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September 25, 2008

Precious Metals in the Physical Realm
by David Morgan

This week I thought I would take a question and add some comments.

Dear David,
I wanted to get your thoughts on this response by Richard Russell. He makes an interesting point! We are already seeing trading physical precious metals in a market disrupted by shortages. (Name withheld upon request)

"Question - Russell, would you talk a bit more about your preference for gold coins in one's possession vs. GLD, which you term "paper gold" and SLV, which you call "paper silver."

"Richard Russell's Answer - Yes, as I see it, the authorities are doing whatever they want. I'm more inclined to hold actual gold coins. The SEC now disallows shorting in 799 financial equities, an amazing turn of events. Now with central banks all over the world releasing vast quantities of fiat money, it's entirely possible that gold will embark on a major rise. If this happens, it will throw suspicion on all fiat currency, which is the last thing the central banks want. Under these conditions, it would not surprise me for the Fed and the SEC to halt all trading in gold, and the easiest place to monitor such an edict would be GLD. In 1933 the government ordered in all gold held by the US population. I can't see that happening, but I can see all trading halted. This would throw gold into the black market and make it very difficult to price or sell your gold. In France, people are forbidden to take any gold out of the country. Remember, gold is the enemy of fiat paper, and in that, there is a story. Rising gold throws suspicion on ALL fiat and central bank issued currency."

It has been one of my strongest points to teach all investors how important gold and silver are under any financial climate. Some took positions early and others are now coming to the realization that having gold and silver is crucial for proper portfolio diversification.

Today we are getting feedback from many of the largest retail metals dealers that finding gold and especially silver is becoming increasing difficult. Additionally, some of our sources on the wholesale side are also expressing concern that the market is tightening significantly.

In my view, Russell is one of the true "masters" of market forecasting. I would state he makes a valid point that the possibility does exist. I would like to go one step further and point out that a well-known bullion dealer pointed out the same concern a few weeks ago. In fact, that missive was sent out to our free e-mail list. If you are personally comfortable trading shares in the ETF, then go ahead. But I would add, just be sure that you have (enough) metal you actually hold before you invest/trade the precious metals ETFs.

Many commentators have different views on ways to invest in the precious metals, and personally, my objective is for each individual to study for himself or herself what makes the best choice for their particular circumstances. In other words, make your own decision and take personal responsibility for that decision.

As most reading this know, there is a large discrepancy between the futures price and the actual "ask" price by the retail dealer community. I agree that taking delivery of COMEX bars is cumbersome and they do weigh approximately 70 pounds. However, we have been asked again and again and again, "How is it done?" Below is an outline of the procedure. This in NOT my work but was presented at the recent Silver Summit 2008 by a broker I know and trust. This information will appear in full in the next issue of The Morgan Report.

Buying Silver at Spot

Here's how it works:

Spot price is based on the nearby futures contract
Open a futures account and fund it with the full value of the silver futures contract
Buy a silver futures contract
By buying a futures contract you are making an obligation to buy silver at a specific price at a future date
After first notice day you will take delivery of physical silver by receiving a warehouse receipt
You can either have your physical silver sent to you or keep it stored at the warehouse

The "Mini" 1,000-Ounce Silver Contract Is Deliverable

There are some nominal fees associated with taking delivery of a "Mini" silver contract including:*

$25.00 delivery fee
$25.00 processing fee
$15.00 warehouse delivery fee
Approximately $100.00-$200.00 delivery/packing charges, depending on where the silver is to be delivered
*Approximately $4.00-$6.00 per month storage fee may apply

Disclaimer

You should familiarize yourself with the full contract specification of this product. Applicable exchange fees apply. Delivery fees may vary. Please consult your broker for more information. Futures trading involves substantial risk. Therefore only risk capital should be used when trading futures.

In summary, I am not saying you should take delivery of thousand-ounce bars, but I am suggesting that at least you know the procedure and make the choice that best suits your needs.

David Morgan
Silver-Investor.com

Mr. Morgan has followed the silver market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and The Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing, which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided. His private Internet-only newsletter, The Morgan Report, is $129.99 annually. To suscribe to the Morgan Report click here.

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be taken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein.