Hello Mr Grey, in an effort to protect my modest lifestyle in retirement I own some PSLV, so I have skin in this game. I thought I owned the equivalent of a fixed amount of physical silver. Doesn't it say so here in the prospectus? Forgive my naïvité.
So I would like to understand the implications of what you say here. If JPM owns 50 thousand units worth of physical and is also short 50 thousand PSLV and the premium goes to 20%, who gets fried when they default? Who lent the units? Please tell me it's not Sprott?
There are probably questions I don't even know to ask, so please feel free to elaborate as to a 5 year old.
Hi Mark, first off, thank you for the thoughtful question (and for owning skin in the game). You’re not being naïve at all... you’re asking exactly what everyone should be asking when they buy something that claims to be “physical.”
You’re right that PSLV is backed by silver held at the Royal Canadian Mint. Each unit represents a slice of that trust, and the bars are real. The key nuance is that you don’t personally hold title to specific bars... you hold shares of the trust, which itself owns the metal.
Where it gets tricky is in how Wall Street interacts with those shares.
If JPM or another institution shorts PSLV, they borrow units, not the metal itself. Those borrowed units often come from brokerage accounts that allow securities lending (sometimes without the holder even realizing it). The borrower sells those units into the market, hoping to buy them back cheaper later.
If the premium on PSLV suddenly jumps to 20%, the short is on the hook... they have to repurchase those units at a higher price. The trust and Sprott aren’t affected; they still hold the same silver in the vault. The pain lands on whoever is short or whoever lent out the units through their broker.
So no... Sprott isn’t the lender in that case. The vulnerability lies in the plumbing of the financial system, not inside the vault in Ottawa.
If you want to avoid being part of that lending chain, make sure your broker doesn’t lend out your PSLV shares (you can usually disable share-lending).
In short: PSLV is one of the cleanest paper proxies for silver, but it’s still inside the financial system, where shares can be lent, shorted, and rehypothecated. The only way to eliminate that layer entirely is to hold physical in your own custody.
You’re asking the right questions, Mark, and that already puts you ahead of 95 % of the market.
Many thanks for this. A thought that occurs that applies to the leaking of physical from the PSLV. It seems from what you say that my investment in PSLV doesn't guarantee a claim on a fixed amount of silver if the amount of physical per share diminishes over time?
The reasoning in the X post by silver haas is incorrect. He is missing the fact that in his sequence of events a certain number of shares are redeemed which exactly matches the metal withdrawn. This would lead to no “net withdrawal” of metal from the system
Enjoy the articles, very informative for lay people like myself. I have most of my holdings in an “unallocated” account within a pool holding controlled by a bullion dealer in Canada. They also say that each oz is supported by physical metal. Should I suspect that there may be same issues of risk?
Thanks, Lloyd, for your comment. In general, yes… many precious metal funds include a force majeure clause in their terms. This allows the fund to suspend operations or liquidate positions under extraordinary circumstances, such as market disruptions or supply constraints. It’s always a good idea to review the specific fund’s prospectus to understand how these provisions might apply.
Your poll forgot the option of At the bottom of lake after boating accident
Hello Mr Grey, in an effort to protect my modest lifestyle in retirement I own some PSLV, so I have skin in this game. I thought I owned the equivalent of a fixed amount of physical silver. Doesn't it say so here in the prospectus? Forgive my naïvité.
So I would like to understand the implications of what you say here. If JPM owns 50 thousand units worth of physical and is also short 50 thousand PSLV and the premium goes to 20%, who gets fried when they default? Who lent the units? Please tell me it's not Sprott?
There are probably questions I don't even know to ask, so please feel free to elaborate as to a 5 year old.
Thanks
Mark
Hi Mark, first off, thank you for the thoughtful question (and for owning skin in the game). You’re not being naïve at all... you’re asking exactly what everyone should be asking when they buy something that claims to be “physical.”
You’re right that PSLV is backed by silver held at the Royal Canadian Mint. Each unit represents a slice of that trust, and the bars are real. The key nuance is that you don’t personally hold title to specific bars... you hold shares of the trust, which itself owns the metal.
Where it gets tricky is in how Wall Street interacts with those shares.
If JPM or another institution shorts PSLV, they borrow units, not the metal itself. Those borrowed units often come from brokerage accounts that allow securities lending (sometimes without the holder even realizing it). The borrower sells those units into the market, hoping to buy them back cheaper later.
If the premium on PSLV suddenly jumps to 20%, the short is on the hook... they have to repurchase those units at a higher price. The trust and Sprott aren’t affected; they still hold the same silver in the vault. The pain lands on whoever is short or whoever lent out the units through their broker.
So no... Sprott isn’t the lender in that case. The vulnerability lies in the plumbing of the financial system, not inside the vault in Ottawa.
If you want to avoid being part of that lending chain, make sure your broker doesn’t lend out your PSLV shares (you can usually disable share-lending).
In short: PSLV is one of the cleanest paper proxies for silver, but it’s still inside the financial system, where shares can be lent, shorted, and rehypothecated. The only way to eliminate that layer entirely is to hold physical in your own custody.
You’re asking the right questions, Mark, and that already puts you ahead of 95 % of the market.
Many thanks for this. A thought that occurs that applies to the leaking of physical from the PSLV. It seems from what you say that my investment in PSLV doesn't guarantee a claim on a fixed amount of silver if the amount of physical per share diminishes over time?
The reasoning in the X post by silver haas is incorrect. He is missing the fact that in his sequence of events a certain number of shares are redeemed which exactly matches the metal withdrawn. This would lead to no “net withdrawal” of metal from the system
That's what I thought too. It doesn't explain the claimed dilution of silver per unit share.
Enjoy the articles, very informative for lay people like myself. I have most of my holdings in an “unallocated” account within a pool holding controlled by a bullion dealer in Canada. They also say that each oz is supported by physical metal. Should I suspect that there may be same issues of risk?
Thanks, Lloyd, for your comment. In general, yes… many precious metal funds include a force majeure clause in their terms. This allows the fund to suspend operations or liquidate positions under extraordinary circumstances, such as market disruptions or supply constraints. It’s always a good idea to review the specific fund’s prospectus to understand how these provisions might apply.
Catchy title!
Thank you! 🙏🏻👍🏻