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James Turk: Gold/silver price ratio is about to break in silver''s favor
By John Spence
CBSMarketWatch.com
Monday, January 30, 2006
http://www.marketwatch.com/news/yhoo/story.asp?
source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7B9E4F204C%2DFD45%2D40D4%
2DB648%2DAD5953F5264D%7D
BOSTON -- Silver futures touched a 19-year high last week on news
that a long-awaited silver exchange-traded fund was a step closer to
market. Yet a group representing the metal's users is intent on
blocking the fund's launch.
Speculation ran high that the silver ETF in registration could soon
begin trading, as the Securities and Exchange Commission opened a 21-
day comment period on the proposed fund.
"There has been some movement on the silver ETF," said Christine
Hudacko, a spokeswoman for Barclays Global Investors, which filed
for the product last June. But Hudacko said the firm can't predict
when the fund may be introduced.
"The SEC has not made the filing effective, which is what everyone
is waiting for," she said. The comment period is "standard
procedure" for financial products in registration, she added, and
the SEC determines the length of the review.
The American Stock Exchange has filed to list the silver ETF, which
the SEC has indicated it will approve, Hudacko added.
Many observers had expected the first silver ETF to trade by now,
since it appears similarly structured to a pair of existing gold
ETFs.
The first gold ETF that began trading in late 2004, StreetTracks
Gold Trust (GLD), holds more than 312 tons of gold bullion in a
vault, and the shares represent 1/10th an ounce of the precious
metal. The ETF has roughly $4.3 billion in assets, and BGI's
subsequently-launched version, iShares Comex Gold Trust (IAU),
houses nearly $500 million, according to the unit of British banking
giant Barclays Plc.
Launched with great fanfare in a bull market for gold, the two ETFs
have been popular because they allow investors to hold bullion
without paying storage costs. Analysts expect a silver ETF would
meet a similar reception.
However, the Silver Users Association, a nonprofit lobby group
interested in keeping an orderly silver market, has opposed the new
fund. The SUA fears the ETF could trigger a price spike in the metal
because the fund would need to purchase a large quantity of silver
to back its shares before the launch date.
"A silver ETF would only exaggerate silver's illiquidity given the
sheer volume of physical silver needed to be shipped and stored,"
the group said in a recent letter to the SEC.
The SUA, which represents jewelers and companies that use silver for
industrial purposes, plans to use the SEC comment period to dispute
the silver ETF, according to media reports.
Paul Miller, executive director of the SUA, did not return calls
seeking comment last week.
Ross Norman, director at TheBullionDesk.com, a London-based precious
metals research firm, said speculation related to Barclays' silver
ETF could reflect pre-launch buying.
The sponsors of the earlier gold ETFs collected orders before the
funds began trading, he noted, because "you don't want to disturb
the market on the first day with huge purchases."
Speculators attempting to front-run expected pre-launch buying could
also be a factor in the recent activity, Norman added.
Attention given the first gold ETF propelled gold's rise, but the
metal's price ebbed following the launch. A similar situation may
affect silver, observed Peter Spina, analyst at GoldForecaster.com.
"The price [of silver] may move higher in anticipation of the
launch, but once it hits the markets, initially the price may
retreat after strong gains," Spina said.
One observer who was initially skeptical of the silver ETF now says
it appears the fund could be approved.
"It will increase demand because a silver ETF will finally be a
convenient way to participate in the silver market," said David
Morgan, editor of the Silver Investor newsletter.
"There are so many entities and individual investors who don't buy
silver because they have no place to store it," Morgan said. "The
silver ETF overcomes that problem."
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