St. LOUIS (ResourceInvestor.com) -- It slipped by right under our noses just as quietly as the media leaked the news. But don’t be mistaken. Even though no official statement has yet been issued, no launch date has been given and no stock code has yet been released, a silver-backed exchange traded fund (ETF) is coming to the London Stock Exchange.
According to sources, the U.K.’s Financial Services Authority has approved a silver-backed ETF developed by ETF Securities for listing on LSE. The ETF is expected to be launched within the next month.
“The interest in silver has certainly picked up in the past six months,” said Graham Tuckwell, Chairman of ETF Securities Inc, in an interview with Resource Investor. But “there’s always been a possibility of doing this,” he added.
This will be the world’s first ETF of this kind, entirely backed by silver. And, incidentally, ETF Securities listed the world’s first commodity-backed ETF when they launched Gold Bullion [LSE:GBS] three years ago.
The last time RI visited ETF Securities was during the International Oil & Gas Investor Forum in January concerning the company’s oil ETF, Oil Securities [LSE:OILB]. There, we learned that Oil Securities buys oil-backed contracts from a third party, Shell in this case, and sells them directly to investors. The silver ETF will work the same way.
Tuckwell said they have found that commodity ETFs work best by buying securities from a third party, much like what is done with the oil ETF.
“We buy a security from a third party…and supply the matching contract, and investors won’t have to worry” about the physical quantity, said Tuckwell.
Therefore, the silver ETF in London will not be physically backed by the underlying commodity, while taking silver out of the market, but the performance of the fund would remain linked to the silver price.
So in this way, it is different from Barclays’ proposed silver ETF iShares Silver Trust currently under review at the Securities and Exchange Commission (SEC), and causing quite a stir in the U.S. market.
Of course, investors in the London ETF would only be privy to the amount of silver held by the third party, which could spark debate if you subscribe to GATA’s theory of short-selling. But that’s for another story....
Tuckwell told RI that the removal of large amounts of silver, per Barclays’ silver ETF, could cause problems in the market. And according to the fund’s prospectus, Barclays’ silver ETF would require the purchase of 130 million ounces of silver.
“The silver market is much smaller than gold,” he said, which is why the company chose this route instead of buying the bullion.
Jeffrey Christian of CPM Group recently told Resource Investor that London Banks roughly have 75- 100 million ounces of silver in their vaults. Comex has possibly 130 million ounces and Berkshire Hathaway controls perhaps another 130 million ounces.
With many analysts estimating there to be only 500 million total ounces of silver ounces in the market at present time, it begs the question of who this third party is and how much silver they have.
Tuckwell said he could not yet release the name of the third party or the amount of silver the ETF would demand, but said the silver ETF would not require nearly as much as the company’s current gold ETF, which holds 70 tonnes of bullion in London alone.
Although Tuckwell said the company has no plans to register the silver ETF at the SEC, he added that anyone who can invest on the LSE could invest in the ETF when it becomes available.
The company plans to release an official announcement within a month, said Tuckwell.
May silver futures climbed 8.2 cents to finish at $10.107 an ounce today on the New York Mercantile Exchange. Silver prices closed at a 22-year high last week, and have risen 60% since the start of 2005.
