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I should have given this post a hysterical, hyperbolic title like "Physical Silver Trust Admits to Not Owning Physical Silver!" But as usual, my goal is to educate, not spread hype, fear and misinformation.

From Sprott Asset Management, which manages PSLV, today:

As of November 10, 2010, the Trust had contracted to purchase a total of 22,298,525 ounces of silver bullion. As of December 31, 2010 a total of 20,919,022 ounces of silver bullion had been delivered to the Trust. The Trust expects to take delivery of the final 1,379,503 ounces of silver bullion by January 12, 2011 and will subsequently publish the serial numbers of all bars held by the Trust on its website.

"Frankly, we are concerned about the illiquidity in the physical silver market," said Eric Sprott, Chief Investment Officer of Sprott Asset Management. "We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver."

Reminder: PSLV is a closed-end fund. That means that new shares cannot be created by anyone except the fund's manager, Sprott.
So let's get to the irony: One of the most repeated urban legends of the Internet is that SLV doesn't actually own physical silver, or doesn't own all of the physical silver that it claims to. (It should come as no surprise to regular readers that I believe that SLV holds only physical silver bullion -- albeit all of the bullion that it claims to hold.) Eric Sprott, in a fit of genius, capitalized on this hype by launching his own fund -- PSLV -- that holds only "physical silver"; he was even smart enough to name it the Sprott Physical Silver Trust. I admire Sprott for this genius; he capitalized on the fear and hype, and managed to launch his own fund to compete with a dominant existing product.
There's only one problem: PSLV, by Sprott's own admission today, doesn't actually hold all of the physical silver bars that it is supposed to! PSLV has now been conclusively proven to hold promises for silver. SLV, on the other hand, despite all the fear and paranoia, has never been proven to lack the silver that it claims to hold. In fact, the holdings are even audited, and you can view the audit report online.
Talk about irony. PSLV exists largely because Internet-miseducated investors feared that SLV was a terrible product. PSLV trades at a significant premium to its Net Asset Value (more than 11% at the time of this writing), and yet has been proven to demonstrate the exact flaw -- not actually holding physical silver -- that it was supposed to solve. Meanwhile, it has never been demonstrated that SLV actually has that flaw.
Now, in an effort to avoid rehashing old nonsense, I want to remind the critics of a few things:
This post is about holding PSLV vs. holding SLV, not about holding ETFs vs. holding physical bullion. I will never be able to convince the doubters that SLV is as good as holding bullion; if you want to hold it for your grandchildren, it's probably not as good as holding bullion. This piece is written specifically for the "SLV = bad, PSLV = good" crowd.
This news out of PSLV today is not my opinion, it's a fact: PSLV owns contracts for silver.
Who cares? I certainly don't; I'm sure Sprott will get the silver on Wednesday when he's due to. My point is that while people have been running around like chickens with their heads cut off screaming "SLV sucks, buy PSLV," it was PSLV which in fact owned paper silver.
Please do not post excerpts of the standard disclaimers in the SLV prospectus. As I illustrated clearly on a previous thread, PSLV's prospectus has nearly identical disclaimers.

You can buy whatever you want to buy. I don't care; it's your money. I happen to own SLV. I have previously tried to short PSLV, but was unable to borrow shares, and thus could not do so. To me, it makes positively zero sense to pay an 11% premium to NAV for PSLV, and I would short it vs. an SLV long if I were able to.
Source: Hi-Ho Silver: How SLV and PSLV Differ