While spot prices of silver achieve and swiftly break new heights every week, quite a few market insiders speculate that an increased demand for silver might help to bring down the SLV, which is among one of the most popular silver ETFs. Though this fund is hypothetically supposed to be effectively backed by corresponding physical silver reserves, the actual size and volume of the market for silver and the increasing demand of investors for this ETF practically means that such reserves must be taxed or simply over-rated. Though, it is fairly unlikely that any problem may arise, it is still worth consideration of the market participants involved.
Under structural terms of many ETFs, this fund is obliged to hold a sufficient physical quantity of silver in order to at least partially back up some of the shares sold on the market. While every new share, or a share block, is effectively created, a relatively larger quantity of silver should be held. As silver continues to hit newer highs, corresponding investor activity surges. A number of investors are convinced that the silver market may be affected by a short-term transitory bubble, whereas others believe that an encouraging ratio of gold in relation to silver would signify that the market still reflects a significant potential for the future.
Sponsor of the SLV fund guarantees that all needed reserves of silver are in the process of being accordingly purchased and this process is well under control. The reserves are normally held at London, which constitutes the responsibility of custodian of the fund in the United Kingdom. An exception to these safeguards, which have been put into place, requires that the appointed custodian must routinely inspect all silver held in reserve, but the chemical testing necessary to confirm its purity is not done. Under these circumstances, should any silver which is held be deceitfully deposited, it would go undetected and may even cause several problems.
Investors must realize that the market for silver is comparatively small. Compared to markets for other metals, this market is immediately dwarfed. This implies that any squeeze in supply can drive the price much higher, which would likewise cause more problems in the acquisition of sufficient reserves. Considering these circumstances prevalent, it may already have occurred.
In its final analysis, sponsor of SLV is iShares, a prominent financial key player who is least likely to permit any major problem to evolve. Considering quantum of the ETFs circulated by them, a crisis evoked by any lack of confidence may be too big a risk. Having said this, market participants on the whole are too shrewd to monitor the developments as commodity prices continue to escalate.
Turmoil in recent weeks in the oil, gold and silver markets sheds plenty of light on volatility of trading in commodities. Though an exchange-traded fund may be considered a reasonably acceptable mode of diversifying an investor’s holdings, it surely does not entirely reduce the overall investment risk. As such, investors are accordingly advised to review the ETF research that provides information regarding its analysis and ratings.