Silver ETF [How does it track the spot price?]

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alenart91
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Silver ETF [How does it track the spot price?]

Post by alenart91 » Sat Jul 07, 2018 10:55 pm

I'm interested in investing in SIVR (an ETF that tracks silvers spot price). My question is how does this particular fund track the spot price? Looking at the price now it's 40 cents lower than spot price. It's backed by actual silver held in vaults by HSBC. I just don't understand how the ETF price raises and falls with the spot price of silver?

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David Jay
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Re: Silver ETF [How does it track the spot price?]

Post by David Jay » Sun Jul 08, 2018 8:27 pm

I want to welcome you to the forum.

I am afraid that you did not get any substantive replies because the topic of your first post is far away from the core of Boglehead investing - like going on a pickup forum and asking for advice about your Corvette.

We are very much focused on broad-based index fund investing. Not much on commodities (although a few hold some gold). Even less on speculation. You may have to look elsewhere for a suitable forum for your question.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

lack_ey
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Re: Silver ETF [How does it track the spot price?]

Post by lack_ey » Sun Jul 08, 2018 8:52 pm

Technically the legal structure for SIVR is a grantor trust and not a fund in the strict sense.

There's no relationship or mechanism directly tying the price to spot silver price or something close to it. It's just that the value of one share is a fractional ownership of the structure, so effectively a piece of the underlying holdings (the physical silver in the HSBC vaults). The net asset value (NAV) is whatever that fraction comes out to be worth, according to what silver is worth. The price on the market for a share of SIVR usually stays close to that or else there would be an opportunity for institutions to arbitrage the difference via the usual creation/redemption mechanism (trading in shares for the fund's holdings or vice versa).

Thus SIVR ends up gaining and losing value in tight accordance to changes in the spot price of silver. Note that expenses effectively subtract from the holdings, so SIVR return should lag actual spot silver slightly, roughly by that amount of 0.30% a year.

There are 21.05 million shares of SIVR outstanding and 20,491,459 troy oz of silver in the vault, according to the issuer's page:
https://www.etfsus.com/institutional/us ... -sivr-arca

This is how similar products like GLD and IAU for gold also work. Some alternative structures using futures rather than physical metal for exposure behave somewhat differently.

alenart91
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Re: Silver ETF [How does it track the spot price?]

Post by alenart91 » Mon Jul 09, 2018 7:35 pm

lack_ey wrote:
Sun Jul 08, 2018 8:52 pm
Technically the legal structure for SIVR is a grantor trust and not a fund in the strict sense.

There's no relationship or mechanism directly tying the price to spot silver price or something close to it. It's just that the value of one share is a fractional ownership of the structure, so effectively a piece of the underlying holdings (the physical silver in the HSBC vaults). The net asset value (NAV) is whatever that fraction comes out to be worth, according to what silver is worth. The price on the market for a share of SIVR usually stays close to that or else there would be an opportunity for institutions to arbitrage the difference via the usual creation/redemption mechanism (trading in shares for the fund's holdings or vice versa).

Thus SIVR ends up gaining and losing value in tight accordance to changes in the spot price of silver. Note that expenses effectively subtract from the holdings, so SIVR return should lag actual spot silver slightly, roughly by that amount of 0.30% a year.

There are 21.05 million shares of SIVR outstanding and 20,491,459 troy oz of silver in the vault, according to the issuer's page:
https://www.etfsus.com/institutional/us ... -sivr-arca

This is how similar products like GLD and IAU for gold also work. Some alternative structures using futures rather than physical metal for exposure behave somewhat differently.
Thank you for the detailed response

alenart91
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Re: Silver ETF [How does it track the spot price?]

Post by alenart91 » Mon Jul 09, 2018 7:36 pm

David Jay wrote:
Sun Jul 08, 2018 8:27 pm
I want to welcome you to the forum.

I am afraid that you did not get any substantive replies because the topic of your first post is far away from the core of Boglehead investing - like going on a pickup forum and asking for advice about your Corvette.

We are very much focused on broad-based index fund investing. Not much on commodities (although a few hold some gold). Even less on speculation. You may have to look elsewhere for a suitable forum for your question.
All investing is speculation

zmaqoptyxbglp
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Re: Silver ETF [How does it track the spot price?]

