Silver Certificates

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The following excerpt is from the November issue of The Morgan Report. Many in the precious metals community have been leery of holding paper silver. Interestingly the people I interviewed began to ask similar questions and began their own holding company. Part of the interview from the November issue follows…

Morgan: Did you foresee when you started that there were some issues with any of the certificate programs? Or maybe a holding facility that was on a non-segregated basis? In other words, was there any impetus to get you to move into the format that you have?

AFE: Precisely. We set up bullion accounts with some refiners and bullion banks. We started accumulating some metal positions. We wanted to try to get a definition of how that metal was being held. I’m talking about the years of 1995 and 1996. At that time, at least on the Internet, there wasn’t a lot of information in the public domain about non-segregated versus segregated, unallocated versus allocated accounts.

So we started to ask some questions. "What does it really mean when the fine print says that you may use the precious metals on our account, you’re the owner and you may trade with it and deal with it as you want? And yet, it is ours? Where is the risk? How is that physical bullion actually being held? Is it refinery inventory or what is it, actually?"

In this process we started to come up with answers that we were NOT looking for. In fact many times the very specific questions we were asking simply weren’t being answered at all. By around 1997, it was becoming clearer within the public domain that there were these physical short positions that existed on the balance sheets of some of these larger bullion banks. At that time we had really managed to prove to ourselves that we’d taken the right direction in doing something that was independent and separate all together from the larger industry service providers.

Morgan: What is your perspective on someone wishing to participate in buying physical and storing with your company?

AFE: We are providing a facility for international clients. I must say at this point, David, that we are very, very thorough in the due diligence of our clients. However, we’re not providing information about our clients. We have a very strict internal policy in terms of the kind of information we require, the true identification of our clients, their source and origin of funds, and so on. So we do have a high internal policy in terms of maintaining these records.

Morgan: So if anybody from basically around the world wants to open an account, they’re free to do so as far as you’re concerned?

AFE: Providing they supply us with the information that is required to satisfy us in terms of whom we’re really dealing with. So, you’d be familiar with the normal financial institutional requirements in terms of understanding that the actual account party is—who is opening that account. Typically we are looking for forms of ID that would be issued by a government, such as a passport, or a license issued by a government, and so on.

Morgan: I understand. So I would just advise any of the readers of The Morgan Report to do their own due diligence. We’ve got readers in 72 countries around the globe. Roughly 50 percent are in the United States and approximately 38 percent are in Canada. And then it’s sprinkled around the world.