Silver Sparkles on ETF Hopes

January 27, 2006

Silver breaks out to a 19-year high, as silver bulls smell approval for the Silver Trust ETF.

Silver broke out to a 19-year high on January 25, as the Securities and Exchange Commission (SEC) took the first step towards approving the Silver Trust ETF from Barclays Global Investors (BGI).  The SEC filed papers suggesting that the fund could list on the American Stock Exchange, and opening a 21-day window for public comment.  At the end of that 21-day window, the SEC could move quickly to approve the fund, if it does not hear a good argument against it.

"This means that the SEC is saying that the product can list on the Amex," said spokeswoman Christine Hudacko of the filing, in a Reuters interview. "It is not approval. We are getting closer, but we are not there yet."

Spot silver hit $9.58/ounce on January 26, its highest level since May 1987, before falling back to $9.50/ounce.

One group certain to use that 21-day window to comment is the Silver User's Association (SUA), a lobbying group of industrial companies which use silver in their operations.  The SUA has previously expressed its vigorous disapproval of the iShares fund, which it worries would drive up the price of silver by upsetting the tenuous supply/demand balance for the precious metal.  The world uses more silver in industrial and other applications each year than it digs up in mines, and many believe that stored supplies of vault silver are running low.  If the BGI fund attracted a good deal of assets - say, $1 billion - it could seriously tip the balance of physical silver in the world, forcing the industrialists to either look for alternative metals or pay higher prices.

Read more on the silver supply/demand balance here, and more on the silver ETF here.

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