in this essay adam hamilton points out that one of the effects of the silver etf (slv) would be to increase volatility in the silver market. in theory buying or selling of the etf would force it to buy or sell bullion, forcing the silver price even higher (or lower.) however, when silver declined 19% earlier this year, the etf bullion holdings grew by 2% as they used to opportunity to buy physical silver.

so it seems slv may not be perfect, and it may not be fully backed by silver, but it's still better than the paper they trade on the comex.

http://news.silverseek.com/Zealllc/1...