Gold sidekick silver breaks some ground of its own

March 1, 2014

San Francisco (Mar 1)    Silver isn’t just tracking gold, its breaking some ground of its own — at least when it comes to holdings in exchange-traded funds and demand for silver coins.

At first glance, silver appears to be moving in step with gold. Gold’s /quotes/zigman/10060693/realtime GCJ4 -0.24%  up 11% year to date and up over 7% month to date, while silver’s /quotes/zigman/10480467/realtime SIK4 -0.41%  up 10% for the year and gaining 11% for the month.

“No matter what silver investors or silver fundamentals say, the silver price follows the gold price,” said Julian Phillips, a South Africa-based contributor to and

“When [gold] falls sharply or rises sharply, it goes further than gold, but always moves with it,” he said, adding that he believes silver will continue to follow the yellow metal.

Indeed, silver’s moves have gone hand-in-hand with the direction of gold futures most of the time. Silver is a much smaller market than gold’s so moves in the market for the white metal tend to be exaggerated, analysts say. But there’s more to it than that.

“Silver is finding its own support independent of gold due to strong buying from China and India and an increase in industrial production of electronics,” including smart phones, said Paul Mladjenovic, author of Precious Metals Investing For Dummies.

He pointed out that mine production was disrupted in the past six months due to the price of silver dipping below its cost of mining, making some mines close. Some analysts have pegged the cost of mining silver at around $20 an ounce, but prices fell below that level in December.

“Rising demand and shaky supply bode well for a silver rally,” said Mladjenovic.

Physical silver demand on the rise

And supply uncertainty tends to drive the will to hoard.

As Adam Hamilton, co-founder of Zeal LLC, pointed out in recently , silver bullion held in trust for shareholders of the iShares Silver Trust exchange-traded fund /quotes/zigman/417006/delayed/quotes/nls/slv SLV -0.54%  fell by just 1.3% last year, even though futures prices for silver plunged roughly 36%.

By contrast, holdings in the physical gold-backed SPDR Gold Trust /quotes/zigman/41663/delayed/quotes/nls/gld GLD -0.45%   sank more than 40% in 2013, as prices for the yellow metal dropped 28%.

So far this year, the total for all silver ETF holdings have increased in total ounces — up about 0.5% as of Feb. 26, compared to a year-to-date decline of 1.5% for total gold ETF holdings, according to Mike McGlone, director of research at ETF Securities U.S. ETF Securities offers the physical silver-backed ETFS Silver Trust /quotes/zigman/1526775/delayed/quotes/nls/sivr SIVR -0.76% .

“Total silver ETF holdings are only about 3% below the all-time peak from October of 2013,” while total gold ETF holdings have dropped around 34% from their peak seen in December 2012, said McGlone.

Source: MarketWatch

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