Silver and Gold ETFs risky?

What is an ETF? According to Wikipedia: An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks. An ETF holds assets such as stocks or bonds and trades at approximately the same price as the net asset value of its underlying assets over the course of the trading day.

A while ago I bought some SLV (through Renta4.com) which is an ETF for silver. It actually represents real stored silver bars. It’s a way of buying silver (or Gold – GLD) without actually having to store or physically hold the metal. I eventually decided to sell it because I felt it was safer to own the real thing.

There is a lot of debate about Silver and Gold ETFs and whether or not they are safe investments. In my opinion, it’s better to have the real thing, although if you actually posses the metal there is a chance of it being stolen, lost, etc.

The risk of owning ETFs is that you just own a piece of paper and if the fund goes belly up your paper becomes worthless (like any stock). The fund can also sell more paper than actual bars that it owns. Check out the “warning” in this blog post. It says that the London based Silver Fund and the Ishares Silver Trust published a list of bars they own and there are many duplicates. I don’t know if this is actually true or false but just something to take into consideration.

If God-forbid there was a serious financial meltdown, only those holding the real metal would be safe.