Post by zmaqoptyxbglp » Mon Jul 09, 2018 8:10 pm

alenart91 wrote:
Mon Jul 09, 2018 7:36 pm
All investing is speculation
Some assets periodically spit out cash, some don't. If they periodically spit out cash, it is not unreasonable to assume that in the long run, the market will pay a reasonable price for that stream of payments. Even if there were no market, you still get the payment. If you owned a farm, and the "farm markets" closed down for the next fifty years, your farm would keep producing grain, that you can exchange for cash. If you owned an apartment, and the housing market closes down, people still need a place to live and will pay cash for living in your apartment.

If said assets don't periodically spit out cash and hence provide no material value through their existence, your only expectation can be a blind faith that someone will pay something for it. The former is investment, the latter is speculation.

alenart91
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Re: Silver ETF [How does it track the spot price?]

Post by alenart91 » Mon Jul 09, 2018 8:25 pm

zmaqoptyxbglp wrote:
Mon Jul 09, 2018 8:10 pm
alenart91 wrote:
Mon Jul 09, 2018 7:36 pm
All investing is speculation
Some assets periodically spit out cash, some don't. If they periodically spit out cash, it is not unreasonable to assume that in the long run, the market will pay a reasonable price for that stream of payments. Even if there were no market, you still get the payment. If you owned a farm, and the "farm markets" closed down for the next fifty years, your farm would keep producing grain, that you can exchange for cash. If you owned an apartment, and the housing market closes down, people still need a place to live and will pay cash for living in your apartment.

If said assets don't periodically spit out cash and hence provide no material value through their existence, your only expectation can be a blind faith that someone will pay something for it. The former is investment, the latter is speculation.
You're speculating the farm will be able to produce enough grain to cover costs and turn a profit, same with the apartment building. All investing is speculation.

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David Jay
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Re: Silver ETF [How does it track the spot price?]

Post by David Jay » Mon Jul 09, 2018 8:38 pm

alenart91 wrote:
Mon Jul 09, 2018 8:25 pm
zmaqoptyxbglp wrote:
Mon Jul 09, 2018 8:10 pm
alenart91 wrote:
Mon Jul 09, 2018 7:36 pm
All investing is speculation
Some assets periodically spit out cash, some don't. If they periodically spit out cash, it is not unreasonable to assume that in the long run, the market will pay a reasonable price for that stream of payments. Even if there were no market, you still get the payment. If you owned a farm, and the "farm markets" closed down for the next fifty years, your farm would keep producing grain, that you can exchange for cash. If you owned an apartment, and the housing market closes down, people still need a place to live and will pay cash for living in your apartment.

If said assets don't periodically spit out cash and hence provide no material value through their existence, your only expectation can be a blind faith that someone will pay something for it. The former is investment, the latter is speculation.
You're speculating the farm will be able to produce enough grain to cover costs and turn a profit, same with the apartment building. All investing is speculation.
You keep repeating yourself, but repetition by itself does not strengthen your position.

[edit] perhaps you mean “risk”. All investing carries some risk. But “speculation” does have a specific meaning in the financial world. It means a significant risk of loss of original capital. There are many investments that don’t carry a significant risk of capital.
Last edited by David Jay on Mon Jul 09, 2018 8:52 pm, edited 2 times in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

zmaqoptyxbglp
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Re: Silver ETF [How does it track the spot price?]

Post by zmaqoptyxbglp » Mon Jul 09, 2018 8:41 pm

alenart91 wrote:
Mon Jul 09, 2018 8:25 pm
zmaqoptyxbglp wrote:
Mon Jul 09, 2018 8:10 pm
alenart91 wrote:
Mon Jul 09, 2018 7:36 pm
All investing is speculation
Some assets periodically spit out cash, some don't. If they periodically spit out cash, it is not unreasonable to assume that in the long run, the market will pay a reasonable price for that stream of payments. Even if there were no market, you still get the payment. If you owned a farm, and the "farm markets" closed down for the next fifty years, your farm would keep producing grain, that you can exchange for cash. If you owned an apartment, and the housing market closes down, people still need a place to live and will pay cash for living in your apartment.

