Investors are continuing to pile into silver exchange-traded funds. Exchange-traded funds or ETFs are investment funds traded on stock exchanges just like stocks.
An ETF is made up of different types of assets such as stocks, commodities, or bonds and generally operates with an arbitrage mechanism designed to keep it trading close to its net asset value. Arbitrage is the process of buying and selling of different assets (securities, currencies or commodities) in different markets so that you can take advantage of the price differences for the same asset. ETFs usually peg themselves to certain indices like stock or bond index. Silver backed ETFs track the price of silver and are traded in major stock exchanges worldwide like London and New York.
At the start of June, ETF holdings rose more than the total silver mined worldwide this month, indicating great interest among investors. “Silver is living up to its reputation of being volatile … retail and institutional investors are looking into silver ETFs, indicating it is in demand again,” said Quantitative Commodity Research analyst Peter Fertig. Silver ETFs tracked by Reuters have risen to record levels at 666.2 million ounces.
The largest silver-backed ETF, New York’s iShares Silver Trust, rose 0.5% in between 23rd and 24th July. Holdings of iShares Silver have risen nearly 13% this year, reaching above 20,721 tonnes on Reuters’ calculation and above 18,315 tonnes according to Bloomberg’s; their best year since 2010. “Silver ETFs have now seen inflows of nearly 2,000 tonnes since the start of the month, and even of 2,400 tons since the beginning of June,” said Commerzbank analyst Carsten Fritsch. This is equivalent to more than a month’s worth of mining production.
It has been a good month for both gold and silver as holdings in bullion-backed ETFs expanded 4.8 tons to 2,350.1 tons, the highest since April 2013, while silver options, in particular, showed a spike. “The metal has been outperforming gold lately, as reflected by a declining gold/silver ratio”, added Commerzbank.