No news or anything, just wanted to draw a box in the sand for discuss going forward :)
Congrats on new site. I have been reading your blog for a few months. It's a great service. I am not an experienced trader; though I have lost money a few times in my life!
Could someone explain the PSLV premium to me. I understand that it trades at a premium to it's NAV. I have read that that premium could be wiped out if Sprott were to add more silver to the fund (and that this happened with their gold fund). I felt more secure with money in a 'physical' fund...but if it were to lose 15-20% while the price of silver remained the same, I would not be happy. While I realize that holding physical is best, the ease of trading has value to me.
Is the general feeling on the part of most users that PSLV is a safer bet then SLV? Any opinions are welcome.
PSLV is a closed-end fund. These differ from ETFs in that they typically trade at premiums or discounts to NAV, which is rare for ETFs.
I'm aware of 5 closed-end bullion funds: CEF/CEF.A, GTU/GTU.UN, SVRZF/SBT.UN, PHYS/PHY.U, and PSLV/PHS.U (US/Toronto symbols). The governance of each is impeccable, so they should have clear title to the bullion that they claim to own. The first three are run by the same group. CEF is the best known and holds about 45 ounces of silver for each ounce of gold. GTU holds gold only, and SVRZF holds silver only. PHYS (all gold) and PSLV (all silver) were set up by Sprott.
Of these, only PSLV has a significant premium. CEF is actually trading at about a 2% discount to NAV right now. Back in 2000, there were times when the discount was as high as 18%! It's a question of perception and the resulting demand for shares. I agree that it makes little sense to buy PSLV when the premium (as of today's close) is about 14%. The premium on SVRZF is currently under 3%, but it was in double digits not that long ago, so it can definitely come down.
Right now CEF is clearly the best buy. And it's a good idea to hold both gold and silver anyway.
The premium (could also be a discount) represents what you have to pay to get the shares from a person that already has them.
Unlike regular stocks the shares of PSLV represent actual silver. PSLV has a pile of bars in a vault and a share represents a piece of that pile.
Let's say for a minute that the pile is made of 1 oz. rounds of silver. Let's say for this example that one share is equal to one round (1 oz.) of silver. Then on any given day the share value (not the share price!) would be exactly the price of silver. That is what NAV/share or Net Asset Value per share means.
From here on in the NAV/share will just be called NAV to make sentences shorter.
Now if you want a share and I have a share to sell how much are you willing to pay? If you believe the price of silver is going up eventually then you might pay me....spot +10%. And if I sell it for that price then the share price is 10% above NAV. Or the premium is 10% to NAV.
Lately a lot of people think the price of silver is going to go much higher. They are willing to pay 14% above today's silver price (today's silver price is the NAV).
Let's look at a less happy scenario for the shareholder. What if the mood changes? I have a share worth the spot price of silver today and I want to sell it. You think silver price is going down too so you don't want to pay today's spot price. Let's say you will pay me 10% LESS than the price of silver today. If I sell it at that price then the share price is -10% to NAV.
The fund exists as a way to own physical silver stored in a vault without having to have it shipped to you and stored by you and later traded by you. Trading takes place on regular stock exchanges instead.
Before you buy this investment ask yourself if you believe tradeable, warehoused silver is worth $41 an ounce compared to a spot price of $35.
It works like this because broadly speaking the original fund owned a pile of silver, and no new silver is added, and no silver is sold out of the fund. You have to pay someone else to "get their silver".
I believe this is a very reputable fund.
On your comment that there is risk should the fund issue more shares (eg, buy more silver). Yes that is a risk. The premium exists because of the fixed pile of silver. If the fund adds more silver and sells the new shares at 0% premium then what are the old shares worth? 0% premium :(
SLV works very differently. SLV buys and sells silver from its vault daily. If you were to buy a share then SLV would go out and buy some silver on the spot market. If you sell a share then SLV goes out and sells silver on the spot market. Of course they don't actually go out and buy or sell if the shares are just changing hands, they only have to change the size of the pile based on "net issuance" or "net redemption".
There are a lot of people who believe SLV doesn't actually buy enough silver to justify the number of shares and therefore if everyone wanted to sell their shares the fund would go bust. I don't have an opinion.
The primary difference between the two funds:
PSLV has a constant pile of silver and doesn't need to go to market to buy and sell. If you want a piece of that pile you have to get it from someone else and if you want to sell it you must sell to another buyer (there are provisions for selling back to the fund owner at a discount too). As a buyer you pay your "future" price today when you buy it.
SLV has a price tied to spot price of silver and the size of the pile changes according to how many people buy and how many people sell. As a buyer you pay spot price.
Hope this is clear. If you have more questions just ask.
One nice thing
about SLV is that you can buy an option. If I think SLV is going up to $41 then I can buy an option at 36 or 37 etc or 40 etc. I can buy calls or sell puts etc. The entire option range is available to gain leverage. Of course my timing better be good so my option does not expire worthless. And by far most options do expire worthless. If I think it is going down I can buy a put or probably better I can buy a negative silver ETF or maybe a put or call on that.
