Silver ETF - SLV

Many people have considered different ways of investing in silver.

One popular way is through Silver ETF, particularly the SLV.

Before we talk about the pros and cons, let us understand the term.

What is ETF?

ETF stands for Exchange Traded Fund.  Silver ETF means this particular fund aims to track the spot price of silver.

What is SLV?

SLV refers to iShares Silver Trust.

Ishares Silver Trust has the largest holding of physical silver, and this particular ETF trades on the New York Stock Exchange.

What are the advantages of trading Silver ETF, SLV?

The first advantage is the ease of buying and selling.

Since SLV, the most popular silver ETF, is traded on the NYSE, you can just buy and sell as long as you have trading account.

Even if you are not a resident of US, you can open a trading account with your local brokerage firm.

Your local broker may charge a monthly custodian fee for holding the shares for you.

You do not have to advertise online for selling, and you do not have to arrange for shipping as for selling physical products.

The second advantage is the low transaction cost.

You do not have to pay a high premium, such as those for physical silver bullions and coins.

You have to pay one transaction fee for buying, and another for selling.

The third advantage is that you do not have to hold physical silver.

The silver ETF, in this case, SLV holds the physical silver.  You are paying for a part of the large silver holding.

The last advantage is that you can make quick gain from the volatility of silver price.  Once you notice the price of silver crashing, you can offload your silver holding immediately.


What are the disadvantages of trading Silver ETF, SLV?

The first disadvantage is the cost factor.

Once you compare the spot rate of silver per Troy ounce, and the trading price of SLV, you will notice that the trading price for SLV is lower than the current silver price.

Why is it so?

Bear in mind that Silver ETF is a fund, with its expenses like other major mutual funds.

The lower price is to discount for the operating and other expenses of SLV.

The second disadvantage is the transparency of the management of the fund.

Silver ETF is not under the same stringent regulation as most mutual funds.

There is a complicated sponsor, trustee and custodian arrangement for the management of SLV.  While this arrangement is meant to ensure transparency, it muddles the water.

The custodian of SLV is JPMorgan Chase Bank.

However, JPMorgan Chase Bank could have many agents and sub-custodians.

They do not need to report the agents and sub-custodians to the investors.

The sad fact is that silver ETF is not under stringent regulatory requirements.   The retail investors may never know the shady dealings unless a large scandal comes into light.

The third disadvantage is that silver ETF is not the same as silver investing.

The retail investors will never have a chance to get the physical silver, even if SLV liquidates its holding.

The only way you can get the physical silver is as a member bank of LBMA (London Bullion Members Association).

That means from the time you buy shares of SLV, the largest Silver ETF, you can trading paper assets.  You are not investing in commodity.  You gain from the price speculation, and you lose from the price speculation.

The last disadvantage for international investors is the custodian cost, and other related cost.

If you intend to hold silver for a long time, trading Silver ETF, SLV, is not a good choice.  The custodian fee alone can reduce your profit margin in the long term.

You are better off buying silver bullions or silver coins.


Is silver ETF, SLV worth investing?

If you are looking into building up a diversified portfolio, you can park part of your cash in SLV.

If you are looking seriously in silver investing, you are better off with physical silver that you can pass down through the generation.

The risk of SLV liquidation is a real risk.

The management of SLV has never intended it for long term