BlackRock Has Warned of Possible Shortages in World’s Leading Silver ETF
BlackRock updated its prospectus last week amid the market trading frenzy caused by Reddit traders. The update noted that investors might not be able to acquire the desired amount of physical silver, which may result in the suspension of the SLV ETF.
Reddit traders target silver
In the first week of February, traders on the Reddit forum WallStreetBets decided to squeeze the silver market. Their target was the 17 billion dollars iShares Silver Trust ETF(SLV). Over a period of just two days, 1.5 billion dollars were pumped into the ETF, causing its price skyrocket. However, within just a matter of days, the ETF experienced outflows of 712 million dollars as the market realized it was futile trying to move the entire physical silver market.
Despite the outflows and the resulting drop in price, the trading frenzy was enough to force BlackRock to update its prospectus. It said that authorized participants may have difficulty acquiring sufficient amounts of the metal, a process that is necessary for the creation-redemption process - a process pivotal to ETF trading.
In scenarios like these, SLV can suspend or restrict trading in the instrument. However, such a move can also further increase the volatility of the ETF since it will still be traded on the secondary market.
The amount of silver in the ETF that is physically backed by the metal is also interesting. According to BullionStar data, nearly 83% of silver in London is held in the form of ETFs (data up to the 5th of February 2021). If inflows start increasing again, this could cause problems for the market.
A $1000 price target
According to traders on the Reddit forum WallStreetBets, the real price of Silver should have been around $1000 per ounce. Currently, silver trades at around $25 per ounce. The trading frenzy caused the price to rise as high as $30 but settled down soon afterward. It went nowhere near the $1000 price target that the traders had set.
Jeffrey Currie of Goldman Sachs was of the opinion that coordinated attacks like these may increase the volatility in silver ETFs, but they can hardly create a long-lasting impact.