When something is rare, valuable and getting rarer, the price should go up. If the price goes down then something’s wrong. Since there doesn’t appear to be anything close to a free market for silver nonsensical behavior like this is frequent.

In situations like this you may be tempted buy shares of SLV. I don’t like all the layers between shares of SLV and the underlying metal. Owning Shares is not the same as owning the metal. It’s only the closest you can get to silver when trading on the AMEX. If you insist on pressing a button on the computer screen to “invest” in silver then you’re taking on a lot more risk than you would if you took the trouble of driving to a coin shop.

SLV is charged with buying and selling whatever amount of silver is needed so that the value of the shares match the spot price as closely as possible, after expenses and liabilities. The trades are purposely robotic: The spot price, not skill or market timing, drives the trade.

As ETF’s age, they have to sell more and more of the underlying commodity to pay for expenses and profits. The older the ETF the less correlation they have with the underlying commodity. GLD is two years older than SLV so has less correlation with physical Gold than SLV has with Silver which is still about 99% (And falling).

Another negative for SLV is the size of the stockpile the ETF has accumulated, now 206 million ounces. Such is a ripe target for state seizure or other theft. And, who knows if SLV is just leasing silver, for a day, to pass monthly inspections to satisfy investors of their “reserves”.

It wouldn’t make sense in a normal market to call Gold an investment. Gold is just Money, no more, no less. I do see Silver as an investment, however, even though it’s also money. As a commodity the scarcity of silver is bullish with respect to its industrial demand. This would be smoothly worked out in a free market, if there was one. But, like gold, the spot price of silver (Based on the futures market on the COMEX exchange) is manipulated to make the dollar appear strong. You’d have to be directly privy to manipulation decisions to understand “market” timing.

Eventually, as the physical market cannot meet industrial demand the price will go up irrespective of manipulation. A monetary premium would be a bonus.

Mike Maloney describes Gold and Silver ETFs: