledge University.
Then later this week, James Turk reported that he is aware of another individual that has been trying to take physical possession of approximately $550,000 of silver for two months now from a Swiss bank with zero luck. Turk further elaborated that the bank has been trying to pressure the client into accepting the cash equivalent market value of the silver rather than deliver the physical silver to the client. In both of these cases, I presume that neither of these Swiss banks ever held allocated gold and silver for their clients or if they did, had then leased out the gold/silver or sold the same gold/silver to multiple clients, and thus were forced to stonewall their clients until they could secure the physical metal. Why else would a bank take 30 days to deliver something that was supposed to be sitting in a vault in an allocated account?
Of course, none of this is really shocking as the two above cases merely mirror the circumstances of the 2005 class-action lawsuit against Morgan Stanley in which Morgan Stanley told its clients it was selling them silver in allocated accounts and storing it in its vaults. However, when one of their clients, Selwyn Silberblatt, demanded physical delivery, Morgan Stanley failed to deliver, prompting the class-action lawsuit. Morgan Stanley eventually settled the lawsuit for $4.4 million.
Time after time, bankers have been caught committing likely fraud regarding the sales of gold and silver. This likely fraud extends to more than physical sales. In the futures markets, bankers have been discovered to be selling 100 ounces of paper gold for every one ounce of physical gold that actually exists in the market. With PM ETFs, it is highly likely that multiple claims exist on whatever physical gold and silver back the GLD and SLV, if any physical gold and silver even back them at all.
In addition, it’s not just banks you have to worry about these days. The incidence of counterfeit gold coins and silver coins is on the rise along with the recent steep rise in the gold and silver price. The Financial Times recently reported that a wave of hard to detect counterfeit gold coins is now coming out of China. Say goodbye to the days of gold-plated tungsten and say hello to a more complex counterfeit gold alloy consisting of 51% gold mixed with osmium, iridium, ruthenium, copper, nickel, iron, and rhodium. Tungsten is a hard, brittle grey metal that has the same density as gold but none of gold’s characteristic softness.
The new fake gold apparently not only has a density similar to the real thing but also has a near identical softness and color, qualities that suggest that metal smiths with an extensive knowledge of metallurgy are producing the new fakes. In fact, Haywood Cheung, president of the Chinese Gold & Silver Exchange Society, Hong Kong’s century-old bullion exchange, said goldsmiths and jewelers in Hong Kong had recently been duped into buying between 200 and 2,000 ounces of the new fake gold.
In conclusion, if you want to ensure that you actually possess real physical gold and real physical silver, take two steps.
(1) Never entrust a bank to hold your physical gold and silver or you may end up sitting on a vault full of nothing but air; and
(2) When you buy from an independent dealer, perform your due diligence to avoid purchasing fakes.
About the Author: JS Kim is the Founder and President of SmartKnowledge Pte Limited, a fiercely independent investment research and consulting firm. His monthly investment newsletter, Crisis Investment Opportunities, has yielded 28.12% YTD in a tax-deferred account as of December 3rd. Since January 1, 2008, the CIO newsletter, in less than two years, would have turned a $1,000,000 portfolio into more than $2,000,000.