Silver ETF holdings rise to four-month high, more gains expected

NEW YORK (Aug 15)   The amount of silver held by the world's largest silver-backed exchange-traded fund, iShares Silver Trust, rose to a four-month high as a sharp price rally in the metal and economic optimism triggered strong retail interest.

According to the latest update on the ETF's website on Tuesday, the tonnage of silver bullion bars held by the U.S. silver ETF increased nearly 60 tonnes, or 0.6 percent, to 10,454 tonnes, the highest since April 11.

On Wednesday, spot silver prices ended 2 percent higher, for the largest six-day consecutive rally in nearly two years. Spot silver has soared about 15 percent in the last six days, sharply outperforming gold's 5 percent gain.

Silver's technical breakout, breaking above key resistance of the 50-day moving average for the first time since February, boosted hopes that smaller investors will keep buying silver ETFs for the rest of the year.

"Retail investors are looking for momentum somewhere, and they are not getting it in the stock market," said Jeffrey Sica, chief investment officer at New Jersey-based Sica Wealth Management, which oversees more than $1 billion in client assets.

"With silver being such a momentum metal, once it went through those technical resistance, you are going to see retail investors pile into it," Sica said.

Silver has long been a favorite for smaller retail investors and speculators who want to gain exposure to gold at a fraction of the price. They also tend to buy and hold.

Sean McGillivray, head of asset allocation at Oregon-based Great Pacific Wealth Management, said he bought silver futures last week on the metal's technical breakout and after its price surged above $20 an ounce.

Meanwhile, gold ETFs have lost nearly a third of their holdings as funds and institutional investors, both major shareholders in gold ETFs, heavily sold the traditional inflation hedge on fears that the U.S. Federal Reserve could begin to unwind its bond-buyback stimulus.

"One of the key drivers is ... the realization that silver is, after all, an industrial metal and ought to benefit from an economic recovery," said Joni Teves, a precious metals analyst at UBS.

Recent stronger economic indicators around the world, including strong imports of industrial metals by China, sparked hopes that overall improvement in the global economy should boost silver demand.

UBS continues to expect holdings in major silver ETFs around the world to increase by 10 million ounces (311 tonnes) in 2013.

On Wednesday, gold rose 1.1 percent to $1,335 an ounce, while silver gained 2 percent to $21.85. Year to date, the gray metal is still down 28 percent, underperforming gold, which is down 20 percent.