If said assets don't periodically spit out cash and hence provide no material value through their existence, your only expectation can be a blind faith that someone will pay something for it. The former is investment, the latter is speculation.
You're speculating the farm will be able to produce enough grain to cover costs and turn a profit, same with the apartment building. All investing is speculation.
Can investments go south? Sure they can. On average, are you much more likely to make money owning an apartment, or a collection of apartments, and renting them out, than not owning any? Sure you are.

If you own virtually all of Corporate America, which basically provides all of the goods and services we have in this country, how likely is it that your investment will go south in the long run? Save for some apocalyptic scenario, the probability is zero.

What is backing the price of silver? What is backing the price of gold? Nothing at all. The only value they have is psychological. They add no material value into the economy. The utility of silver and especially good in manufacturing and the like are a sliver of what they're traded for today. Gold prices could fall to a tenth of what they are today and we could still keep going as is.

alenart91
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Re: Silver ETF [How does it track the spot price?]

Post by alenart91 » Mon Jul 09, 2018 9:04 pm

zmaqoptyxbglp wrote:
Mon Jul 09, 2018 8:41 pm
alenart91 wrote:
Mon Jul 09, 2018 8:25 pm
zmaqoptyxbglp wrote:
Mon Jul 09, 2018 8:10 pm
alenart91 wrote:
Mon Jul 09, 2018 7:36 pm
All investing is speculation
Some assets periodically spit out cash, some don't. If they periodically spit out cash, it is not unreasonable to assume that in the long run, the market will pay a reasonable price for that stream of payments. Even if there were no market, you still get the payment. If you owned a farm, and the "farm markets" closed down for the next fifty years, your farm would keep producing grain, that you can exchange for cash. If you owned an apartment, and the housing market closes down, people still need a place to live and will pay cash for living in your apartment.

If said assets don't periodically spit out cash and hence provide no material value through their existence, your only expectation can be a blind faith that someone will pay something for it. The former is investment, the latter is speculation.
You're speculating the farm will be able to produce enough grain to cover costs and turn a profit, same with the apartment building. All investing is speculation.
Can investments go south? Sure they can. On average, are you much more likely to make money owning an apartment, or a collection of apartments, and renting them out, than not owning any? Sure you are.

If you own virtually all of Corporate America, which basically provides all of the goods and services we have in this country, how likely is it that your investment will go south in the long run? Save for some apocalyptic scenario, the probability is zero.

What is backing the price of silver? What is backing the price of gold? Nothing at all. The only value they have is psychological. They add no material value into the economy. The utility of silver and especially good in manufacturing and the like are a sliver of what they're traded for today. Gold prices could fall to a tenth of what they are today and we could still keep going as is.
The probability is not zero. USD isn't backed by anything.

zmaqoptyxbglp
Posts: 72
Joined: Wed May 16, 2018 10:17 pm

Re: Silver ETF [How does it track the spot price?]

Post by zmaqoptyxbglp » Mon Jul 09, 2018 9:10 pm

alenart91 wrote:
Mon Jul 09, 2018 9:04 pm
The probability is not zero. USD isn't backed by anything.
That's immaterial. What the companies are producing is economic value, not US Dollars. The US Dollar is just a historically stable method of expression of that value. But even if the US Dollar stops being the currency of choice in this country, which is unlikely, or if it's heavily devalued by the state, if the companies have something of value to offer, which Apple and Amazon and Chase and Exxon and Visa and Intel and Boeing and Netflix and Coca Cola do, people will be willing to pay for it, in whatever the terms be that the society accepts then.

What you're saying is effectively like saying that if you earn $40,000 today as a plumber, since the dollar is not backed by anything, your skill is worthless. If the society chooses to switch over to seashells as currency, you'll be paid in equivalent seashells for your work. Not even an argument really.

alenart91
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Re: Silver ETF [How does it track the spot price?]

Post by alenart91 » Mon Jul 09, 2018 9:16 pm

zmaqoptyxbglp wrote:
Mon Jul 09, 2018 9:10 pm
alenart91 wrote:
Mon Jul 09, 2018 9:04 pm
The probability is not zero. USD isn't backed by anything.
That's immaterial. What the companies are producing is economic value, not US Dollars. The US Dollar is just a historically stable method of expression of that value. But even if the US Dollar stops being the currency of choice in this country, which is unlikely, or if it's heavily devalued by the state, if the companies have something of value to offer, which Apple and Amazon and Chase and Exxon and Visa and Intel and Boeing and Netflix and Coca Cola do, people will be willing to pay for it, in whatever the terms be that the society accepts then.

