Silver ETF Shrouded in Uncertainty (ETFs: SLV, GLD; CEF: CEF)

Silver hits another new high yesterday and images of Bunker Hunt who tried to corner the silver market in 1979 spring to mind. He made a fortune on paper for a few weeks until he was wiped-out when the market imploded. I remember being a young broker and watching the whole thing transpire. It was a good lesson since no one thought silver prices would drop after soaring so high—but they did.

Now silver is breaking-out higher again. This is most likely due to a new silver ETF (SLV) that should be issued soon. The announcement has affected other related markets like CEF (Central Fund of Canada Limited) which holds a fairly equal amount of gold and silver bullion. CEF had been trading higher based on the rise in both metals prices. There was an equal amount of speculation that SLV would not be issued due to a lack of supply and opposition from the Silver lobby. It is uncertain when SLV will come to market. It could be a matter of days or weeks.

In the meantime, CEF’s share price is declining even though silver prices are rising and gold prices remain steady. The reason has to do with the premium that CEF was enjoying. When SLV hits the market, it will carry no premium and most likely trade in a similar fashion to GLD (streetTRACKS Gold Trust ETF) with perhaps even a slight discount. Therefore, CEF’s premium has dropped from 13% above NAV (Net Asset Value) to under 10% today. So the premium is being neutralized as investors will no doubt switch to the ETF one would think. However, each day that passes with no SLV and silver prices rising, not many people are willing to bailout of CEF quite yet.