Why Precious Metals Investors Should Follow Discussions on the SILVER Act

In March, legislation was tabled in the U.S. House of Representatives seeking to modify the law under which vaults are approved to store precious metals like gold, silver and platinum. A companion bill was later tabled in the Senate this month. The SILVER Act, as the legislation is called, would significantly change the existing system through which these exchange-traded precious metals are stored in the U.S.

Current law only approves vaults located within the greater New York City area. Regardless of where a commodity is mined or processed, it ends up in this one location for storage and trade. The sponsors of this law see this as no longer tenable and want the infrastructure behind precious metal trading reformed to be in tune with current times.

The existing law has been in effect for more than 50 years and the only reason why storage was concentrated in the New York area was to have the metals close to trading floors so that once deals are completed, physical delivery can be made.

Today, trading floors are long gone and most trading now takes place online, so it no longer makes sense to insist that precious metals storage happens within a concentrated geographical area.

Under the proposed law, the Commodity Futures Trading Commission would be granted the authority to approve at least two vaults in each of the four time zones of the U.S. Why does this matter?

Spreading out the approved vaults would make it possible for precious metals to be stored closer to the areas where they are mined or processed. It is worth noting that significant amounts of gold and silver are mined in Nevada, Texas and Idaho. It therefore makes little sense for those metals to be moved to New York for storage and yet they could easily be stored closer to where they are produced.

Secondly, spreading out the approved storage depositories serves a national security interest. Markets would be disproportionately impacted if something, such as a cyberattack or infrastructure disruption, affected the one geographical area where precious metals are stored in approved vaults. Spreading out the approved storage depositories would reduce this risk and ensure markets continue functioning normally even if one storage region has been adversely impacted.

The other element is cost. When the storage of such precious metals is restricted to one geographical area, approved facilities tend to charge the highest storage fees possible since investors and other market participants have no other options to consider. In contrast, having approved depository facilities in multiple regions creates alternatives and helps to keep costs reasonable since investors would shop around among the different approved vaults.

For investors, cost benefits extend to reducing the logistics of shipping, insurance and safeguarding precious metals. For example, if gold is required for delivery on the West Coast, it can be sourced from the closest depository instead of having to ship it all the way from New York.

It is therefore in your best interest to follow this bill as it makes its way through the relevant committees and gets to the floor for a vote. Companies like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) that focus on silver mine development are certainly keeping tabs on proceedings on Capitol Hill.

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