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Minyan Mailbag: Should I Buy Into the Silver ETF?


The free beer isn't over, the keg just needs to be changed every now and again....


What impact would
this article have on me? Should I be interested in purchasing into the ETF? The tax implications are of no importance in this case.


Hi Lynn,

It's been a while since we spoke and even longer since we met at MiM2 - what fun that all was.

I mentioned a week or so ago on the 'Ville about the silver ETF may be sending silver lower on the "buy rumor/sell fact" basis. I think I was looking for 9.78 and again, it illustrates my usual "premature speculation." I think we'll see low 10's again in the next few weeks but ….

The ETF should certainly track the silver price more closely than any equity, but you don't get the leverage that an equity provides, such as how a 2% move in silver used to give a 5% jump to Pan American Silver (PAAS)/Silver Standard Resources (SSRI). Any softness in silver will see some carnage in the metal shares I think. Also with PAAS/SSRI at these levels, 10c or 20c rises in silver may not be so aggressively pursued through the metal equities and we have seen occasions where silver does nothing, yet the equities lose 3 or 4%. The metals could cop a hiding if we drop 10% in silver in a few days (which shouldn't be discounted).

Remember the "fire in the cinema/free beer" analogy I used a while back. In the last month or so, the silver market has behaved like someone hung a sign saying "free beer" outside the pub. Crowds rushing in lead to crowds rushing out when a "better" deal is thought to be had elsewhere. I don't see a better deal than silver anywhere, but it may have run too hard too fast - you don't wanna step in front of the crowd. Wait till they leave the pub, which they will once they're drunk or think the free beer is over. The free beer isn't over, the keg just needs to be changed every now and again. Patient patrons will still be there when the beer flows again. If you're late to notice the sign outside the pub, just enter quietly as people leave, take a good seat at the bar and enjoy. Free Beer (gold and silver) are gonna be on for a long time, notwithstanding changing kegs every now and then. Is there anything better than free beer??

A lot depends on your time horizon and risk profile - are you trading aggressively? That may be more ETF friendly. Looking at the longer term horizon, the metal equities appear a better play but that's just me. Others will have their opinion; listen to everyone!

Just my opinion as always and look forward to seeing you at MiM3.

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Position in PAAS, SSRI, gold, silver, beer

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