Silver ETF Filed By Barclays
By Journal of Indexes Staff

BGI scored a smaller coup in June when it filed registration papers for the world's first silver ETF, confirming rumors that had been swirling around the silver industry. Like the wildly successful gold ETFs launched in 2004, the new silver fund will hold physical bullion as its core asset. That fact that has some silver speculators thinking "rally

"$1 billion (in assets) would roughly equate to the majority of known world silver bullion inventories at current prices," says Ted Butler of Butler Research, a market research group with a specialty in silver research. "I don't see how it could be done without a disruptive price impact."

The problem, Butler says, is not just a lack of global reserves, but an ongoing global production deficit for the shiny metal. BGI notes in its prospectus that between 1995 and 2004 there has been a structural deficit between fabrication demand and conventional sources of supply (mining and recycling) for silver. In 2004, that deficit stood at 21 million ounces. Over the years, sales from government stockpiles have made up for the deficit, with the bulk of sales coming most recently from China. Silver bulls suggest that government stores are getting quite low. Silver bears point out, conversely, that demand for silver from photographic uses (a major source on annual silver usage) is dropping sharply, as more and more photographers switch to the digital format.

Either way, BGI's decision to hold physical bullion for the ETF has many speculators calling for a new leg in the ongoing silver rally. The spot price for silver has risen sharply over the past two years, from under $5 per ounce to $7.25 per ounce.

Each share of the ETF will be backed by 10 ounces of silver bullion, stored in a vault by the fund's custodian, the London branch of J.P. Morgan. The fund's expenses are currently set at 50 basis points a year, and will be paid by selling silver directly from the vault, which will cause the NAV of the fund to slowly separate from the price of the metal. The fund will trade under the ticker "SLV."