Silver ETF Holdings Outshining Gold But Uncertainty Continues To Loom

NEW YORK (July 27) A modestly improving U.S. economy appears to be helping silver-backed exchange-traded products according to some analysts.

This week iShares Silver Trust (NYSE: SLV), the world’s largest silver-backed ETF, said it saw the biggest daily inflows in holdings since mid-January on Wednesday; according to reports, holdings in SLV increased by 144 metric tons. As of Wednesday, SLV had total holdings of 10,428.04 metric tons.

Compared to gold holdings, SLV has outshone the yellow metal. Data from SPDR Gold Trust (NYSE: GLD), the world’s biggest gold-backed ETF, that as of July 25 its gold holding were at 927.35 metric tons.

Year-to-date holdings in GLD have declined more than 31%; however, year-to-date SLV has seen an increase in holdings of more than 3%.

At the same time, silver prices have underperformed the yellow metal, which analysts say is mostly due to silver’s more volatile nature. While gold spot prices have dropped 21% year-to-date, silver has dropped 34.5% so far in 2013.

However, analysts point out that increases in SLV holdings is a sign that investors see some potential in silver.

Howard Wen, analyst at HSBC said that silver, because it has more industrial uses than gold, is benefiting from a pickup in the U.S. economy. He added silver will be less impacted by improve rates as long as investor and consumer optimism remain strong.

“I think the real story is that long-term holders of silver are still there,” he said. “They still see value in the metal.”

Although Wen agreed that silver and gold are starting to decouple, he added that silver is not completely free of the yellow-metals grip.

Rich Ilczyszyn, chief market strategist at iiTrader said that silver was dragged lower after April and June’s strong selloffs in gold. However, he agreed that there are signs of decoupling between silver and gold because silver prices are so low and volatility is starting to weaken.

“Volatility is slipping out of the market and people are willing to take a little bit of risk in silver,” he said.

Analysts at Barclays BCS -1.21% also said that lower prices in silver appear to be helping to support the metal and make the ETF more attractive.

Ilczyszyn added that prices could continue to struggle as hedge funds keep away from the metals market in general because of so much uncertainty. He added the market is missing an important catalyst to create lasting momentum.

“Until inflation picks up metals like silver and gold will struggle,” he said. “Investors just don’t know if they can put on a big metal trade here because they don’t know what the Fed is going to do with its monetary stimulus.”

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