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Ted Butler: Wilma, Refco, and The New York Times

Section: Daily Dispatches

Silver Group Fires Bullet at ETF;
Proposed Barclays Fund Faces Opposition;
Launch in Doubt

By John Spence
Monday, November 7, 2005

BOSTON -- A group representing companies that use silver for
industrial purposes is seeking to block the launch of an exchange-
traded fund tied to the precious metal, leading some observers to
question whether federal regulators will approve the proposal.

The Silver Users Association, a nonprofit lobby group interested in
keeping an orderly silver market, has asked the Securities and
Exchange Commission to deny an ETF currently in registration from
investment manager Barclays Global Investors.

The organization says a silver ETF would create a price squeeze in
the metal because the fund would have to buy a large amount of
silver to back the fund's shares prior to the launch.

BGI spokesman Lance Berg declined to comment about the silver
offering, citing the "quiet period" while the fund is in
registration, implying the SEC hasn't slammed the door on the ETF

Still, with all the controversy swirling over the silver ETF, some
see the launch in doubt.

"I don't think the silver ETF will be released because the supply is
too thin," said David Morgan, editor of the Silver Investor

When BGI first filed its silver ETF in June, many expected a speedy
approval process from the SEC because the fund was structured
similarly to a pair of existing gold ETFs: StreetTracks Gold Trust
(GLD) and iShares Comex Gold Trust (IAU), which BGI also manages.

The gold ETFs, which hold about $3.4 billion in assets between them,
allow investors to buy shares that represent a tenth of an ounce of
gold held in a vault. The funds are seen as a convenient, low-cost
way for investors to sidestep the costs of buying and storing

The silver users' group says it's concerned that a silver ETF -- if
it became as popular as the gold funds -- would increase the silver
market's volatility and drive up prices.

Not everyone agrees. Ross Norman, a director at,
a London-based precious metals research firm, said a silver ETF
would bring more liquidity to the silver market. He noted that the
two gold ETFs didn't roil markets when their sponsors accumulated
bullion prior to the launches.

But the Silver Users Association says the silver market isn't as
deep as the gold market.

"A silver ETF would only exaggerate silver's illiquidity given the
sheer volume of physical silver needed to be shipped and stored,"
the group said in its letter to the SEC.

Industry observers say companies that use silver for industrial
purposes, along with silver miners, are lobbying in Washington
against the silver ETF.

"My understanding is the SUA has effectively blocked the silver ETF
at the SEC," said James Pacetti, president of New York-based
consultant ETF International. The SEC as a rule does not comment on
financial products in registration.

"The silver mining companies don't want a silver ETF because it may
create less demand for their stock, since investors would rather
have a pure play on the metal rather than buying mining companies,"
Pacetti added.

Others say the mining companies would benefit if a silver ETF
bolsters demand for the metal and pushes prices -- and profits --
higher. The Silver Institute, an international association of
miners, refiners, fabricators, and wholesalers of silver, declined
to comment on the silver ETF.

But in a conference call with brokerage analysts last week to
discuss his company's quarterly results, Pan American Silver Corp.
(PAAS) Chairman Ross Beaty disagreed with the SUA's claim that a
silver ETF would stretch liquidity.

Calling the SUA's position "just plain wrong," Beaty said a silver
ETF could provide a useful service for investors, adding that he
doesn't believe it would trigger liquidity problems in the silver

The SUA says part of its mission is to keep silver prices low and
keep the metal readily available for users. The association's
members include jeweler Tiffany & Co.
Silver users would bear the brunt of higher prices, the organization
says. The group adds that a silver ETF "could have a negative impact
on silver-industry specific employment as well as the overall
economy, both through job losses and inflation."

Founded in 1947, the Silver Users Association, the only one of its
kind for a commodity, has a long activist tradition. Although it's
unclear whether the organization can successfully block the launch
of BGI's silver fund, some analysts are skeptical about the ETF's

"If the silver ETF sees just half the interest the gold ETFs
received, there won't be enough silver to back the fund, so I doubt
it's going to take place," said Morgan, the Silver Investor
newsletter editor.


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