Low silver price triggers ETF bargain hunting, but may not last: UBS

Zurich-Switzerland (Oct 3)  The selling pressure under which silver currently finds itself is a trigger for accelerated bargain hunting for Exchange Traded Fund buying, with net inflows amounting to around 3.94 million ounces this week, Swiss bank UBS said in a research note Friday -- although the trend may not last.

 Strategist Edel Tully and analyst Joni Teves said in a joint note that with the price of silver trading around four-year lows, it "appears to have encouraged some bargain-hunting among ETF investors. The 3.92 million oz added Tuesday was the highest daily increase since May and brought the global tally to a fresh high of 639.71 million oz."

 The pair compared the inflows to "persistent outflows in gold ETFs over the last three weeks, highlighting the persistent resilience of silver ETF investors. But with silver ETFs so elevated and sentiment so weak, many are questioning whether continued inflows into ETFs only increase the risk of a sharper selloff down the line."

 On February 24 silver hit a year-to-date high fix of $22.05/oz in London; on Thursday the metal fixed at $17.09/oz. The day before it hit a year-to-date low of $17.04/oz.

 The first fix of the year on January 2 was $19.94/oz.

 The note said that while ETF holdings of silver remain "sticky" in the fact that aggressive selling has not happened even in the face of "significant downward price pressure and heavy liquidations in gold, this is not providing market participants with enough assurance."

 "Sentiment towards silver is very weak at the moment and this is clearly reflected by the gold:silver ratio touching a five-year high of 71.17 this week," they said.

 They pointed out that the length sitting in silver ETFs -- and the fact that it touched fresh highs this week -- is causing some nervousness among silver market participants, instead of providing comfort.

 "The larger the ETF holdings are, the bigger the selling potential," they said.

 As such, the pair cautioned that a "sizable chunk" of holdings were bought around current levels and 34% of buying occurred below $16/oz.

 "While positions that were bought at these entry points are still comfortable for now, further declines in silver could increase nervousness," they said.

Source:  Platts