Silver ETF

By: EconomyWatch   Date: 4 August 2009

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EconomyWatch

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Silver ETF is an ETF that invests principally in raw silver assets. These assets are held in a trust that is overlooked by fund managers or fund custodians. Silver ETFs are grantors trusts which mean that every share of the silver ETF gives the investor ownership to a proportionate amount of silver. Silver is measured in ounce and the investment in silver ETFs indirectly reserve ounces of silver in the trust.

Introduced in the early 2000, the silver ETFs opened a highly attractive investment window for individual and institutional investors. Investments in metals like gold and silver are the best tools to counter economic downturns. Through silver ETF, a trader can further hedge his investment. Barclays, through its iShares line of ETFs, was the first institution to launch the silver ETFs.

Why Silver ETFs?
 

The popularity of silver has always been second to gold. Once the various uses of silver became well known to the corporate world, silver ETFs emerged as a lucrative investment option.

  • Silver is considered as the best electrical and thermal conductor. It will also become increasingly vital role in the coming years due to the emergence of more nuclear powered power plants.

  • As a natural biocide, silver is found to be useful in the medical world.

  • Silver is known for its high reflectivity. This makes it an important component of precision optics.

 

How do Silver ETFs Work?

 

Silver ETFs track as closely as possible the silver’s spot price in the open market and tries to replicate it. Investors get their share of silver holdings and trade the ETFs like stocks.

Advantages of Silver ETF
 

Buying silver ETFs is not only a safe way of diversifying the portfolio but has other advantages as well such as:

  • Silver ETFs are more liquid. So, they are easier to buy and sell.

  • Traders do not need to hold the real silver and pay ‘long-term capital-gain’ tax.

  • As the real silver stays with the trust, personal security is not compromised.

Disadvantages of Silver ETF
 

Not possessing the silver in real can trouble many investors besides these disadvantages:

  • Silver ETFs, through the demand and supply mechanism, can increase the price of the metal itself.

  • As there is a bullish trend in silver ETF, the downslide can cause huge losses.

Silver ETFs continue to attract many investors, ever since they were first launched. However, traders are advised to evaluate their plans before investing.


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