Wanna Play The Silver ETF Approval?

February 06, 2006

Traders expect silver prices to jump if the SEC OKs the iShares silver bullion ETF. But investors looking to profit ahead of time should keep an eye on fees.

Silver bulls are eagerly awaiting word from the Securities and Exchange Commission (SEC) regarding Barclays Global Investors' filing for a silver bullion exchange-traded fund (ETF). If approved, many expect the price of silver to jump, arguing that the stockpiling of silver by the fund would tilt the already precarious supply/demand balance for the precious metal.  Interestingly, the argument is being made by both proponents and opponents of the fund - something that lends a bit of credibility to the suggestion.

While it's far from a done deal, there's increasing confidence that the ETF will be approved.  In fact, some attribute the recent run-up in the price of silver (to multi-decade highs) directly to traders' anticipation of the ETF listing.

For more background on the story, see IndexUniverse.com's previous coverage here and here.

Investors looking for a way to game the silver ETF launch may have caught the recent bit of news from a group called GoldMoney, which launched a new way to access physical silver in a manner similar to the ETF. All you have to do is set up an account at the GoldMoney Web site, and you can buy and sell silver with the click of a mouse.  Like the ETF, these purchases buy physical silver, which is then stored in a vault in London, where it is insured by Lloyd's.  So far, so good. 

But don't skip the small print, because the fees could kill you.  First, there's a token account fee of $1.83/month. Then there's a silver storage fee of 98 basis points per year.  Then there's a purchase fee, which ranges from 1.99 to 5.24 percent, depending on the size of the transaction (You have to lay down a cool $1 million to qualify for the 1.99 percent level.)  For an investor looking to plunk $10,000 into silver, the total fee in the first year easily pushes six percent.  And the GoldMoney plans actually measure up pretty well to competing methods of purchasing physical silver.

It may still make sense to get in ahead of the ETF, but fees are one of the few things that investors can control, and six percent is a good chunk of change.  As always: Cavaet investor.

Find your next ETF

Reset All