EDITOR NOTE: As we covered in a related post earlier this morning, the meaning behind the changes in the SLV prospectus is becoming clearer by the day. SLV can’t find enough silver to issue new shares should investor demand overwhelm available share supply. Whether the SLV managers’ shorts make up a 100% hedge or whether they’re shorting more silver in the futures market than they have in physical metal, the result is the same: if a swarm of investors buys SLV, the issuers will have to find the metal to back it up, and given the scarcity in supply, their bidding will cause the metal’s price to skyrocket. Strangely, the Redditor crowd that initiated this first volley has been routed--meaning, they have no clue that what they’re trying to achieve is within reach; there’s a green light, but they can’t read it because most don’t understand this market. Delivery for silver is due later this month. There’s still a strong likelihood that investors will come in, sweep up more shares, and cause the SLV issuers to bid up silver prices. That’s the short-term outlook. Longer-term, shortage in supply plus industrial and monetary demand will push silver higher this year. Either way, the path of least resistance is up. Now’s the time to load up on non-CUSIP silver, while the metal is slowly recovering from its pullback.
The silver exchange-traded fund SLV appears to have just amended its prospectus to acknowledge difficulty in sourcing metal for the fund.
The amendment warns that the fund now may be vulnerable to a "dramatic" short squeeze -- like the recent short squeeze in GameStop shares that caused a worldwide sensation.
The change, cited by Bullion Star tonight on Twitter, seems to have been prompted by this month's Reddit-inspired movement to attack shorts in the monetary metal.
SLV does not appear to have issued any announcement of the amendment to its prospectus, perhaps trusting that monetary metals advocates would find it eventually and save the fund the trouble of alerting the markets.
SLV's updated prospectus, dated February 8 and posted at the iShares internet site here --
-- reads as follows:
"The demand for silver may temporarily exceed available supply that is acceptable for delivery to the trust, which may adversely affect an investment in the shares.
"To the extent that demand for silver exceeds the available supply at that time, Authorized Participants may not be able to readily acquire sufficient amounts of silver necessary for the creation of a Basket.
"Baskets may be created only by Authorized Participants and are only issued in exchange for an amount of silver determined by the trustee that meets the specifications described below under 'Description of the Shares and the Trust Agreement -- Deposit of Silver; Issuance of Baskets' on each day that New York Stock Exchange Arca is open for regular trading.
"Market speculation in silver could result in increased requests for the issuance of baskets. It is possible that Authorized Participants may be unable to acquire sufficient silver that is acceptable for delivery to the Trust for the issuance of new Baskets due to a limited then-available supply coupled with a surge in demand for the shares.
"In such circumstances, the trust may suspend or restrict the issuance of baskets. Such occurrence may lead to further volatility in share price and deviations, which may be significant, in the market price of the shares relative to the net asset value.
"Risks Related to the Shares.
"A sudden increase in demand for shares that temporarily exceeds supply may result in price volatility of the shares.
"A significant change in the sentiment of investors towards silver may occur. Investors may purchase shares to speculate on the price of silver or to hedge existing silver exposure. Speculation on the price of silver may involve long and short exposures. To the extent that the aggregate short exposure exceeds the number of shares available for purchase, investors with short exposure may have to pay a premium to repurchase shares for delivery to share lenders.
"In turn, those repurchases may dramatically increase the price of the shares until additional shares are issued through the creation process. This could lead to volatile price movements in shares that are not directly correlated to the price of silver.
"The trading price of the shares has recently been, and could potentially continue to be, volatile.
"The trading price of the shares has been highly volatile and could continue to be subject to wide fluctuations in response to various factors. The silver market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to factors such as silver's uses in jewelry, technology, and industrial applications, or cost and production levels in major silver-producing countries such as China, Mexico, and Peru.
"In particular, supply chain disruptions resulting from the Covid 19 outbreak and investor speculation have significantly contributed to recent price and volume fluctuations."
Originally posted on SilverSeek.com