ETFs could give silver further boost

By Moming Zhou, MarketWatch

The release of a new silver exchange-traded fund and rising investment demand for the metal could give a further boost to the price of silver, which has already outperformed gold so far this year.

ETFS Silver Trust (SIVR 13.76, -0.30, -2.13%) , an open-ended fund sponsored by ETF Securities, started trading last week. Like other exchange-traded funds backed by physical silver, the fund will track price of silver bullion.

The release of SIVR came amid rising investment demand for the white metal, while demand for gold ETFs has mostly been sliding in the past two months. Investors are betting that silver’s dual function as both an inflation hedge and as an industrial component will lead it to continue to outperform gold as the global economy slowly recovers.

“You have to look at [the rise in silver as coming in anticipation] of an economic recovery,” said Jon Nadler, senior analyst at Kitco Metals Inc. “ETFs increase investors’ accessibility to silver and they contribute a premium to the price of the metal.”

A premium of about $1 to $2 an ounce has been contributed to silver prices this year by the additional buying of the metal from ETFs, he said.

The London fixing, a global benchmark for silver’s spot trading, has rallied 30% this year. The gold London fixing, meanwhile, has gained about 10%.

Holdings in iShares Silver Trust (SLV 13.54, -0.30, -2.17%) , the biggest silver ETF, stayed at a record high of 8,766.93 metric tons Friday, according to latest data from the fund. The fund’s holdings haven’t seen a decline since June 2.

Read more….