Silver ETF

Silver exchange-traded funds (ETFs) are the second most popular amongst the metal commodity ETFs, next to gold.  Commodity ETFs are not governed as investment companies under the Investment Company Act of 1940 in the U.S.  Though its public offering is reviewed by the SEC and requires an SEC no-action letter based on the Securities Exchange Act of 1934.  During the first day of silver ETFs trading a few years back, it gained approximately 8%.  Even before its first day of trading, the Silver Users Association (SUA) had already tried to stop it by sending a letter to SEC in February of 2006.  Contrarian investors’ opposition was due to the concerns that silver ETFs may remove large volume of silver from the market.  During the last 10 years, the supply of silver has been continuously declining.  Silver is used in manufacturing of various goods such as phones, refrigerators, keyboards, and electrical items because of electrical and thermal properties. 

Below are 2 silver based options in the ETF market:

• iShares Silver Trust Fund (SLV) – since its launched on April 2006, it has become the biggest single buyer of silver.  The goal of SLV is for the value of the shares of iShares Silver to reveal the price of silver that iShares Silver Trust own at that time minus their expenses and liabilities. 

• PowerShares DB Silver Fund (DBS) – managed by DB Community Services LLC and is based on the Deutsche Bank Liquidity Commodity Index Optimum Yield Silver Excess Return. 

And like any other investments silver ETFS have its own strength and weaknesses… No matter how good the trends are, you should always try to weigh things

Pros

-      Like gold ETFs, investors do not have to worry where and how to store their silver.

-      Supply of silver has not been able to cope up with the demand that can result to increase in prices of silver.

-      Some investors used it as a hedge against certain economic crisis. 

-      Can be a good addition to portfolio especially for people who can predict the dollar since silver prices tend to go up when dollar goes down.  

-      Very large industrial users of silver can take advantage of the potential of silver ETF to deliver direct supply of silver.  

Cons

-      In the last couple years, investors have observed the volatility of silver ETFs.

-      Like other metal commodity ETFs, investors are not sure if the silver ETFs are backed up by actual stored silver or simply buying a promise. 

-      Many analysts have forecasted that silver demand will soon reach its peak which will drag down prices of silver.

In the first week of June 2008, Mexican silver company Fresnillo PLC went public in London.  Bullish silver investors were surprised that it debut a 7.5% decline on its initial public offering (IPO) even though the prices of silver are doing strong.  But still the interest of investors on silver ETFs remain upbeat and only time will tell how far it can still go after it astonishing performance in almost 2 years.