SEATTLE (ResourceInvestor.com) -- So far this year, the silver price has advanced 15% following gains of about 15% in 2007. From January to March, however, prices had surged 40% to hit a 27-year high of $21.44 on March 17. The correction that ensued after the peak seems to have leveled at $17, but holdings in London’s silver exchange traded fund (ETF) are still falling.
ETF Securities' ETFS Physical Silver ETF [LSE:PHAG] has lost about 85 tonnes since the start of the year, now with just about 285 tonnes in trust. Nicholas Brooks, Head of Research and Investment Strategy for ETF Securities, told RI that the fund has had about 3.5 million ounces (99 tonnes) worth of silver redemptions from February.
“Of course it’s always hard to know exactly what is driving investors at any one time, but I note that during the period from end-Feb to now the silver price has come off around 20%,” he said.
On the other side of the pond, Barclays’s U.S.-listed iShares Silver Trust [AMEX:SLV] now holds about 5,928 tonnes of silver, a rise of more than 25% in volume since the end of last year. From February to May, when ETFS Physical Silver ETF lost 99 tonnes, iShares Silver Trust added 563 tonnes.
Brooks said the main buyers of ETFs in Europe are institutional investors, whereas in the U.S. the retail market is a much larger player.
“In Europe it would take only a few large investors deciding to sell holdings to have a large impact on flows whereas in the U.S. if retail investors play a large role, the dynamic could be different,” he added.
Nik Bienkowski, director of marketing and research at ETF Securities, said the market fundamentals appear to be less positive for silver than other precious metals.
According to an ETF Securities study, “The Fundamentals of Precious Metals, May 2008,” silver demand has been down or remained flat over the past few years while silver production (mine & scrap) has increased. The silver market has been in surplus since 2004, the company noted.
Source: ETF Securities’ The Fundamentals of Precious Metals, May 2008
Stephen Briggs, analyst at Paris-based Societe Generale, was recently quoted by Reuters forecasting that silver ETF demand will fall as more supply comes on stream.
“Silver is very dependent on one source of demand - ETFs. You can't get excited about silver in the same way as gold. Silver doesn't really have the same cachet,” he said.
Jeffrey Christian, CEO of CPM Group, said he did not agree with this contention that silver’s fundamentals are turning bearish.
“I think people in London have never really been that much in to silver as an investment and continue to disregard it,” he said. “Silver as an investment traditionally has been in the U.S., North America, India, China and the Middle East. Europe has not been a big fan of silver.”
Christian noted that the English brought silver over from the new world in the age of discovery and dumped so much of it in England that it almost destroyed the bimetallic currency system Sir Isaac Newton had set up there.
Concerning silver’s fundamentals, CPM Group predicted a third consecutive year of net buying by investors in its “2008 Silver Yearbook,” with investors buying a projected 74.9 million ounces of silver. In 2008, total supply is projected to increase 3.9% to 815.1 million ounces, while fabrication demand will rise 2.2% to 740.2 million ounces.
Source: CPM Group’s 2008 Silver Yearbook
CPM Group forecasts that net investor buying will keep silver prices strong this year, but expects a period of price weakness during the second and third quarters as other commodity prices ease.
July silver futures in New York rose 7 cents to finish at $17.03 an ounce, retreating from a high of $17.23. Spot silver prices in London closed at $17.18.