What you're saying is effectively like saying that if you earn $40,000 today as a plumber, since the dollar is not backed by anything, your skill is worthless. If the society chooses to switch over to seashells as currency, you'll be paid in equivalent seashells for your work. Not even an argument really.
My central argument is that all investments are speculation. I never argued that skills are worthless. Economic value is great. Doesn't change the fact USD isn't backed by anything.

zmaqoptyxbglp
Posts: 72
Joined: Wed May 16, 2018 10:17 pm

Re: Silver ETF [How does it track the spot price?]

Post by zmaqoptyxbglp » Mon Jul 09, 2018 9:22 pm

alenart91 wrote:
Mon Jul 09, 2018 9:16 pm
zmaqoptyxbglp wrote:
Mon Jul 09, 2018 9:10 pm
alenart91 wrote:
Mon Jul 09, 2018 9:04 pm
The probability is not zero. USD isn't backed by anything.
That's immaterial. What the companies are producing is economic value, not US Dollars. The US Dollar is just a historically stable method of expression of that value. But even if the US Dollar stops being the currency of choice in this country, which is unlikely, or if it's heavily devalued by the state, if the companies have something of value to offer, which Apple and Amazon and Chase and Exxon and Visa and Intel and Boeing and Netflix and Coca Cola do, people will be willing to pay for it, in whatever the terms be that the society accepts then.

What you're saying is effectively like saying that if you earn $40,000 today as a plumber, since the dollar is not backed by anything, your skill is worthless. If the society chooses to switch over to seashells as currency, you'll be paid in equivalent seashells for your work. Not even an argument really.
My central argument is that all investments are speculation. I never argued that skills are worthless. Economic value is great. Doesn't change the fact USD isn't backed by anything.
You're building a strawman and arguing against the strawman since you don't want to address the point. I never claimed that the US Dollar was backed by anything. As I said, that's immaterial. You're paid for what economic value to bring in, as a corporation and as an individual, in the contemporary preferred medium of exchange of economic value. That just happens to be US Dollar today, which I think is likely to stay that way, but is immaterial to my point.

And in the long run, American business brings in a massive amount of economic value to the American society and it will continue to be rewarded for it economically.

Your precious metals bring in no productive value, and hence there is no reason to believe that the society will continue to pay in the long run for it what it has paid in the past.

alenart91
Posts: 8
Joined: Sat Jul 07, 2018 10:33 pm

Re: Silver ETF [How does it track the spot price?]

Post by alenart91 » Mon Jul 09, 2018 9:32 pm

zmaqoptyxbglp wrote:
Mon Jul 09, 2018 9:22 pm
alenart91 wrote:
Mon Jul 09, 2018 9:16 pm
zmaqoptyxbglp wrote:
Mon Jul 09, 2018 9:10 pm
alenart91 wrote:
Mon Jul 09, 2018 9:04 pm
The probability is not zero. USD isn't backed by anything.
That's immaterial. What the companies are producing is economic value, not US Dollars. The US Dollar is just a historically stable method of expression of that value. But even if the US Dollar stops being the currency of choice in this country, which is unlikely, or if it's heavily devalued by the state, if the companies have something of value to offer, which Apple and Amazon and Chase and Exxon and Visa and Intel and Boeing and Netflix and Coca Cola do, people will be willing to pay for it, in whatever the terms be that the society accepts then.

What you're saying is effectively like saying that if you earn $40,000 today as a plumber, since the dollar is not backed by anything, your skill is worthless. If the society chooses to switch over to seashells as currency, you'll be paid in equivalent seashells for your work. Not even an argument really.
My central argument is that all investments are speculation. I never argued that skills are worthless. Economic value is great. Doesn't change the fact USD isn't backed by anything.
You're building a strawman and arguing against the strawman since you don't want to address the point. I never claimed that the US Dollar was backed by anything. As I said, that's immaterial. You're paid for what economic value to bring in, as a corporation and as an individual, in the contemporary preferred medium of exchange of economic value. That just happens to be US Dollar today, which I think is likely to stay that way, but is immaterial to my point.

