With silver now the target of Reddit’s notorious batch of WallSteetBets traders, silver exchange traded funds are getting another moment to shine.
That includes the Sprott Physical Silver Trust (NYSEArca: PSLV), but PSLV isn’t an ETF. Investors considering the trust as a way of playing along with WallStreetBets should understand how the product works before jumping in.
PSLV “currently holds 93,208,680 ounces of silver (as of Feb 1). PSLV provides investors with exposure to physical silver at a time when demand is high, causing excessive premiums for coins and bars,” according to Sprott.
ETFs Versus Closed-End Funds
PSLV is a closed-end fund that lets investors redeem large blocks of shares in exchange for delivery of silver bullion.
Sprott Physical Silver Trust often trades at a premium to net asset value (NAV). Closed-end funds can see large premiums and discounts, while exchange traded funds (ETFs) have an arbitrage feature that tends to keep prices much more in line. PSLV does have some benefits.
PSLV “offers a potential tax advantage for certain non-corporate U.S. investors. Gains realized on the sale of the Trust’s units can be taxed at a capital gains rate of 15%/20% versus the 28% collectibles rate applied to most precious metals ETFs, coins and bars,” notes Sprott.
Amid increased adoption of renewable energy sources, new, fast-growing end markets are emerging for silver. Translation: the expected influx of cash to the renewable energy industry thanks to Biden’s victory is seen as benefiting silver prices. Analysts are growing bullish on the white metal.
PSLV does offer intraday liquidity and easy storage too.
“The Trust’s metal will be held in custody by the Royal Canadian Mint, a Federal Crown Corporation of the Government of Canada. There is no levered financial institution between the unitholders and the Trust’s physical bullion and no risk of financial loss in the event of a bankruptcy or nationalization of the financial institution,” concludes Sprott.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.