The premium to net asset value embedded in Sprott's Physical Silver Trust is finally starting to disappear.
For the longest time, the fund's units traded around a 20-per-cent premium, and last quarter this premium went as high as 25 per cent.That gap has started to fall, currently sitting around 14 per cent.
Though there are a lot of factors at play, such as a volatile silver price, the recent movement could have something to do with Sprott's recently filed prospectus for a new offering of up to $1.5-billion of new Physical Silver Trust units. For the longest time Eric Sprott had been holding off on such a filing, telling the Globe in May that "there will not be an offering that negatively impacts the premium on the PSLV."
Since Sprott filed its prospectus last Friday, PSLV units have come down 12 per cent, while the price of silver has dropped only 6 per cent. Whether or not the new filing is the root cause of the difference doesn't affect Mr. Sprott much. He has been selling his PSLV units for most of the year (as documented by kid dynamite.)
When asked about the activity, Mr. Sprott acknowledged the big premium in PSLV units and said that it made sense to cash out and re-invest in silver or silver equities.
It has always been odd that the Physical Silver Trust trades at such a high premium. The comparable iShares Silver Trust typically trades around net asset value, and is actually trading at a discount to NAV right now. Those who are still in Sprott's product could see theirs move more in line with this if the current trend continues.
The same thing happened to Sprott Physical Gold Trust. The product's premium to NAV went as high as 24 per cent, but has since come down to land in the range of 2 to 4 per cent.