My favorite way to own silver is the Sprott Physical Silver Trust (NYSE:PSLV). This is a product of the Eric Sprott group, of Toronto.
Units of this trust were trading well above $20 a few months ago. But today, even after silver’s January rally, the units are trading below $15. That’s a 25% decline, which is in sync with the drop in the price of silver.
This recommendation isn’t intended to focus on short-term moves. The idea is to build a solid silver position for the longer term. It’s your way of building a silver play for the next couple of years, by which time we should see very healthy gains.
The Sprott Physical Silver Trust is a closed-end trust that’s entirely focused on physical silver. The intent behind the trust is to invest in and hold substantially all of its assets in silver bullion. It provides a secure, convenient means for investors to hold silver without taking personal physical delivery. The trust does NOT speculate with regard to short-term changes in silver prices.
Specifically, the trust invests in unencumbered, fully allocated London Good Delivery (LGD) silver bars. That is, it owns real silver — the metallic kind that hurts when you drop it on your foot — and not paper promises from any counterparty. About 99.8% of the trust’s current net assets are invested in physical LGD silver bars.
The trust stores its silver at the Royal Canadian Mint, a “Crown corporation” located in Ottawa, Canada. The Mint is responsible for loss or damage to silver in its custody. To ensure security, the silver bullion is subject to periodic inspections and annual audits.
The Mint is also the counterparty to the Sprott Trust, meaning that there’s no financial institution standing between the unit holder and the silver. Thus, this Sprott Trust is almost as good as keeping silver yourself (which I still recommend, in reasonable quantities). I’ll even grant that this trust is, in some respects, more convenient than buying the metal and having to store it on your own.
The trust has a unique physical redemption feature for large unit holders. Investors who hold the equivalent dollar value of 10,000 ounces of LGD silver bars, or more, may “redeem” their units for physical silver. If you do that, then the Mint will deliver the bars (almost) anywhere in the world via an armored transportation service. The trust is structured such that any physical redemptions will not dilute remaining unit holders.
Furthermore, there’s a nice tax advantage for non-corporate US investors. If you hold trust units for a minimum of one year, and timely file the appropriate forms with the IRS, the trust units are taxed at a capital gains rate of 15%, versus 28% — which is the higher rate that applies against most silver exchange-traded funds and silver coins.
I’ve seen an estimate that, over the course of history, mankind has mined and produced over 42 billion ounces of silver. If that’s true, I have no idea where most of it is. Evidently, all that silver has been used up in industrial processes or lost to corrosion and the like. The point to keep in mind is that there’s very little silver out there for investment purposes.
According to the silver scholars at Sprott, the current physical silver supply that’s available for investment, in US dollars terms, is worth less than 1% of the equivalent value for investable gold.
Looking at it another way, for every one dollar available in physical gold bullion and coins, there’s less than one cent available in investable silver. This supply discrepancy isn’t reflected in the current silver price.
What else? Among other things, we’re already seeing a slowdown in copper output due to declining industrial demand. But a copper slowdown will — as night follows day — certainly cause a slowdown in silver output. That’s because a large percentage of the world’s available silver comes as a byproduct of copper mining.
Give the copper slowdown a few months and the decline will induce a shortage of silver. This phenomenon will just plain bite the silver markets in the rear end. We may even see another sharp upward spike in silver prices a few months down the road.
I would never tell you that silver prices couldn’t fall further. In this market, anything is possible. But if silver prices do fall in the near term, this Sprott Trust is still a solid play over the long term.
The bottom line here is that the Sprott Physical Silver Trust offers a convenient and tax-efficient investment in physical silver. It’s the next best thing to buying your own bars.
for The Daily Reckoning
At Casey Research, we eagerly awaited the release of quarterly reports from the companies in our favorite sector. Why? The gold price was substantially higher last quarter than during the comparable meltdown quarter of 2008, so we were anxious to find out if it would lead to a spike in profits. Gold and silver producers […]
Byron King is the editor of Outstanding Investments, Byron King's Military-Tech Alert, and Real Wealth Trader. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.
What is PSLV sold in – US Dollars? Can you buy it in Canadian Dollars or Pounds Sterling?
Another paper silver fund? What about the one up in Canada that just joined MF Global in the trash can of history?
Barrett, I believe.
Hey Byron, what about the big premium shift on PSLV recently?
If you’re going to plug this fund as a wonderful investment then you need to at least mention the premium collapse which resulted from the announcement of the secondary offering.
In my view, your appraisal is not balanced.
Disclosure: long physical silver.
Thanks for share the informative blogs.Investors who hold the equivalent dollar value of 10,000 ounces of LGD silver bars, or more, may “redeem” their units for physical silver.
my favorite way to hold silver is in my hand.
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