For the past several months FutureMoneyTrends.com has received a lot of questions regarding iShares Silver Trust, better known as SLV. While doing our research we found a lot of speculation and differing views amongst some of the smartest silver investors in the world. We recently had a short 15 minute interview with economist David Morgan who we consider to be the authority when it comes to silver investing. David Morgan runs Silver-Investor.com and has been published by everyone from the “Wall Street Journal” to “The Herald Tribune.” He consults for hedge funds, high net worth investors, mining companies, depositories, and bullion dealers. Our staff actually just finished his book, Get The Skinny On Silver Investing, a classic and a must read for anyone interested in silver.
Please take the time to listen to our interview with David Morgan regarding his thoughts on SLV.
FutureMoneyTrends.com’s opinion of SLV
*Please note that this article was written prior to our interview with David Morgan, however since our interview we have added several pieces that were discussed in our interview.
ow at FutureMoneyTrends.com we consider ourselves to be fact finders, so if you planned on reading a smoking gun report about SLV, we apologize in advance for disappointing you. We want to start off by saying that overall we do not trust SLV as a long term investment into silver. Physical silver, in our opinion, is without a doubt the best way to invest in silver, because if you ever actually need your silver to use as money (like in an emergency), if you can’t hold it, you don’t own it. Now with that being said, FutureMoneyTrends.com’s staff has in the past used SLV to trade or buy call options. In our interview with David Morgan, he also made it clear that SLV is a silver price tracker and is not the same as owning physical silver.
FutureMoneyTrends.com also believes in regional diversification of your holdings, physical first and then once you feel you have a comfortable amount, holding some with a holding company may be something to consider.
Now we are not here to make wild accusations, we just want to make our concerns known to our members. The information that we based our opinion on is from what we know about the silver market and the prospectus provided on the iShares Silver Trust web page.
Third party accountability
When reading the prospectus of SLV, please note the following “The trust is not an investment company registered under the Investment Company Act of 1940. The trust is not a commodity pool for purposes of the Commodity Exchange Act, and its sponsor is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator, or a commodity trading advisor.”
So what they are telling us is that the SEC and CTFC do not know what is actually going on with SLV when it comes to their silver holdings. The prospectus also states, “As an owner of iShares, you will not have the protections normally associated with ownership of shares in an investment company registered under the Investment Company Act of 1940, or the protections afforded by the Commodity Exchange Act of 1936.”
Is the silver there?
The SLV prospectus states the following regarding the silver behind each share, “the bulk of the trust’s silver holdings is represented by physical silver.” Okay, sounds fair right? Only problem is what is their definition of the bulk of the holdings, is it 50%, 60% or 90%, no one knows for sure. We just know that in the prospectus they admit that not all of SLV is backed by physical silver. Of course even if they told us what the bulk represented, we still would never know for sure since we are left with having to take their word for it. From the prospectus, “Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete.”
FutureMoneyTrends.com recently reported that the U.S. Mint sold 6.4 million silver Eagles last month, setting an all time record. This week we reported that China’s silver imports quadrupled in 2010 and our ‘Silver Shortage This Decade Video’ clearly showed evidence that silver is about to face major supply and demand issues. However with SLV, much of the demand for physical silver is heading over to SLV instead. Currently, SLV has net assets of roughly $10 billion, that’s a lot of money that could have potentially entered into a very tight silver market. Of course again, we have no way of knowing since there is no credible source that is auditing SLV. We also want to point out that while interviewing David Morgan who was shouting ‘silver’ from the roof tops before anyone, stated that SLV has actually been good for the exposure of silver and getting people interested in it.
Our issue with SLV
People who buy SLV have the perception that they are buying an ounce of silver and having it stored for them, however you can NEVER have access to this silver. You can’t even verify that it is there. However, storing it with the SLV custodian, JP Morgan, you practically can store your silver for free. Now they do disclose a 0.50% expense ratio, but let’s think about that. JP Morgan is claiming they are storing roughly 10 billion dollars worth of silver, that means they probably have insurance costs, delivery costs, storage costs, and security costs. Yet other companies who offer bullion storage have to charge as much as 2.5%. How is it possible then that JP Morgan is able to practically store it for free?
Our final opinion, if you want to own silver, either buy it so that you can hold it, have access to it, and if you do store it, make sure they are charging you for it.
Please take the time to review the iShares Silver Trust prospectus, especially if you currently own SLV.