Silver lining exaggerated

Facts ‘N’ Figures

One of the misunderstandings common in the silver market is that there are hundreds of millions of ounces of silver in inventories in London and Zurich. There is not nearly that much. There may be between 75 and 100 million oz. in these bank vaults as of early 2006.

This figure excludes the silver purchased in 1998 and still held by Berkshire Hathaway. These silver inventories are held off the market near London in storage facilities that are not registered nor recognized as market vaulting facilities. The Berkshire Hathaway investment is thought to total between 100 and 129 million oz. Berkshire bought 129.7 million oz. in 1997 and took delivery of it in 1998. It has not made any public comment, but there have been indications in the market that suggest it may have sold around 25 million oz. of this metal in 2004, and the last part of 2003. There is market conjecture that it may have taken advantage of higher prices in January 2006 to sell some additional metal, but this is just market rumour.

The misunderstanding about how much silver exists in London and Zurich bank vaults developed in 1995, when a London gold market research company began research on silver. In an attempt to develop its own distinct data series, the research company asked London banks how much silver was on their books. It meant to ask how much silver was in their vaults, but worded the question incorrectly, using the term for metal that is listed as an asset of a given bank, regardless of its disposition. The bankers told them roughly what they had on their books, leading the company to conclude that there were enormous amounts of silver in London bank vaults. It is not clear whether this research company ever became aware of its error and the origin of this inaccurate information, but for whatever reason, the company has chosen not to correct its data, and has based future estimates on changes from this initial estimate.

Incidentally, people sometimes refer to the silver vault at JPMorgan Chase, which has been designated by Barclays Global Investors as the vaulting facility it will use for the iShares Silver Exchange Traded Fund (ETF). The JPMorgan Chase vault really is designed to handle gold more than silver. It is far too small to hold the significant amounts of silver that an ETF would represent.

— The preceding is an edited version of a submission to the U.S. Securities and Exchange Commission on Jan. 30, 2006, in relation to the proposed listing and trading of Barclays iShares Silver Trust on the American Stock Exchange. It was written by the New York, N.Y.-based CPM Group.