A Run on the Bank

Mints have offered Unallocated Silver Products like the Perth Mint Mid Certificate Program for decades. What a great idea! No fees, no storage costs, while still offering exposure to the spot price.

And it offers convertibility to Allocated Silver whenever you wish, although clients report the “whenever” part has become, to say the least, a bit fuzzy in the wake of record conversion demands.

Robert Kientz of Gold Silver Pros interviewed James Anderson of SD Bullion last week on this topic.  See that interview here:

Archegos Meltdown Illustrates Risks of Unallocated Silver & Gold

Let’s hear what the experts had to say on Unallocated Silver:

Robert: We gave had a lot of noise recently over unallocated gold and unallocated silver. We’ve seen reports from deposit holders at ABC Bullion and The Perth Mint in Australia, and something came out today from John Adams on the Kitco Pool (John is an Australian Economist following this closely).

 One of his readers reported that he was getting mixed stories as to if they will have back up the entire pool and that the wait to get physical silver is about a year.

 What is your view on the risks of unallocated silver?

 James: So, unallocated is basically an unsecured loan that you are giving a mint or a dealer. You get no interest, but you don’t have to pay storage fees. That is clue one; If you are not paying management or storage fees you are the product.

 Essentially your cash is a loan to this company, and they’ll give you exposure to the spot price of gold and silver. If you come back and ask for your cash back it will likely track the spot price at that time. But that’s only if it’s just you. If everybody starts coming back and they are using all these loans? They are basically running a fractional reserve system here.

 These different vehicles have been going on for a decade plus. The Perth Mid Certificate Program has been around since the early 2000’s I believe, and the Kitco Pool is the same story. I’m not sure about ABC Bullion, but for all three it’s simply where you’re giving an unsecured loan to a company or a mint and they’re using those funds to operate without interest expenses.

 James points out that clients typically don’t understand that though they have exposure to the spot price, their claims to physical metals are based only on promises. He says, ”These are not intelligent bets.”

 James: You’re running a huge risk. I think GLD and SLV are extremely risky also, but these [mints/dealers] are not even regulated companies.

 I ran the numbers recently and there are roughly 2 billion Australian Dollars owed in the silver spot price. That’s a lot of bullion.

 I think what you’re having right now is a run on these unsecured, unallocated systems.

 A “feature” of any fractional reserve system. Think 1929. When depositors understood there were more claims on assets than assets, depositors rushed the Bank teller windows, pandemonium reigned, and Banks become insolvent.

If things get bad, these depositors in unallocated metals will become unsecured creditors. And unsecured creditors go to the end of the line! Not only will they never see an ounce of physical metal, they may never see their funds again.

James had some advice:

James: If I were personally in any of these accounts, I wouldn’t sit around waiting for a year to get the change into bullion. I just say “wire my funds – how long will it take until I get the bank wire.” That’s the key, just get your cash back and turn around and buy something trustworthy from a bullion dealer you trust.

Bottom Line, if you hear the term “Unallocated” – Run Like Hell!