Tuesday, February 20, 2007

The $14 silver barrier and the Barclays Silver ETF

Silver was rebuffed down to as low as $13.65 as the $14 continues to provide stiff resistance. To us it is still only a matter of time.

Recent chatter about Barclays lending out their ETF assets to short selling hedge funds may surprise us but when the motto of these institutions is "make as much money as possible" it should not surprise. In regard to our own silver ETF, could I not ascertain three things:

1. Are Barclays allowed to do this with silver?
2. If so, how much silver is allowed to be leased out at any given time?
3. If so, how long is the lease period?

The answer to 1 appeared to be "No". The original schedule says:

"The trust is not actively managed. It does not engage in any activities designed to profit from, or to ameliorate losses caused by, changes in the price of silver."

In other words, hedge funds seeking to lease silver to take advantage/engineer a silver price change would be to the profit of Barclays. Furthermore, the schedule states:

"The trustee's arrangements with the custodian contemplate that at the end of each business day there can be in the trust account no more than 1100 ounces of silver in an unallocated form."

This seems to be purely on the basis that the ETF only deals in 1000oz LBMA bars. Any leased silver is by necessity "unallocated". Basically, I have had a fairly good look at the schedule and see nothing about lending or leasing silver out to third parties. If anyone see otherwise in this or the new schedule I would be interested to know. In the meantime, questions 2 and 3 are irrelevant.


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