Why Paper Silver is not as good as Physical Silver
(Paper silver is all forms of silver held by
another, such as ETF's, 3rd party Vaults, futures contracts, options,
certificates, brokers, or even bullion dealers orders in transit)
Silver Stock Report
by Jason Hommel, August 12th, 2008
Yesterday, silver hit a low, and
was down dramatically to as low as $14.08/oz. I'm sure the
dip caused a lot of margin calls on people who owned silver futures
contracts, who had to sell out. Perhaps this is a time to review a
few more reasons why all forms of paper silver are not as good
as owning physical silver.
1. Default risk. Silver is good because
it cannot default. All issuers of all forms of paper silver can default
and fail to redeem their paper for silver, and are therefore not
silver. Those who default might be bailed out, but only in more
paper, which is inflationary, which is why you want silver, not
paper. There is a lender of last resort for paper, but not for
silver. When Handy and Harmon, a silver refiner, defaulted due to
their bankruptcy, people were paid nothing. Furthermore, payment in paper
money that is quickly devaluing due to hyperinflation is no protection,
and not the kind of protection that you get with real silver.
Bankruptcy risk. This is different from default risk. The company who
sells paper silver could go bankrupt. That's different than if they
default on any silver accounts or contracts directly.
risk. This is another, different risk. When you buy paper silver futures
contracts, you usually do it through a broker. That broker can end up
stealing money out of customer accounts, even if the broker does not go
bankrupt. Brokers are not covered by FDIC insurance. There is
SIPC. They only reason they have to try to reassure
you that your money is safe is because it isn't!
Exchange risk. If you own futures contracts, you usually do so through an
exchange, unless you own an "over the counter" derivative. Even if your
broker is ok, and if the person on the other side of the trade is ok,
maybe the exchange will "change the rules". This is different from default
risk, bankruptcy risk, or brokerage risk. The futures
market exchange changed the rules, and "defaulted or
defrauded" silver investors in 1980.
5. Confiscation risk.
Paper contracts could be confiscated by government, since they are traded
via "known" agents and exchanges, the standard brokers. Real silver
is portable, and can be moved outside of the jurisdiction of any hostile
governments, or held until after the failure and collapse of any hostile
governments. Silver owned by individuals is orders of magnitude
safer. It's not worth their time to confiscate silver of 10,000
people, who live among 10 million people in 10 million homes. It's also
far too dangerous, and political suicide. It's much easier to confiscate
silver that 10,000 people have pooled together in one place! It is
nearly impossible to confiscate silver that is locked up in a hidden place
and cannot be found.
6. Buying paper silver diverts demand away
from physical. Thus, paper silver is not real.
7. Paper is a
promise. Silver is payment. Fundamentally, paper is not silver, and cannot
be silver. Paper is only money due to "fiat" law, and during times
of chaos, such bad laws are ignored.
8. Silver is limited. Paper
promises can be created endlessly and have no limit.
9. The entire
reason for buying silver is to avoid the failing paper promises of an
entire industry. To trust another paper promise is just silly.
Fraud is admitted as "standard business practice" among brokers who hold
paper silver (not futures contracts) for clients. This is not
hearsay, this was admitted in a legal proceeding.
11. Storage fees
are charged for silver that does not exist, as "standard business
practice" in the broker industry. This is not hearsay, this was
admitted in a legal proceeding.
12. Buying paper silver creates a
lower price for silver. The silver price does not move up when you buy
paper. This is self evident.
13. Buying paper silver puts
"cash" into the hands of the manipulators, and enriches the "enemies" of
truth and true value.
14. Leverage risk. With futures
contracts, you can get margin calls. This creates an increased
chance of loss that does not exist if you pay for your own silver in
full, 100% owned, with no leverage.
15. Margin increases. This is
different from a margin call. As silver prices move up, more margin is
required to maintain an approximately 15% down payment rate on futures
16. Time risk. One form of paper silver, (options on
silver futures contracts) expires. If the price of silver does not move up
enough in a short time, the options expire worthless. Real physical silver
will last over 2000 years, from Roman times, with just a slight tarnish
that will actually protect the silver from further tarnish. Silver
does not expire.
17. Gambling risk. With futures, you are gambling,
and your gain comes at another's loss, not through creating anything that
helps people, such as a stockpile of a needed rare commodity, or increased
production of a rare commodity. Risk is not the definition of gambling,
gambling is when two people make a bet with each other, and one is a
winner and the other is a loser, in a zero sum game. Life is risky, and
life is not a zero sum game. Risk is minimized with 100% owned physical
18. Moral risk. Your gain necessarily enslaves another to
perform what might not be able to be performed. Enslaving others is
morally wrong. Some people say morality should have nothing to do
with investing, but I think that if you cannot apply your morality to
your life, then your morals are useless. Owning physical silver
is taking responsibility of your own wealth, and taking dominion over
what God has provided for mankind.
19. Tax risk. Real
silver is owned anonymously. Trading accounts are not anonymous; they have
your number. Real silver can be sold anonymously for cash. Paper silver is
tracked, and thus, capital gains taxes or any sort of new, confiscatory
"windfall taxes" may apply.
20. Market risk. Paper markets
and exchanges seize up from time to time, especially during wartime or
other crisis times. Physical silver coins or one ounce rounds can
instantly be physically traded to another person without delay or contact
or permission from any intermediary. Thus, physical silver is the ultimate
form of liquid wealth, and the ultimate form and expression of just
power. Physical silver can even be transported over borders, if need
21. Real money does not grow on trees, nor is it printed on
paper! Money is not only, and not merely, a "medium of
exchange". Money is, and must also be, a store of wealth, a unit of
account, and a means of final payment (not a promise to be paid!)
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