Swiss Bank Closes Gold & Silver Certificates

This just in from Ted Butler:

This week I received an e-mail from a Swiss money manager, a friend and trusted source. He informed me that a very large and conservative Swiss bank had informed a number of their clients that they would no longer be offered paper gold or silver certificates in the bank’s name.

It seems the bank had previously granted the accounts because it was able to protect itself against an upside move with a derivatives contract with another financial institution. Due to the financial turmoil, the bank was no longer comfortable with the counterparty risk from the other financial institution.

Instead, the Swiss bank informed its clients, all paper transactions had to be converted to physical or physical ETF positions (There are Swiss ETFs for gold and silver). My friend informed me that other Swiss banks were likely to follow this bank’s lead.

As long-time readers know, the issue of bank silver certificates that were not backed by real metal is one I have written about frequently.

In essence, the banks that issued such certificates were short the metal, and taking an enormous risk in the event of a sharp price rise. Because they had been issued for decades, the cumulative amount of the short position in silver amounted to, perhaps, billions of ounces. This was a short position separate and distinct from the massive COMEX short position.

That the large and conservative Swiss bank is seeking to reduce or eliminate it’s short exposure to silver at this time makes sense. The bank has seen that silver prices can move sharply higher and that counterparty guarantees can vanish in an instant. It is sensible and practical that it would take such actions now, after silver prices moved sharply lower.

The resultant move by former paper owners of silver into real metal is destined to put additional pressure on the existing supplies of metal. It is hard to imagine a more critical time for this to occur than now. Every indication is one of tightness in the physical silver supply. The potential creation of a brand new source of silver physical demand could be profound.

◊◊◊◊ Now: Gold @ $894.80, Silver @ $13.37, USDX @ 76.47 ◊◊◊◊
◊◊◊◊ Now: DJIA 11,003.75

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