Investors looking for bargains with downtrodden silver exchange traded funds should tread carefully and note that rising holdings across physically-backed silver ETFs may not be the bullish catalyst it appears to be.
In a research note out Friday, Swiss bank UBS said inflows to global silver ETFs amount to 3.94 million ounces with 3.92 million ounces added on Tuesday alone in what “was the highest daily increase since May and brought the global tally to a fresh high of 639.71 million ounces,” reports Platts, citing UBS.
The iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR), the second-largest U.S.-listed silver ETF behind SLV, are trading at four-year lows and with Friday’s losses, both ETFs are sporting declines north of 20% over the past 90 days. That is the definition of a bear market.
While rising holdings at silver ETFs could be interpreted as a bullish sign, UBS notes the opposite scenario could play out because if investors start dumping ETFs such as SLV and SIVR, those sales could further pressure spot silver.
UBS “pointed out that the length sitting in silver ETFs — and the fact that it touched fresh highs this week — is causing some nervousness among silver market participants, instead of providing comfort. The larger the ETF holdings are, the bigger the selling potential,” Platts reported, citing the bank.
On the other hand, some silver market observers see elevated silver ETFs as a cause of concern for those making bearish wagers against the white metal.