NEW YORK (
) -- Silver and BlackRock's silver ETF,
iShares Silver Trust ETF
, have been the target of some wild rumors in the past several months.
The crazy stories have run the gamut around the financial blogosphere. One has
(JPM - Get Report)
as a puppet of the
, establishing a huge proprietary short in silver designed to pressure the dollar and reduce costs of monetary easing.
(BLK - Get Report)
unable to satisfy its share demand with real silver stockpiles. Many claim that legitimate storage for the metal doesn't come anywhere near the almost 11,400 tons of physical silver that the trust reported holding at its extremes in late April of this year.
I don't need to go anywhere near these rumors. The facts about the SLV alone are enough to make a great case for the manipulating effects of the ETF on the price of silver and the strong positives those manipulations can deliver to an investor who doesn't mind being part of a grand plan -- as long as it's a profitable one.
Let's have a quick look at the mechanics of this relatively new ETF and how it positively affects silver prices. The SLV looks to represent shares with real physical silver, not derivatives nor stocks of silver miners. The mechanism of connecting shares of the trust to the price of real silver is relatively simple.
As investor interest increases, sending shares of the trust higher, BlackRock continues to issue more shares, using that extra cash to buy and stockpile physical silver ingots. The speed with which they will issue shares and increase their physical holdings is dependent solely on how fast the differential moves between the actual price of physically traded silver and the SLV's share price.
In fund-speak, this is called tracking the net asset value, or NAV, of the fund. If the NAV tracks too high to spot prices, shares go out to satisfy demand for the fund.
And appetites for the SLV have been stunning. Since inception in 2006 and initial stockpiling of 650 tons, the SLV reached its 11,400-ton peak just more than a month ago, an amount that represents almost half of all the silver being globally mined in a single year. Of course this institutional hording system was a tremendous added influence to the price of silver, which recently peaked at over $48 an ounce on April 29.