Why PSLV is Down Nearly 10%: Sprott Premium Teaches Lesson

If you are holding PSLV – Sprott’s Physical Silver Trust – and wondering why shares have dropped today, the answer is that Sprott is offering 23 Million Units at $13.20 per Unit, which was well below the trading price of PSLV shares yesterday. PSLV was down nearly 10% this morning while spot silver and other silver investments were up.

Full Release: Sprott Physical Silver Prices Offering Of 23 Mln Units At US $13.20 / Unit

PSLV was trading at what had to be a record premium to NAV just a few weeks ago. We saw shares in the physical silver trust trading at a premium of well over 30%. In the most recent leg up for silver, the fund was not keeping up and it was dropping harder during down days. The premium percentage had eroded to the 20′s before today’s opening gap down in price. As the secondary comes online, there is no reason for investors to pay the premium, so shares fall in price, taking the fund closer to the true value of the silver it holds.

Watch Live 24 Hour Spot Silver Price Charts

When the premium on an ETF gets too rich, it is best to stand aside. Overly rich premiums in Sprott’s fund is something PMBull has cautioned silver buyers about before. A few weeks ago, investors were paying the equivalent of more than 30% over spot silver prices for the “safety” of a “fully allocated” paper silver investment.

There are many who have bought in to the silver story that have just received a hard lesson in ETF (or ETN) investing. That lesson is that what you are paying for paper shares in something may be much more (or less) than the underlying value of the assets in the investment.

While this offering may not help those who recently bought PSLV and just realized that the vanishing premium truly was too much at the time of purchase, it should be good for silver prices. Sprott intends to follow through on his attempt to horde more silver. The company intends to use the proceeds from this offering to acquire more physical silver bullion. Unfortunately, it is doing so at the expense of those who had jumped on the silver bandwagon and paid up for the “security” of not having to buy the big silver fund, SLV, which has been rumored to not have real silver backing its shares.