"Don't know what to make of the claims in this web posting. I wonder if the silver holdings of SLV (or GLD, IAU, or SGOL) are really hypothecated? Wouldn't that be like fractional banking, and not even close to holding the bullion? Always appreciate your views on these subjects."

Eoin Treacy's view Thank you for this email which I'm sure will also be of interest to other subscribers. Funds which state that they hold gold bullion in their prospectuses probably do so. To do otherwise would be a massive fraud and there is no evidence that gold and silver bullion funds are engaged in that type of activity.

Let us take a simple example. Large numbers of fund operators hold long-term passive positions in equities. Some engage is stock lending as a way of earning additional income on their holdings. Those who seek to open covered short positions borrow the inventory in order to sell it. They hope that the price fall will allow them to fund the cost or borrowing out of their profits. If the trade is unprofitable, it is the borrower's problem not the lender. The lender still has title to the shares.

If we transpose this example to the silver market, I fail to see how it is much different. The only concern is that silver is a smaller marker than most large cap equities and it is therefore questionable whether such activity is justified. If one is concerned about the security of bullion funds, then the only other alternative is to personally hold the physical metal. This is not possible without incurring security costs.

Silver is a less liquid market than gold. A comparatively small number of investors can have a much larger impact on prices. It is for this reason we have long referred to silver as "high beta gold". Precious metals are in a secular bull market driven by an increasingly wide gap between supply and demand. Quite apart from concerns about manipulation, this is a recipe for higher prices.

Longer-term, my concern with precious metal funds is that when the market eventually tops out, probably when interest rates are considerably higher than now, all of the bullish interest which stoked demand for gold and silver will be a potential source of supply. Passive holders who are now continuing to acquire gold and silver will be motivated sellers when prices eventually peak. In the meantime, this bull market looks like it has further to go.