Silver soars on ETF debut (May 08, 2006)

The silver spot price raced US89, or more than 7% higher, to US$13.36 per oz. in morning trading in New York on April 28, after the widely anticipated launch of Barclays Global Investors International’s iShares Silver Trust (SLV-X) on the American Stock Exchange.

Shares in the exchange-traded fund (ETF) debuted at US$128.64, but quickly gained steam, rising as high as US$140 by early afternoon. Each share represents 10 oz. of silver; the initial batch of 150,000 shares is backed by 1.5 million oz. of physical metal recently deposited with JPMorgan Chase Bank in London. Bank of New York (BK-N) is the trustee.

Barclays plans to issue additional iShares in batches of 50,000. The shares are subject to the trust’s expenses and liabilities of 0.5% annually of its net asset value. The shares allow investors to invest in the underlying commodity without holding the actual metal, and are expected to boost silver demand.

Speculation over the fate of the silver ETF has been helping to power the metal’s recent surge, which has seen it achieve multi-decade highs. The ETF, more than a year in the making, was not without its detractors. Most notably, the non-profit Silver Users Association is worried that the investment vehicle could make the metal too expensive or illiquid in the world market, thus threatening fabricators, manufacturers, and other consumers.

After a period of public comment, the U.S. Securities and Exchange Commission agreed with the American Stock Exchange that the listing and trading of iShares would increase the efficiency and transparency of the silver market by providing investors with an easier and more cost-effective alternative for investing in the metal. The commission also said it doesn’t expect the iShares to cause serious liquidity problems in the silver market.

By the end of the first trading day, the iShares levelled out at US$138.12 on an impressive trading volume of 2.34 million shares. In the end, 2.1 million shares backed by just shy of 21 million oz. of silver were outstanding, for a net asset value of around US$263.7 million.

Silver itself finished US$1.04 higher at US$13.51 per oz. The price for the brilliant white metal is up nearly 50% so far this year.

Profits by investors in the ETF are subject to a maximum tax rate of 28% owing to silver’s designation as a collectible, rather than the current 15% rate used for most other long-term capital gains.

BGII is an affiliate of British-based financial service provider Barclays (BCS-N, BARC-L).