Thursday, January 27, 2011

Disconnect Between Paper Silver and Physical Silver?

I ran across these comments from Eric Sprott, Chief Investment Officer of Sprott Asset Management regarding the illiquidity in physical silver:

As one who is invested in real assets and am involved in the silver market through ounces of silver and a stock investment in Silver Wheaton, I found the comments very interesting.  Honestly, I am not sure what to make of them.  I am sure that with all of the silver exchange traded funds coming to market, there is a lot of increased investment demand for physical silver.

At the same time, I am concerned that money entering the silver market through ETFs can leave just as quickly causing these funds to dump physical silver on the market and exacerbating volatility in the silver price.  We just watched silver climb over 80% in 2010 to three decade highs at over $30 per ounce.  It has since pulled back, and I am worried that the fall could be worse as investors flee the ETF market.  I am planning to look into the potential implications and see if there is some evidence regarding an increase in volatility as a result.  I will keep you all posted.  In the meantime, I will be treading carefully in silver and hedge my stock positions.

Until next time--KEEP IT REAL!

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