Silver ETF Is Suddenly World's Biggest Buyer
By Murray Coleman
Investor's Business Daily, Los Angeles
Wednesday, May 10, 2006
biz.yahoo.com
It's often referred to as a poor man's gold.
If that's so, then few should be surprised by silver's wild run.
Just like two other exchange traded funds buying gold directly,
iShares Silver Trust (AMEX:SLV) has opened with a bang. In its
initial eight days of trading, the ETF gained 14%. That comes on the
heels of a 260% bull run in silver since 2001.
"Speculation is driving prices higher," said Chip Hanlon, president
at Delta Global Advisors. "Silver is looking like a very frothy
market right now."
Still, like many money managers, he welcomes a new exchange traded
fund that gives investors direct access to silver. The ETF buys it
and stores it. A share in the fund represents 10 ounces.
"This is the first ETF in silver," said Ted Butler, an independent
commodities analyst. "But we've seen two other ETFs come out that
buy gold directly. Most of the other commodity ETFs deal in futures
contracts."
Two other commodity ETFs also invest in bullion. Those are
StreetTracks Gold Shares (NYSE:GLD) and iShares Comex Gold Trust
(AMEX:IAU).
"It's a world of difference dealing with an ETF that physically buys
a commodity compared to one that works through paper" -- futures
contracts -- Butler said.
Since its launch, the iShares Silver ETF has bought 48.5 million
ounces of metal. That makes it the largest single purchaser of
silver in the world. "And that's only after a little more than a
week on the market," said Butler. "Think of how much we're going to
see demand driven up by this ETF over the course of a full year."
The iShares Gold ETF has steadily increased its purchases of bullion
in the past year and a half. "There's no reason to believe the same
thing won't happen with this silver ETF," Butler said. "And there's
even less silver available than gold. So barring some unforeseen
event, demand for this new ETF should continue to be a major factor
in driving silver prices higher."
But a lot of valleys are sure to form, he warns. Already average
daily trading volume in the silver ETF has fallen.
Commodities strategist Hanlon notes silver's price is 25% above its
50-day moving average and 60% above its 200-day moving average. "We
haven't seen silver prices this extended since 2004," said Hanlon.
Last time that happened in November 2004, silver corrected 22% in
less than a month. Hanlon says earlier that spring, the market fell
35% in some 30 days.
"Investors have to realize it's very late in this current economic
cycle to start diving into commodities," he said.
The iShares silver fund already looks overbought, agrees Joseph
Witthohn, an ETF analyst at Janney Montgomery Scott.
"Industrial use of silver is increasing, but not by the huge amount
as the price of silver," he said. "So it would seem that silver's
price has run up to unsustainable levels."
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