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.
“Bargain-hunters have been accumulating positions in exchange traded silver products, with holdings now just shy of the record highs seen in October 2013. In contrast, non-commercial short interest in the futures market is near a record high (chart below), boosting futures open interest to the highest level since February 2008. Last week, silver declined for the 11th consecutive week, the longest period in the history of our weekly database since 1968. With short positioning stretched, a sharp short-covering rally for silver is becoming a possibility,” said ETF Securities in a recent research note. [Silver ETFs for the Adventurous]
Investors have been allocating new money to silver ETFs even as gold funds bleed assets. During the third quarter, SLV added nearly $514 million in new assets while almost $774 million was pulled from the SPDR Gold Shares (NYSEArca: GLD). [Gold ETFs Dwindle]
iShares Silver Trust
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.