Or I can move over to 2X ETF's like AGQ which is very popular. You can then lose money twice as fast or make money twice as fast. Usually lose it twice as fast.
Please note that there is theory which leads on many sites which are popular among silver investors that PSLV is fully audited and has every physical ounce fully accounted, but that SLV consists partially or entirely of silver IOUs or cobwebs. Do not automatically choose PSLV over SLV until you fully look at the pro and con side of this argument (if somebody wants to open a thread for it they are welcome to, I won't address it here). Make sure you understand the facts both sides are using to support the argument, because although a share of PSLV is cheaper than a share of SLV, ounce for ounce it costs 20% more.
For the retail investor, it comes down to this: if both PSLV and SLV are legitimate, you are at an extreme disadvantage with PSLV unless you got in right at the start (like the fund's owner). If PSLV is legitimate and SLV is not, the premium is worth it, and if contract law or the currency breaks down completely, they will both be worthless.
For comparison, people buying PSLV right before the 1 May collapse were paying almost $60 an ounce.
Thanks for detailed responses. I learn a lot here, thanks to a smart group of people. I gather that you have to be of 'one opinion or the other' with regards to the legitimacy of SLV. If a real shortage of physical silver manifests with a divergence of price between paper silver and physical silver then it would be safe to assume that the premium for PSLV is worth the price; if this never comes to be, then SLV is a more logical choice.
I am still a bit confused as to why the percentage rise/fall between the to products varies from day to day. They rise and fall at different rates on any given day. It's more consistent than AGQ & ZSL, which reset daily. I was in ZSL recently when it should have gone up (after a fall in the spot price), yet there was no increase in ZSL's price. At this point I felt robbed.
In your opinion, for a person looking to trade in/out a couple of times a week, what is the best option? (besides options...as I don't really understand them well enough to trade).
AGQ and ZSL are entirely different investment beasts than PSLV or SLV and really shouldn't be in the same thread.
They do not hold any silver. At all. You should be comfortable trading in IOU's of IOU's to participate.
**ultra high risk**
PSLV and SLV don't move in tandem because the investors look at them as different vehicles....likely based on the premise that PSLV is somehow more trustworthy. See Xaritas' comment about that.
Xaritas - good way to approach the eternal issue of whether or not SLV has unencumbered silver at the entire fund value (or at least 99%).
This happens with PSLV because of people buying and selling the premium. If you are buying at a xx% premium, you want to be relatively certain that the premium isn't going to go up in a puff of smoke. If you are a buyer of PSLV at a 20% premium, you are betting that the premium is a "permanent feature." Frankly, I think that is a risky bet. Look at what happened to the premium on PHYS (the golden sister of PSLV). A retail investor is probably better of in a similarly trustworthy fund like CEF.
PSLV has had days were it went down when spot silver went up because of this effect...
(Disclosure: I got rid of all my PSLV and occasionally trade SLV & AGQ securities and options)
Thanks. I'd been looking at CEF. I guess it would make sense to try and sell PSLV on a day (or at time) when the premium was UP (higher than it was when I bought).
Are you of the opinion that if the whole market continues to decline, that it will pull PM's down (silver in particular)?
I believe CEF is half gold, half silver, if that concerns you.
As to your question about the effect of the market on the price of PMs, I'll give you a carefully hedged answer and say that the market declining isn't positive for PMs. I think Turd feels the same way based on his post a day or two ago about being out of all PM positions. It seems to be a ripple effect from too much borrowed money being used for speculative purposes... once things go south, large funds start liquidating. It seems safe to assume that they only care about dollars and think of gold as just a commodity, so they are not sentimental about hitting the sell button.
I do think that even if everything declines, gold will decline less than the DOW. Silver... could get sporty. I am a bit of a silver heretic though.
If you are interested in this subject, check out the DOW/Gold ratio topic in the Gold forum.
I posted this link on the CEF thread as well ... this is a GREAT help to see the LIVE spreads to NAV ...huge hat tip to whomever did it ( found it on Kitco MB )
I for one was amazed that Sprott held so much of the premium during the smackdown in May
The Spreadsheet has Sprott Gold - Silver & all three Central Fund's ( CEF 50% each Au-Ag) - all gold & all silver.
ps- anyone who can tell me how the person made this spreadsheet - I think I know spreadsheets but this pushes beyond my limits (smile) ...
You can look at the formulas in the cells to figure out how it is done. In this case, the magic comes from the cell formula: "=GoogleFinance(symbol, attribute)"
Read up on the GoogleFinance spreadsheet function here:
PSLV is up $.13 in after hours trading tonight! That's .69% and it is now over $19 per share!!
I haven't ever seen it move that much in after hours trading...maybe I just don't pay attention.
I wonder why PSLV was down today when silver is up. Anyone know?
Same with CEF man, fucking rediculous with gold up 4%
Why is the NAV so high?