Silver ETFs Getting Help From Speculators

August 27th at 8:30am by Tom Lydon

The iShares Silver Trust (NYSEArca: SLV), the ETFS Physical Silver Shares (NYSEArca: SIVR) and other silver-related funds are among the top-performing ETFs of any variety over the past month. In that time, SLV and SIVR, both backed by physical silver holdings, have jumped more than 21%.

Bullish speculators in the silver futures market have helped boost previously downtrodden silver ETFs. Long positions held by non-commercial traders — which include speculative investment funds — rose by 363 contracts in the week ending August 20 to 37,308 contracts, Platts reported, citing the latest commitment of traders data from the U.S. Commodity Futures Trading Commission.

Silver, which is considered to be the “poor man’s gold,” has been drubbing its higher-priced cousin this month. As of last Friday, SLV was sitting on an August gain of about 20%, or four times that of the SPDR Gold Shares (NYSEArca: GLD). That scenario is viewed by some traders as a positive sign for the broader precious metals complex. [Silver ETFs Leading August Surge in Precious Metals]

Not all silver market observers are buying into the white metal’s recent rally. Non-commercial traders have significantly reduced their short exposure to silver, thereby reducing the probability of significant short-covering rally in silver.

Last week, Barclays said silver’s speculator-driven rally lacks fundamental support for a sustained gain and that industrial demand remains mixed, according to Platts. Jewelry and ETFs account for a substantial portion of global silver demand every year, but by some estimates, industrial use is 50% of annual silver demand. The scenario of tepid industrial silver demand could be viewed as interesting given that palladium demand from industrial users is currently robust. [Strong Demand Could Lift Palladium ETF]

SLV closed at $23.46, the same price the ETF closed at on April 30 before swooning below $18 in late June. While there are doubters about the industrial demand side of the silver equation, it should be noted that recent economic data out of China and the Eurozone has shown signs of improvement. India could also be a catalyst to lift investment demand for silver.

In an effort to stem the tide of a widening current account deficit, India has employed higher taxes on gold and platinum imports, but those tariffs do not apply to silver. “Indian imports are robust, where silver demand seems to be benefiting from government policies aimed at constraining gold demand,” said James Steel, a metals analyst at HSBC, in an interview with Francesca Freeman of the Wall Street Journal.

iShares Silver Trust

 

 

ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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