Teucrium Commodity Trust (TAGS)

TAGS is a fund that tracks the price of silver. If you think silver is going to go up in value and want to bet on it without buying physical bars and storing them in a safe, TAGS is one way to do it. It holds silver futures contracts — standardized agreements to buy or sell silver at a set price on a future date — and the fund’s share price rises or falls with those contracts.

What you actually get when you buy TAGS

When you buy one share of TAGS, you own a tiny piece of a pool of silver futures contracts. You do not own physical silver locked in a vault somewhere. Instead, the fund holds contracts that say things like “deliver 5,000 troy ounces of silver in July” or “deliver 5,000 troy ounces in December.” Those contracts sit in a bank’s custody, and their value moves up or down with the silver price. That is all there is to it: when silver goes up, the contracts are worth more, and TAGS goes up. When silver goes down, TAGS falls.

The appeal is simple. Buying a futures contract yourself requires a special broker and a lot of money (typically USD 50,000 or more to open an account), plus you have to know how to roll your position from one contract month to the next. With TAGS, you just buy shares at any brokerage, and Teucrium handles all the complicated stuff behind the scenes.

Who makes money, and how

Teucrium charges an annual fee — let us call it 0.8% to pick a middle ground. If the fund holds USD 100 million in silver futures, Teucrium takes USD 800,000 that year to pay for trading costs, regulatory compliance, bank custody, and the staff who keep the operation running. That is how the company makes money. It is a middleman fee: Teucrium does not make money on silver moving up or down, only on the percentage it keeps for managing the fund.

This fee structure means Teucrium’s income is tied directly to how much money sits in the fund. If TAGS grows to USD 1 billion, that same 0.8% fee now generates USD 8 million annually. That is the business model. Teucrium does not buy and sell silver trying to profit from the spread (the gap between buy and sell prices). It simply collects a percentage of assets.

The mathematics of rolling costs

Here is where it gets tricky for long-term holders. Silver futures prices do not stay constant over time. A contract to deliver silver three months from now typically costs slightly more than one to deliver next month, because anyone holding silver has to pay for storage, insurance, and the cost of money (interest or opportunity cost) to carry it. These costs are real and they add up.

When the fund’s current contract is about to expire, Teucrium has to sell it and buy the next one out. In most market conditions, that means selling something worth slightly less and buying something worth slightly more — a small loss on every roll. Year after year, these tiny losses compound. Someone holding TAGS for ten years might find that silver itself stayed flat in price, but TAGS fell 10 or 15 percent because rolling costs ate away at the value.

Sometimes the reverse happens. When silver is scarce, near-term contracts can trade higher than distant ones (a condition called backwardation), and rolling can actually add value. But such conditions are rare and usually temporary.

Why this matters when you are thinking about buying

Think of TAGS as a way to bet on silver prices, not as a way to own silver forever. If you believe silver is undervalued and you want exposure for the next year or two, TAGS is straightforward and cheap. If you plan to hold it for decades, the rolling costs are a silent drag that will erode your returns compared to buying and storing actual silver (if you have the means).

The fund’s prospectus, published under SEC CIK 0001471824, explains the fee and the rolling strategy. The price of TAGS and the spot price of silver on the COMEX exchange tell the whole story: when they track closely, the fund is working. When TAGS lags silver’s price persistently, rolling costs are doing their damage. You can see both prices updated every trading day online, so monitoring is free and easy.