This huge growth period to SLV’s 2011 peak was really quite spectacular. And perhaps the most spectacular part was a growth in the holdings amidst 2008’s infamous stock panic. This growth showed remarkable resiliency for this metal during a time when traders wanted nothing to do with anything that wasn’t cash.
Coming out of the panic and into the recovery period, SLV’s holdings surged. And in two years from the beginning of 2008, SLV’s silver booty doubled to 300m ounces. Three hundred million ounces is a lot of silver! How much? The average larger-scale silver mine produces about a hundredth of this amount, over the course of a year. In fact, 300m ounces is way more than the combined production of all the primary silver mines in the world over the course of a year.
SLV’s impact on silver’s overall supply chain is actually quite substantial. In 2011 for example, the total silver supply was around 1.0b ounces from all sources (the highest ever). SLV’s hoard represents 30%+ of an entire year’s supply. And it ends up being about 5% of the world’s silver supply over the last 6.5 years (since SLV’s inception).
I really doubt SLV’s custodians could have imagined that its holdings would climb this high, this fast. And because of this, there is no doubt that SLV has made a material impact on the silver market’s supply and demand fundamentals. I really don’t believe silver prices would be where they are today if SLV hadn’t taken so much of this metal off the market.
This ETF can however be a double-edged sword. Whereas SLV’s shunting of stock-market capital into silver no doubt gooses the silver price, shunting stock-market capital out of silver can certainly have a negative effect on the price. And this is something we witnessed in the action that followed SLV’s 366m-ounce peak in April 2011.
This peak of course corresponded with silver’s wild parabolic ascent that climaxed at $48+ just days after SLV’s top. And SLV’s differential selling pressure following this top led to an inventory draw of a whopping 61m ounces over a period of only about 2 months. Silver was down a gut-wrenching 24% over this exact same period of time, and I have no doubt that SLV’s bullion purge added fuel to the selling fire.
Interestingly ever since that big draw that took SLV back down towards 300m ounces in June 2011, we’ve seen a much different ETF. SLV’s holdings have actually meandered within a relatively tight horizontal consolidation band for the better part of 1.5 years now, with the centerline average at about 313m ounces. While SLV has held strong over a spell where silver has trended down a bit, this lack of growth points to a muted interest in silver from stock investors.
Ultimately I suspect that SLV’s flat-grinding consolidation is merely a holding pattern that will soon yield to a continuation of growth. For most stock investors, both retail and institutional, this ETF is the only way they’ll ever own silver. And I fully expect silver’s investment demand to continue to soar as more and more folks add this valuable component to their portfolios.
One thing that will offer confidence to investors is SLV’s valuation, which as an asset-backed ETF it is pegged to the net-asset value of its silver bullion holdings. SLV has made a lot of progress since it was born to the markets as a sub-$300m concept. Its valuation had increased 10-fold by early 2008, and it has since grown to become one of the world’s premier asset-backed ETFs.
Of particular interest on the valuation front was SLV’s huge growth spurt from September 2010 to April 2011. Over this stretch SLV saw a 70m-ounce bullion build coupled with a silver price rise of about 150%. And this led to SLV’s net-asset value soaring by a staggering 233% before peaking with silver.
While SLV’s valuation has since come down, it’s been relatively stable in the $10b range over the last year or so. And this $10b valuation takes SLV well out of the small-cap realm to qualify it for investment capital that only targets mid-cap and higher. SLV has become the wide-reaching vehicle that the silver sector desperately needed.
And speaking of vehicle, SLV’s incredible growth has made it one of the largest silver-related stocks out there. Of all the primary silver vehicles, only elite streaming company Silver Wheaton and global #1 silver miner Fresnillo PLC have larger market capitalizations.
The vast majority of the world’s biggest and best silver-mining stocks actually have much lower valuations than SLV. And interestingly I’m sure this fact irks a fringe group of folks who initially opposed SLV due to concerns that it would divert capital away from the mining stocks.