Exchange-traded fund adds extra shine to silver

Silver rose to its highest in more than 22 years yesterday on buying by money managers after United States regulators gave the go-ahead for a proposed exchange-traded fund in the precious metal.

Fund managers bought silver after the Securities and Exchange Commission said it had approved rule changes to allow the American Stock Exchange to list shares in Barclays' iShares Silver Trust.

The exchange-traded fund (ETF), which will be backed by silver held in London vaults, is expected to soak up much of the available supply of the metal and boost demand and prices as it brings fresh investment to the market, dealers say. Spot silver rose to US$10.57 ($17.03) an ounce, its highest since October 1983.

"The range will remain wide and volatile, but even at the $10.50 level, it seems there's a bit of support down there. Why is silver so firm? ... It's because of the ETF thing," said a dealer in Singapore.

ETFs are designed to closely reflect the price of an underlying market or commodity, such as a stock index or gold. They trade like listed stocks.

Shares in iShares Silver Trust will be issued in baskets of 50,000 shares or multiples thereof.

Silver, used in jewellery, electronics and photography, has risen nearly 20 per cent since the start of this year in anticipation of the ETF.

"The jewellery side is all reluctant to chase the market at this level because demand does shrink. But more investor interest is piling into silver," said the dealer in Singapore.

"I think most dealers think silver will lead gold," he said.

Spot gold was trading around US$553 an ounce.

Dealers said investors had begun selling gold in favour of silver, but some analysts said the rally in silver might not last in the absence of buying by the jewellery sector.

Demand could stagnate as owners of silverware and old jewellery cash in on the high price and recycle their metal rather than buy new silver.

- REUTERS