According to Kevin Morrison in a Financial Times article Silver hits 22-year high after iShares ruling (subscription required), the SEC has approved the Silver exchange traded fund (ETF).
Silver rose to a fresh 22-year high after the Securities and Exchange Commission on Tuesday approved the iShares Silver Trust following weeks of speculation that had helped support the metal.
Silver prices have risen more than 40 per cent since last November when Barclays Global Investors filed its application to the SEC for the share market listing of iShares Silver Trust. The reaction to the approval was muted given the volatility in the silver price over the past three months.
Silver hit a peak of $10.50 a troy ounce, up 15 cents on the day. “In effect, purchasing silver shares will provide investors with a new mechanism to participate in the silver market,” the SEC said. Each silver share would correspond to 10 ounces of silver, it said.
So one key question then becomes, do the speculators who were anticipating the silver ETF sell silver and depress the price or does the silver ETF create a stronger demand for silver and increase the price? My belief is that any selling by the speculators will more than compensated by the buying by the ETF. That said, there could be some spikes in either direction. Another key question is, if buying does outstrip selling, what price will silver rise to? I have no answer to that question, not even a guess. I am just going to wait and see. As an aside, a good website to obtain insights into silver is Fleckenstein Capital (a subscription based website).
On the whole, I believe the silver ETF is a good thing because it allows investors to more easily purchase silver and it allows some funds that were prohibited from purchasing futures contracts to now purchase silver. Now we just have to wait and see how the silver ETF influences the price, if at all.
As a matter of disclosure, I remain long Pan American Silver Corporation (PAAS), which is a silver mining company.
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