A New Exchange Traded Fund May Have A Major Impact On Long Term Silver Prices

Last week after much publicity and a long wait, the Barclay's Silver ETF (SLV) finally started trading. And it looks like the wait was worth it. Each share represents 10 ounces of silver. Trading began at $129 a share and at the end of trading for the first day, the new Exchange Traded Fund closed at $138.12 after trading more then 2 million shares on it's first day of trading.

This new fund appears to be immensely popular with traders. It is one of the new Exchange Traded Funds that is acting more like a commodity then a stock. Exchange Traded Funds which ten years ago were very conservative and were mostly mirrors of major stock indexes, are now getting very creative in the sectors they represent and also in the underlying financial instrument they represent. You can now but an ETF that invests in gold, silver or oil. When the equity markets are looking dull, investors can now move their money into funds that are driven by commodities. While not as volatile as the futures markets, these funds can still have wide price swings.

Silver and Gold have been recently trading at multi decade highs. With inflation beginning to increase and volatility in world energy markets, these metals could continue to increase in value. Another factor, especially driving the price of silver is the approval of Barclay's new silver fund. The fund is backed by physical silver and trading in this fund has created a demand for physical silver. This will likely continue to drive the price of silver upward.

As the second day of trading ended with 1.5 million shares traded and silver continuing to move slightly upward, there is speculation on how long this trend will last. Silver however, is not driven by day to day news, like many equities. It is driven by long term trends. This particular trend started with the introduction of the gold standard and the end of the use of silver as money. With the introduction of the new Silver ETF, this long term trend is reversing. Silver is now for the first time in years, being stored as wealth again.

Another trend is the use of silver as an industrial metal. With the industrialization of India and China, the use silver as an industrial metal is increasing. There is now competition for physical silver for use as an industrial metal and for storing of physical silver for investment. This appears to beginning of a long term trend that will keep the pressure on silver prices to move upwards.

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