Is silver tracking gold? Silver price rallied on the London fix to $14.39/oz on 24th February--its highest since August 2008, but then slumped back as low as $12.68/oz on 3rd March, as some investors exited.
The BGI silver ETF on 27th February suffered an outflow of 123t and then 74t the following trading day. It is interesting to compare the size of the silver ETFs with those of gold. There are three silver ETFs: the market leading Barclay.s Global Investors (BGI) which is based in New York, and two in Europe, ETF Securities in London and ZKB.s in Zurich. By early March these had 7,981t, 477t and 1,295t respectively, totalling 9,753t.
This is 1,499t more than at the end of 2008, a year in which 2,161t was added in total. Meanwhile at the same date the 15 gold ETFs held 1,518t, up 324t in the year, slightly more than the 321t taken in the whole of 2008.
So total holdings of silver ETFs are 6.4 times that of gold, while inflows this year have been a smaller 4.6 times the size of gold’s. Drilling down further, whereas in January they were 8.1 times gold, in February they were just 3.2 times; and March has seen net outflows for both silver and gold.
On Comex, futures investment has seen similar inflows for both gold and silver, with silver 7.6 times gold by volume in 2009 so far, almost exactly the same as the 7.8 times the outstanding position is as a ratio of gold.
As silver mine supply (and total supply) is about nine times that of gold, these flows are somewhat smaller relative to their metal.s market size, particularly in 2009. On the other hand, silver.s stock of above ground metal is smaller than gold.s, and so on that basis the market impact of the silver ETFs might be understated.
Outlook
There is little hope of an industrial demand pickup soon, so silver, as gold, is in the hands of investors. That silver can outperform gold on the way up, even with relatively less investment flows, suggests further gains are possible, although, as we have noted many times, we remain more bearish on silver in the medium-term due to its less favourable supply/demand situation.
Investors in both markets have been very long, and the crucial factor will be how much investment or speculative demand left the markets in the recent correction.
Short-term London fix: $10/oz-$14/oz.
Courtesy: Fortis Metals Monthly
