[ad_1]
Intro
Silver is valued for its high reflectiveness, antibacterial properties, a store of wealth, and its potential to be made in jewelry. Unlike gold, around half of the silver purchased globally is for industrial purposes which does not bode well for this precious metal as many analysts are predicting a slower growth rate. Also, the solar panel industry, which is silver’s fastest growing user, has recently introduced new processes to use less silver in its products ultimately decreasing demand. Right now I am not a buyer of silver, but if there becomes an uptick in demand I want to put the Sprott Physical Silver Trust (PSLV) on your radar. I believe that this is the best silver trust and will explain my rationale in the following sections.
PSLV vs. SLV
The iShares Silver Trust (NYSEARCA:SLV) is currently one of the most popular silver ETF’s but lacks some of the benefits that are associated with Sprott’s Physical Silver Trust. The main difference between the two is that PSLV allows investors to redeem their shares for physical silver at a much lower value ensuring that there is an obtainable product behind the trust. SLV, on the other hand, does offer this feature but at a value that is almost unobtainable for most investors. They must purchase 50,000 shares of the trust to have it redeemable for actual silver which would cost $697,500 as of June 6, 2019. PSLV deals in a much smaller increment as one only has to purchase a London Good Delivery silver bar, which would cost only about $15,000. Not only is this cheaper, but it affords investors the realistic possibility of storing the silver at a secure location in one’s own house.
Moving on from the ability to redeem PSLV at a much lower cost, it also features a nice tax benefit.
Source: Sprott.com
As seen above, Sprott is taxed at almost half the rate of physical coins, bullions, and ETF’s. The 15% tax rate is for single investors who earn less than $400,000 and married investors who make a combined household income of less than $450,000. This is a significant advantage as investors are allowed to keep 8-13% more of their profit for owning this trust.
Now I should mention that Sprott is a Canadian-based company, and the way the taxation translates into the United States is slightly different. U.S. holders need to make a QEF election on their tax forms as this is imperative to maintain these tax benefits. This process is detailed in their financial report starting on page 59, so I will leave a link here. If any investors decide to purchase PSLV, I would recommend making a note of this and notifying a tax specialist when filing taxes to secure that benefit. As exciting as QEF forms are, I just wanted to make this distinction because many readers are based in the United States and the information on Sprott’s website can initially be misleading.
Industrial Demand for Silver:
Now that we were able to determine that PSLV is the better choice for silver investors, I would like to touch on the industrial usage of silver and the demand portion of the Phillips curve.
As mentioned in the intro, silver is a highly reflective material, which makes it an exceptional metal for products that require high-light reflection. These industries have typically driven the industrial demand of silver stemming from photography and x-rays in the early 2000s to solar panels now.
Unfortunately for silver investors, solar panels have become increasingly good at recycling their silver which has lead to ever-decreasing amounts needed in this industry. According to BullionVault, government subsidies to help solar energy companies promote clean energy have created a large surplus of capacity and lessened the need for silver. As the world accelerates its focus towards clean energy, silver will remain to be used but this is not a catalyst for immediate appreciation in the price of silver.
Another large use of silver is in the medical industry. It is well known for its antibacterial properties and will remain a staple in medicines and in any piece of equipment that needs to remain sterile. In this sector, I see a constant demand for this precious metal and silver would only increase in price if there were decreases in the silver supply.
Hedge Against USD
Previously, I have written an article about gold and why I believe Au is superior to Ag. One of the reasons that hold true for all precious metals is that these elements are always denominated in USD. That means that a decrease in the value of the dollar would lead to silver becoming more expensive. Since the dollar declines, it takes more money to purchase the same amount of precious metal.
In the coming months, the Fed is expected to cut rates which puts more money into supply through the process of quantitative easing. As this happens, there are more dollars in circulation so the supply increases and the dollar subsequently decreases in value. This is a two-edged sword because a cut in rates would signal that the economy is slowing down. Since over 50% of silver is used for industrial purposes, this would mean that the supply demanded may decrease as well nullifying any increase in a rate cut.
Gold/Silver Ratio
This ratio signifies how many ounces in silver it currently takes to purchase gold and can be used as an indicator of when silver is becoming too cheap or expensive relative to its precious metal counterpart.
Source: Macrotrends.com
Right now, silver is trading at a ratio of almost 90, indicating that it is relatively cheap compared to gold. This could be because the market is expecting a recession and believes that the price of silver will decrease with decreased industrial demand. One interesting thing about this chart is that the price of silver has decreased relative to gold (causing the ratio to increase) in each of the last three recessions and then increased relative to gold (ratio decreases). If this trend holds true for the next recession, a prudent play may be slowly picking up cheap silver in hopes of an increase in industrial usage raising the price of silver when the world starts to recover from said recession. As for now, there is nothing extremely alarming about this chart and I would wait to buy any silver.
PSLV Discount
Another chart that is interesting is the net asset value of Sprott’s silver holdings to the market value of their trust. I want to use this chart as a sentiment indicator where people are seeming increasingly bearish on gold. As seen below, their NAV is almost 3% above what the market is trading this silver fund at. This means that if PSLV was to sell all of its holdings at spot price today, investors would make an immediate 3% profit. In 2011, when silver was trading at all-time highs around $40/ounce, this fund had a premium of almost 35% at one point. 
Source: Sprott.com
Investors seem to be fairly bearish on silver now, and with reason. If the demand for silver increases I would imagine that this fund starts trading at a slight premium which would allow investors to not only profit on the potential price increases of silver, but the premium that investors are willing to pay for silver exposure.
Conclusion
Due to the multiple bearish signals such as a slowing global economy as lessened usage in the solar industry, I do not see any immediate catalysts for silver. If there is a global slowdown, I will be slowly purchasing PSLV in hopes that the increased industrial demand, premium investors are willing to pay for the trust, and the tax advantages associated with PSLV all increase PSLV’s price in the future.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
[ad_2]
Source link Google News
