Silver ETF for Silver Investing

The iShares Silver Trust ETF (SLV) is the first Exchange Traded Fund -- ETF -- representing silver. SLV was launched by Barclays Global Investors on 2008 April 28, with an initial deposit of 1.5 million ounces of silver into the trust. Barclays Global Investors is a unit of the British bank Barclays Plc.

The SLV Silver ETF holds physical silver and the price of the ETF reflects its silver holdings at any given time.

The iShare ETF for silver (SLV) trades on the U.S. American Stock Exchange (AMEX). The price of a share of SLV on the first day of trading finished at $138.12. Each share, at that time, represented 10 ounces of silver. (It has since been split, on 2008 July 21, so that each share of SLV now represents one ounce of silver.)

There is a complicated trustee arrangement which is supposed to ensure transparency and accountability. More about that, below. Anyway, the SLV sponsor, as mentioned above, is Barclays. The custodian is J.P. Morgan Chase Bank in London. Bank of New York is the trustee.

ETFs, in general, are baskets of securities. ETFs trade on exchanges like stocks. In the case of SLV, the security is simply silver bullion (bars). As ETFs are tradeable like stocks, they can be sold short as well as bought long through a regular brokerage account. SLV allows individual investors to invest in silver without actually buying silver itself or having to trade in the futures markets. Trading an ETF such as SLV is much more convenient than buying and selling coins or bars.

On 2009 July 24, another silver ETF was launched. That is the ETFS Silver Trust (SIVR). SIVR is an open-ended fund sponsored by ETF Securities of London, England. Each share of SIVR represents one ounce of silver. To compete with the long established SLV, SIVR is capping its expense ratio at 0.30% during the first year. This compares favorably to the 0.50% expense ratio for SLV. ETF Securities will then cap the rate at 0.45% after the first year.

SIVR seems to have been launched to capitalize on an expected rise in the price of silver as U.S. inflation heats up, estimated to be starting at any time from the fall of 2009 to the spring of 2010.

Investors seem to be taking more interest in silver than in gold at this time (late summer, 2009), as it has industrial demand as well as furnishing a store of wealth. Many investors see silver as likely to appreciate much more than gold, percentagwise over time, as silver is more used in industry than gold.

The PowerShares DB Silver Trust (DBS) is far smaller and far thinner in trading volume. DBS is based on the Deutsche Bank Liquid Commodity Index - Optimum Yield Silver Excess Return. That silver index is composed of futures contracts on silver.

There is also the E-TRACS UBS Bloomberg CMCI Silver ETN (USV), which is even smaller and more thinly traded. It tracks the UBS Bloomberg CMCI Silver Total Return index, tracking the silver price.

Recently, some leveraged ETFs have been established. In the silver arena there are a couple of interest as of this writing (2009 August).

The Ultra Silver ProShares ETF (AGQ) is double-leverage against silver bullion. It trades on the NYSE. AGQ seeks daily investment results of twice the performance of silver bullion, as measured by the U.S. Dollar fixing price for delivery in London. The daily price volatility means that the fund will not necessarily move twice as much as the price of silver.

There is even the ProShares UltraShort Silver ETF (ZSL), which is a “double-short inverse” of AGQ. ZSL seeks daily investment results that correspond to twice the inverse (opposite) of the performance of silver bullion, as measured by the U.S. Dollar fixing price for delivery in London. This means that the fund goes up when silver goes down, and vice-versa. The fund also seeks daily returns which make it more volatile, so over the long run it may not move in tandem with the inverse of silver prices.

A silver ETF allows you to more conveniently speculate on the price of silver.  Don't call it investing.  You are not holding -- buying or selling -- actual silver.  You are not participating in the actual silver market.  You are trading paper.  The worth of that paper depends not only on the price of actual silver bullion, but also on all the players involved.

Many non-establishment silver players have doubts about the validity of the concept of precious metals ETFs, such as the gold ETF (GLD) and the silver ETF (SLV). They and others also question the motives and trustworthiness of the players.

Jason Hommel, for example, calls SLV an outright fraud. He states that it is like a roach motel -- “... you can check in, but you can't check out. Easy to buy, but impossible to take delivery of the silver. You have to be an LBMA (London Bullion Members Association) member bank to get delivery.”

SLV is not silver. SLV is promises of a chain of brokerages. J.P. Morgan Chase Bank in London is the custodian and a member of the LBMA. In case of a financial meltdown, Chase is likely to be one of the first to go, as it is one of the largest, if not the largest, derivatives player in the world.

Hommel states that “SLV cannot protect you in case of brokerage failure or custodian failure or sub-custodian failure or Barclays failure, or short selling failure to deliver, or your own brokerage failure.”

Hommel and others believe in owning physical silver -- buy bullion coins, and buy silver bullion bars, if you can afford it. You should take delivery and store it in a private safe, not in a bank, or elsewhere secure. Don't confuse trading the ETF with actual silver trading.

Confiscation cannot be ruled out. If the fascist U.S. government sees a “necessity” to confiscate silver (or gold), it will. Historical precedent and the path that the U.S. government has followed to increasing fascism cannot be ignored or discounted. A simple change of law can mean that your SLV holdings can be wiped out or, at best, converted to “paper” money at whatever rate the government decides. On the other hand, physical silver can be difficult to almost impossible for the government to find.

Neither the silver ETF, SLV, or the gold ETF, GLD, are really insurance policies against rampant government, inflation, deflation, depression, financial meltdowns, civil unrest, or social collapse. The precious metals ETFs allow you to speculate and hopefully gain some “paper” money that you can convert to actual physical metal and other tangible goods. But don't be surprised if you get left holding the bag. They are not the same as the metals themselves.