Silver surges on demand for metal-based fund
Silver surges on demand for metal-based fund
By Jennifer Hughes in New York
Published: April 28 2006 23:35 | Last updated: April 28 2006 23:35. Copyright by The Financial Times
Silver recorded its biggest one-day gain in 11 years on Friday, as surging demand for the first-ever exchange-traded fund based on the metal sparked speculation that the fund’s managers would have to buy more of the metal to meet demand.
Silver futures contracts rose more than a dollar, or 9.3 per cent, to $13.63 an ounce.
Demand for silver also helped gold reach a new 25-year high at $654.50. The precious metal is up 12 per cent this month - its biggest monthly increase in six years. Metals traders also cited more traditional gold drivers including concerns about inflation and fears of a sharp dollar depreciation.
The iShares Silver Trust is the latest commodity fund to try to tap into US investors’ seemingly insatiable demand for alternative investments. The last few months have also seen the launch of ETFs covering gold, and fuel and oil futures, as the investment industry scrambles to give retail investors an easy way to hold commodities.
ETFs were originally designed to track indices such as the S&P 500, adjusting their holdings to reflect the index. With funds based on individual assets such as silver, the more shares outstanding, the more of the underlying asset the fund’s managers need to buy.
”Some people are wondering whether iShares actually has the silver to cover all the shares or will it have to buy more,” said George Gero of RBC Capital Markets Global Futures and a long-time member of Comex, the metals division of the New York Mercantile Exchange.
Shares in the ETF closed 7.1 per cent higher at $138.12. The American Stock Exchange said 2.342m shares were traded in the fund, making it one of the most successful debuts ever for any ETF.
IShares is a unit of Barclays, which recently placed 1.5m ounces of silver with a custodian to back up the ETF.
“People are also looking around and saying ‘you know what? the entire metals complex should be bought’,” said Mr Gero. “Are we hitting the top? I couldn’t say.”
UBS on Friday raised its average price target for gold this year to $630 and $750 in 2007. The bank also raised its silver average to $13.42 this year and $15 next.
Silver has risen by about 55 per cent so far this year, while gold is up by about a quarter.
David Rinehimer, director of futures research at Citigroup in New York, said: “Prevailing sentiment is very bullish and there’s a significant increase in investor interest. These markets are relatively small so the impact has been pretty dynamic.”
But he questioned how much further the rallies could run.
”Right now prices are going to be significantly affecting fabrication [industrial] demand and supply and that’s going to have to be offset by even stronger investor participation to support prices at still higher levels,” he added.
Film makers such as Kodak and Agfa have already increased their prices because of rising silver costs.
By Jennifer Hughes in New York
Published: April 28 2006 23:35 | Last updated: April 28 2006 23:35. Copyright by The Financial Times
Silver recorded its biggest one-day gain in 11 years on Friday, as surging demand for the first-ever exchange-traded fund based on the metal sparked speculation that the fund’s managers would have to buy more of the metal to meet demand.
Silver futures contracts rose more than a dollar, or 9.3 per cent, to $13.63 an ounce.
Demand for silver also helped gold reach a new 25-year high at $654.50. The precious metal is up 12 per cent this month - its biggest monthly increase in six years. Metals traders also cited more traditional gold drivers including concerns about inflation and fears of a sharp dollar depreciation.
The iShares Silver Trust is the latest commodity fund to try to tap into US investors’ seemingly insatiable demand for alternative investments. The last few months have also seen the launch of ETFs covering gold, and fuel and oil futures, as the investment industry scrambles to give retail investors an easy way to hold commodities.
ETFs were originally designed to track indices such as the S&P 500, adjusting their holdings to reflect the index. With funds based on individual assets such as silver, the more shares outstanding, the more of the underlying asset the fund’s managers need to buy.
”Some people are wondering whether iShares actually has the silver to cover all the shares or will it have to buy more,” said George Gero of RBC Capital Markets Global Futures and a long-time member of Comex, the metals division of the New York Mercantile Exchange.
Shares in the ETF closed 7.1 per cent higher at $138.12. The American Stock Exchange said 2.342m shares were traded in the fund, making it one of the most successful debuts ever for any ETF.
IShares is a unit of Barclays, which recently placed 1.5m ounces of silver with a custodian to back up the ETF.
“People are also looking around and saying ‘you know what? the entire metals complex should be bought’,” said Mr Gero. “Are we hitting the top? I couldn’t say.”
UBS on Friday raised its average price target for gold this year to $630 and $750 in 2007. The bank also raised its silver average to $13.42 this year and $15 next.
Silver has risen by about 55 per cent so far this year, while gold is up by about a quarter.
David Rinehimer, director of futures research at Citigroup in New York, said: “Prevailing sentiment is very bullish and there’s a significant increase in investor interest. These markets are relatively small so the impact has been pretty dynamic.”
But he questioned how much further the rallies could run.
”Right now prices are going to be significantly affecting fabrication [industrial] demand and supply and that’s going to have to be offset by even stronger investor participation to support prices at still higher levels,” he added.
Film makers such as Kodak and Agfa have already increased their prices because of rising silver costs.
posted by Carlos T Mock at 9:35 AM
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