And in the long run, American business brings in a massive amount of economic value to the American society and it will continue to be rewarded for it economically.

Your bullion brings in no economic value, and hence there is no reason to believe that the society will continue to pay in the long run for it what it has paid in the past.
I'm not really arguing, just stating facts. You're entitled to your opinion on bullions value.

not4me
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Re: Silver ETF [How does it track the spot price?]

Post by not4me » Tue Jul 10, 2018 12:24 pm

alenart91 wrote:
Sat Jul 07, 2018 10:55 pm
I'm interested in investing in SIVR (an ETF that tracks silvers spot price). My question is how does this particular fund track the spot price? Looking at the price now it's 40 cents lower than spot price. It's backed by actual silver held in vaults by HSBC. I just don't understand how the ETF price raises and falls with the spot price of silver?
Lack_ey gave you a link that you might want to spend some time on if you haven't already. Your question makes me curious as to whether you understand how any ETF works (He's right -- it is a grantor trust, but trades like a exchange traded fund & not a mutual fund). Through that site you can see how much premium/discount it has traded historically for. You can also get to the 10-Q filing to understand some of the other parts that will keep it from ever being precisely in sync with spot prices. That should help you better understand how much variation to expect.

I say that to get to another point. You didn't indicate your objective & how you planned to use the ETF to achieve that. If you are planning frequent trading, then the commissions & taxes may outweigh the variation from spot. If you are planning long term buy & hold, you may be better off without the liquidity of an ETF.

alenart91
Posts: 8
Joined: Sat Jul 07, 2018 10:33 pm

Re: Silver ETF [How does it track the spot price?]

Post by alenart91 » Tue Jul 10, 2018 6:19 pm

not4me wrote:
Tue Jul 10, 2018 12:24 pm
alenart91 wrote:
Sat Jul 07, 2018 10:55 pm
I'm interested in investing in SIVR (an ETF that tracks silvers spot price). My question is how does this particular fund track the spot price? Looking at the price now it's 40 cents lower than spot price. It's backed by actual silver held in vaults by HSBC. I just don't understand how the ETF price raises and falls with the spot price of silver?
Lack_ey gave you a link that you might want to spend some time on if you haven't already. Your question makes me curious as to whether you understand how any ETF works (He's right -- it is a grantor trust, but trades like a exchange traded fund & not a mutual fund). Through that site you can see how much premium/discount it has traded historically for. You can also get to the 10-Q filing to understand some of the other parts that will keep it from ever being precisely in sync with spot prices. That should help you better understand how much variation to expect.

I say that to get to another point. You didn't indicate your objective & how you planned to use the ETF to achieve that. If you are planning frequent trading, then the commissions & taxes may outweigh the variation from spot. If you are planning long term buy & hold, you may be better off without the liquidity of an ETF.
As far as bullion goes my objective is to accumulate and hold long term. I have physical bullion that I buy, I'm just using the ETF for easier liquidity to exit the market when the time comes.

jalbert
Posts: 3284
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Re: Silver ETF [How does it track the spot price?]

Post by jalbert » Wed Jul 11, 2018 1:08 am

It is unlikely that silver offers any long-term real (inflation-corrected) return. Over the long-term, it should just almost track inflation (it has no revenue stream to cover storage costs). Stocks are fractional ownership in a business producing some goods or services. They are thus likely to have a positive long-term real return.

Over short time periods, either silver or stocks are so volatile that they are speculations. But over long time horizons the cash flows of a business drive long-term real returns, making stock an investment over longer term periods. Silver offers no such benefit.

TIPS and i-bonds are a much less volatile and much safer way to protect assets against US inflation, and much more likely to achieve the goal.
Index fund investor since 1987.

Ragnoth
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Re: Silver ETF [How does it track the spot price?]

Post by Ragnoth » Wed Jul 11, 2018 1:52 am

alenart91 wrote:
Mon Jul 09, 2018 7:36 pm
All investing is speculation
“Investing” and “speculation” are terms of art. I suggest reading Benjamin Graham’s intelligent investor if you would like to understand how those terms are actually used in the investing community at large.

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