Silver Investing News

By Melissa Pistilli - Exclusive to Silver Investing News

Although the price of silver has seen an almost 40 per cent drop recently, holdings in New York’s iShares Silver Trust, the largest silver-backed exchange-traded fund, have soared 308.839 to a record 6,474.04 tonnes of average 1,000 oz silver bars since August 15.

That silver ETF has consistently seen more buying than selling pressure  throughout August, the silver swoon is proof, according to Gene Arensberg of Resource Investor, that the silver bull run was far from over.

If the recent hefty sell down of silver was “systemic” or a threat to the silver bull market, then why haven’t we seen the “smart money” move to dump “their holding in both physical silver and in the silver exchange traded fund?” wondered Arensberg.

“It should be obvious,” he said, “that investors have not panicked with silver, and are instead thankful for the lower prices so they can buy more of it with the same money.”  ETF’s like iShares Silver Trust remain attractive to investors looking to get in to the silver market while prices are low.

In March 2008, State Street Global Advisors and the Wharton School of Business at the University of Pennsylvania conducted a joint survey of investment professionals. The results of the study revealed that 67 per cent of the respondents felt that ETFs were the most innovative investment vehicles of the last two decades, and 60 per cent reported that ETFs had changed the way investment portfolios were constructed.

Investing in exchange-traded funds (ETFs) is a quick and simple way to take advantage of the silver price. Besides iShares (NYSE: SLV), launched in April 2006, other silver ETF’s include:

• Central Fund of Canada (TSX: CEF.NV.A, NYSE: CEF), which has 45 per cent if its reserves held in silver.
• ETFS Silver (LSE:SLVR), which tracks the DJ-AIG Silver Sub-Index
• ETFS Physical Silver (LSE: PHAG), which is backed by allocated silver bullion.

Some of the advantages of ETFs include:

• Lower costs: ETFs generally have lower costs than other investment products because most of the ETFs are not actively managed, and because ETFs are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions.
• Buying and selling flexibility:  ETFs can be bought and sold at current market prices at any time during the trading day, unlike mutual funds and unit investment trusts, which can only be traded at the end of the trading day. As publicly traded securities, their shares can be purchased on margin and sold short, enabling the use of hedging strategies, and traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade.
• Tax efficiency: ETFs generally generate relatively low capital gains because they typically have low turnover of their portfolio securities. While this is an advantage they share with other index funds, their tax efficiency is further enhanced because they do not have to sell securities to meet investor redemptions.
• Market exposure and diversification: ETFs provide an economical way to rebalance portfolio allocations and to “equitize” cash by investing it quickly. An index ETF inherently provides diversification across an entire index. ETFs offer exposure to a diverse variety of markets, including broad-based indexes, broad-based international and country-specific indexes, industry sector-specific indexes, bond indexes, and commodities.
• Transparency: ETFs, whether index funds or actively managed, have transparent portfolios and are priced at frequent intervals throughout the trading day.

But ETFs are not without disadvantages. They have little or no benefit over index finds for tax-deferred, long-term, retirement investors. Many ETFs use unknown, untested indexes. Also, some critics feel that ETFs, especially commodity ETFs, can be used and at times are used for “unhealthy price manipulations.”

Today’s silver news

Silver may be on the path to recovery today as crude oil picks up gains and the dollar dips against the euro. This morning, the dollar was fairing well against the euro, which fell after the German Ifo business confidence index slumped to its lowest level in three years. This latest dip has further fueled speculation that an interest rate cut may be in the cards for the euro zone.

In reaction to a rallying dollar, precious metals were sagging at the beginning of the session. But the dollar’s gains were offset by data showing that the US economy was still suffering from housing sector slowdowns. Although US home sales rose 2.4 per cent in July, “large downward revisions to prior months showed a weaker home sales market” than previous reports. According to the Case-Shiller house prices index, June home prices dropped at a record rate of 15.9 per cent from June 2007 in 20 major metropolitan areas.

Once the dollar lost its early gains, silver prices made a slight comeback as oil prices rose more than US$2 a barrel on fears that tropical storm Gustav might cause output disruptions at key US oil installations in the Gulf of Mexico. Tensions between Russia and Georgia have further deepened supply concerns. Precious metals analysts are awaiting more US data reports (July new home sales and August consumer confidence) due later in today’s session to determine the dollar’s (and the precious metals’) direction.