Silver ETFs: Tracking the silver price via a tracker
Investing in silver is extremely popular these days. This is partly due to the successes that private investors and speculators achieve with investing in this precious metal and the messages that subsequently circulate about it. For example, there was the hype about an expected ‘ short squeeze ‘. Apart from that, investing in silver can be interesting. In this article we will tell you, among other things, how you can buy silver yourself and what the difference is between investing in physical silver and a silver ETF .
What is a silver ETF investment product?
In general, a silver ETF is a security that is linked to the price of silver. The advantage of an ETF is that you do not have to buy physical silver yourself. If the price of silver goes up or down, the price of a silver ETF will – normally – automatically rise or fall in the same way. Incidentally, there are also silver ETFs in circulation that are not linked to silver itself, but to companies with silver mines. We will not pay any further attention to this last category of ETFs in this article.
The difference between a silver ETF and a silver ETC
When viewed carefully, many silver ETFs are essentially silver ETCs. To understand this difference, let’s first look at the meaning of the abbreviation of both investment products. ETF stands for ‘Exchange Traded Fund’, while ETC stands for ‘Exchange Traded Commodity’. In other words: ETCs focus specifically on commodities. In both cases, the index price of silver is the guideline for the value of the silver ETF or ETC. The clear difference between the two, however, lies in the ownership. With an ETF, you are partly the owner of the fund that manages the silver for you, while an ETC is simply a debt instrument. This difference between the two affects the investment risk that you run when investing in ETFs and ETCs.
Buy silver via an ETF
The easiest way to invest in silver is to invest in an Exchange Traded Fund (ETF) that is fully or partially backed by physical silver. Below we name 2 well-known and popular silver ETFs.
The Best Silver ETF – 2 Popular Examples
If you prefer to simply trade via the Dutch stock exchange, Wisdom Tree Physical Silver ($PHAG) and iShares Physical Silver ETC are probably the most obvious choices. Wisdom Tree is one of the largest providers of ETFs in the field of precious metals. An additional advantage of this ETF is that its price is simply displayed in euros, so you do not have to take foreign exchange rates into account. The silver that Wisdom Tree offers via its ETFs is safely stored in the vault of the internationally renowned HSBC bank.
The iShares Physical Silver ETC has been active since April 8, 2011 and currently has a total value of 600 million US dollars. You can find this investment product at your bank or online broker by searching for ISIN code IE00B4NCWG09. You can also find the ETC under the abbreviation ISLN. When purchasing this investment product, please note that you will be charged 0.20 percent in management costs annually. This cost item naturally has a negative effect on the final return that you can achieve with this ETC. In contrast to what is often the case with other ETFs and ETCs, iShare also actually owns 100 percent of the silver offered in this way. In stock market terms, this is also called physical replication. The silver in the iShare vault is in that case the collateral for the ETC, or the debt certificate.
The advantage of investing in silver through an ETF
The biggest advantage of an ETF is that you do not need to have physical silver yourself in order to benefit from the price developments of this precious metal. In other words: you do not need to purchase silver coins, silver bars or other silver products yourself and you do not need to worry about safe storage. All this is arranged for you by the manager of the ETF. In principle, the value of an ETF is always equal to the current silver price. If you invest in an ETF where the price is not expressed in euros, but in US dollars, for example, the value may deviate slightly from the current silver price due to the additional currency risk. An additional advantage of investing in ETFs is that you can easily buy and sell them. You can therefore easily convert them into liquid assets if you want to free up money for private purchases or investments in other types of investments.
The disadvantage of investing in silver through an ETF
The convenience of an ETF also entails risks. If the price of silver suddenly rises very quickly, there is a chance that the price of physical silver and that of a ‘paper’ silver ETF will become uncoupled. This is because the demand for physical silver suddenly becomes so great that it cannot be met in practice. In such a case, a ‘premium’ (surcharge) is linked to the price of the physical silver that is immediately available. The approach of the ETF is usually that the managed silver is not available for direct sale, which means that you cannot claim the premium that the market is offering at that time. Such a uncoupling between physical and ‘paper’ silver only occurs in very extreme cases, if it turns out that the coverage ratio of physical silver in an ETF is inadequate. However, the chance of such a situation should not be underestimated, because it is suspected that many managers of silver ETFs have considerably less physical silver in their vaults than the total cash value of the fund.
Dependent on third parties
If you invest in a silver ETF, you are dependent on at least three parties. These are the bank or broker where you buy the product, the provider of the ETF and the party that manages or stores the silver for the fund. If something goes wrong somewhere in this chain, it will most likely have a negative effect on the price of the ETF and its tradability. A clear example of a similar situation occurred at the beginning of 2022, when the prices of the shares of the American companies AMC and GameStop rose sharply in a short period of time and online broker Robin Hood single-handedly decided to significantly restrict trading in these shares. A horror scenario for Robin Hood customers, who saw their chance of making extra profit evaporate.
The government as a risk factor
Finally, you should not underestimate the power of the government when investing in silver ETFs. When the silver price rises to astronomical heights, it is usually also a sign that the global economy is doing badly. In such circumstances, it is historically not impossible that a government tries to get out of trouble by seizing the precious metals that private individuals have in their possession. You can prevent this by buying physical silver anonymously, which you carefully store at home – for example in a safe.