.png)
Silver ETFs
Most commodities investors don’t own actual gold or silver bullions, as there are risks of security, storage, and liquidity. Many investors instead buy exchange-traded funds (ETFs), which seek to mimic the performance of the metals.
The “iShares Silver Trust, created in 2006, has grown in popularity in recent years and has led to tremendous growth in the amount of silver backing the shares issued to investors. Growth in the silver ETF market is likely to continue going forward and will put additional strains on the supply/demand dynamics for silver,” forecasts the Hennessee Group.
The iShare Silver Trust value on Dec.17 was $16.87, based on information from the New York Stock Exchange. The value fluctuated between $16 and $18 throughout 2009. The value of the trust reflects at all times the price of silver in possession by the trust, less the trust’s expenses.
An ETF is similar to a mutual fund and allows investors to be part of the silver market through trading in the security market. ETF shares can be traded whenever stock exchanges are open. The stock will be traded at the net asset value of the underlying asset. An ETF may buy silver or any other type of commodity in the market and holds it in custody. The trust issues common shares at a given conversion rate, which are then sold to investors who hold a percentage of the commodity.
Barclays Global Investors International Inc. was the first to set up a silver iShares fund with 1.5 million ounces of silver in the trust. The Barclay iShares Silver Trust presently holds more than 140 million ounces in custody.
The JPMorgan Chase/Mellon iShares prospectus, published Dec. 1, is transparent to a fault, warning the prospective shareholder of significant risks.
World Silver Demand and Supply
“The supply side of silver is unique as well in that only a small percentage of mines in the world are pure silver producers, rather silver is typically a by-product of mines mainly engaged in extracting lead, zinc and copper,” according to the Hennessee Group.
According to the Silver Institute Web site, a total of 888.4 million ounces of silver was produced through mining, from old silver scrap, and through government sales in 2008. Silver mine production increased by 2.5 percent in 2008, with Peru (118.3 million ounces) being the biggest silver producing country. Mexico (104.2 million ounces), China (82.8 million ounces), Australia (61.9 million ounces), and Chile (44.9 million ounces) ranked behind Peru in silver production.
In 2008, industrial applications consumed 447.2 million ounces of silver, while traditional uses—such as in jewelry, coins, and silverware—consumed 385.3 million ounces.
“Diversity is silver’s primary asset. Its unique properties include beauty, strength, sensitivity to light, malleability and ductility, electrical and thermal conductivity, reflectivity and the ability to endure extreme temperature changes. These properties allow groundbreaking research to be conducted by scientists and engineers that effect [sic] the way we live,” according to the Northwest Territorial Mint Web site.
