As precious metals prices, specifically silver prices, continue to soar, the issue of the sustainability of silver ETFs has been raised in the press. Funds like iShares SLV are backed by physical silver which is held in reserve against the shares. While it is unlikely that any real crisis will develop, a prudent investor is wise to stay informed.
Given the integrity of iShares, the sponsor of SLV, the largest of the silver ETFs, it is unlikely that a real problem will develop, investors should be aware of the issue. The structure of SLV requires that the fund hold physical silver in reserve against the shares of the fund that it releases into the market. As demand soars and new shares are created, this reserve must also grow in size. This is the genesis of the concern.
The fund sponsor of SLV has guaranteed that the needed reserves are being purchased and the process is well in hand. Reserves are help in London, and are the responsibility of the fund's custodian in the UK. The exception to the safeguards that are in place is that while the custodian must inspect the silver it holds in reserve, no chemical testing is done to confirm purity levels. Should the silver that is being held be fraudulently delivered, it might go undetected and cause a problem.
It is important to remember that the silver market is relatively small. When compared to other metals markets, the silver market is quickly dwarfed. What this means is that a supply squeeze could drive prices even higher and cause a problem in acquiring sufficient reserves. This may have already happened.
The turmoil in the silver, gold, and oil markets in recent weeks sheds some light on the volatility of commodity trading. An ETF is a great way to diversify one's commodity holdings, but it does not complete reduce one's overall risk. Make sure to review ETF research for information about the ETF's ratings and analysis.
Given the integrity of iShares, the sponsor of SLV, the largest of the silver ETFs, it is unlikely that a real problem will develop, investors should be aware of the issue. The structure of SLV requires that the fund hold physical silver in reserve against the shares of the fund that it releases into the market. As demand soars and new shares are created, this reserve must also grow in size. This is the genesis of the concern.
The fund sponsor of SLV has guaranteed that the needed reserves are being purchased and the process is well in hand. Reserves are help in London, and are the responsibility of the fund's custodian in the UK. The exception to the safeguards that are in place is that while the custodian must inspect the silver it holds in reserve, no chemical testing is done to confirm purity levels. Should the silver that is being held be fraudulently delivered, it might go undetected and cause a problem.
It is important to remember that the silver market is relatively small. When compared to other metals markets, the silver market is quickly dwarfed. What this means is that a supply squeeze could drive prices even higher and cause a problem in acquiring sufficient reserves. This may have already happened.
The turmoil in the silver, gold, and oil markets in recent weeks sheds some light on the volatility of commodity trading. An ETF is a great way to diversify one's commodity holdings, but it does not complete reduce one's overall risk. Make sure to review ETF research for information about the ETF's ratings and analysis.
About the Author:
Looking to find the best stocks, ETFs, and mutual funds? Visit WikiWealth.com for independent equity research and ETF ratings.
No comments:
Post a Comment