With investors becoming increasingly aware of the fraud and outright criminal activity taking place in the financial markets, serious questions are now emerging as the managers of the Silver ETF SLV just issued a new disclosure that made very little sense if the fund is indeed backed by physical silver.
February 14 (King World News) – James Turk out of London takes a trip down the rabbit hole that is SLV: Social media is abuzz this weekend about silver, Eric. It all started with a tweet posted by @bullionstar.
They noticed that SLV, the silver ETF, filed a new prospectus that included some startling language that was exceptionally frank. SLV has been in the spotlight because there have been growing doubts about how much silver it really owns, so the tweet fired up social media.
There have been various interpretations of the new SLV language offered through social media, with nearly unanimous agreement that it is a legal disclaimer. In other words, it lets the managers of SLV off the hook if the silver price starts rising and the price of SLV does not.
Here is what I believe to be the key new disclaimer:
“This could lead to volatile price movements in [SLV] Shares that are not directly correlated to the price of silver.”
SLV No Longer Needs To Track The Price Of Silver
In other words, the price of SLV is now whatever the managers want it to be. They are given a free pass to manipulate the price of SLV. They no longer need the ETF to track the silver price, and that is huge news.
Protecting Themselves, Not SLV Shareholders
And if SLV is actually a slush fund to control the silver price and is short silver as some have alleged, it is impossible to predict what the impact would be if the SLV share price stops tracking the silver price. But given all the new language in the prospectus, which I recommend reading by the way, I think you can safely assume that the managers of SLV are going to take care of themselves first rather than protect SLV shareholders.
Overall, I see this change as an admission that the silver price can no longer be controlled at current prices. Silver is just too undervalued, given that it is only about 50% of the high price it reached four decades ago. The demand for physical silver is just too strong at these price levels. So silver prices seem destined to rise to balance demand with limited available supply…
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The gold/silver ratio, which is high based on historic levels, basically confirms that silver is undervalued. The ratio closed Friday at 67, well above its historical level of 16.
That 16 ratio makes sense because there is about 16 times more silver than gold in the earth’s crust. So given this relative level of supply, we know silver is trading at a high ratio because its price is too cheap. And don’t worry about falling industrial demand for silver if the economy tanks.
Silver is ultimately driven by monetary demand because silver is a gold substitute. In other words, 67 ounces of silver does the same thing for you as one ounce of gold. Both are liquid tangible assets outside the banking system.
Can’t Truly Claim It’s Backed By Physical Silver
As I have mentioned a number of times and written in various articles over the years that are posted on the internet, SLV’s objective is to track the price of silver. There are so many loopholes in the prospectus, one cannot claim that it is backed by silver. Only the mainstream media claims that SLV is backed by silver. And now the SLV prospectus has been fundamentally changed.
So to sum up, Eric, if an investor’s aim is to benefit from a rising silver price as well as owning a tangible asset outside the banking system, avoid SLV. Instead, own physical silver or PSLV, the Sprott Physical Silver ETF. According to its prospectus, PSLV only issues shares if it can find the physical silver to back them. Disclosure: Neither King World News or James Turk have any financial or other incentivized relationship with PSLV. It is recommended because PSLV backs their shares with physical silver.
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