Silver is a hot commodity—literally—when the world is still in political and economic turmoil. One of the best “high-reward, low-risk” ways to invest in one of the world’s shiniest commodities is through a silver exchange traded fund (ETF). The first silver ETF arrived on the scene in 2006—in the form of the iShares Silver Trust, managed by Barclays Global Investors. Today, the ETF has over $13 billion in assets and has returned 25.17% in average annualized returns since inception. Not only iShare Silver Trust, the spot price of silver (per ounce) crested $35.12 in April 2011, for the first time since 1980. Silver ETFs can hold silver bullion or invest in derivatives that track the actual spot price of silver on daily basis. Most silver ETFs usually invest in raw silver– usually silver is held physically by fund managers or a custodian bank. In essence, silver ETFs grant the investor the right to a given amount of silver that’s usually measured in ounces. Fund managers aim to mirror the spot price of silver, which is traded openly in the world commodity market. By and large, ETFs can provide investors with higher liquidity and greater safety than if they own the physical metal. In addition, access to silver ETFs is wide open—much more so than buying silver directly on the open market. Besides rising commodity prices, silver-themed ETFs offer investors greater liquidity, increased flexibility, and the chance to cash in on the commodity upturn at a substantially lower price than via direct investing. Other benefits for silver ETFs
( ETFs are relatively tax efficient, especially when compared to direct investments in commodities.
( Silver ETFs have a lower correlation than other investments. After all, lower correlation equals lower volatility.
• Silver ETFs also provide investors with a much needed dose of diversification. Commodities like silver are not only a good hedge against rising inflation and a lower dollar, but also a weaker stock market.
• Compared to pricier commodities, especially gold, silver is relatively inexpensive.
( Heavy industrial use – Unlike gold, silver is widely used in global commerce. Silver is a major component of electronics, batteries, even water purification. Thus commercial demand for silver will always be relatively high.
History & Current Trends Before we focus on specific sliver ETF, we should first analyze price of silver and the silver’s market in the past, because there was a very strong relationship between the silver price and the ETF of sliver investment. When we stepped into 21st century, silver prices remained under pressure for most of 2000; the average price was $4.95 per troy ounce. The highest price was $5.45 and the lowest price was $4.57. The sliver price softened throughout the year because of continued Chinese government sales and ongoing private disinvestment. In 2001, the sliver price was $4.37. In times of an enduring global economic slowdown, the silver price demonstrated resilience in 2002. With an average price of $4.60 per ounce, over 5% increase over 2001. The average silver price in 2003 was $4.85, which was a 5.4% increase over 2002. In the year 2004, the sliver price staged a dramatic rally, rising a robust 36% to average $6.66 per ounce. The stunning price performance reflected fundamental changes in sliver’s supply and demand balance. In 2005, the sliver price experienced a 10% increase, to the average price of $7.31 per ounce. In 2006, the sliver price experienced a 58% rise over the average of 2005’s price of $7.31 per ounce. The silver price reached levels not seen in 26 years. Comparing with the gold which had the 36% increase and the platinum’s 27% increase, the sliver got the leadership position. The primary factor driving the stronger silver price was the continued strength of investment demand. Much of the investment demand could be attributed to the successful launch of…