New fund vehicle seen spurring silver price rally
LONDON, Mar 22 (Reuters) Silver should extend the rally that has boosted prices by a fifth this year and taken them to 22-year highs, with fresh impetus provided by the launch of the market's first exchange-traded fund (ETF), analysts said.
The U.S. Securities and Exchange Commission on Tuesday approved rule changes that would allow the American Stock Exchange to list shares in Barclays Plc's iShares Silver Trust, which is designed to track the price of the metal.
''With the scale of fund interest already expressed, I still believe the actual launch of the ETF will drive silver prices towards ,'' James Moore, analyst at TheBullionDesk.com said in a daily report.
Spot silver touched .59 per ounce on Wednesday, its highest since September 1983, and was at .50/10.53 by 1307 GMT (1837 IST), against .53/10.56 late in New York on Tuesday.
Before the fund can begin trading, the commission would have to approve a registration statement allowing the shares to be publicly issued. Dealers said the launch was imminent.
The fund would be backed by silver bullion held in vaults in London, with each share worth about 10 ounces of silver.
''If you get 50 million ounces of silver for the ETF, it will have a big impact on the market,'' said John Reade, precious metals analyst at UBS Investment Bank.
''There could be more to come over the next day or two with in excess of /oz not ruled out.'' Dealers said the market might have about 600 million ounces of silver available for delivery, including holdings by central banks, dealers and other banks.
But the figure excluded billions of ounces in the form of jewellery accumulated by consumers over generations but not available for immediate delivery.
PROMISING OUTLOOK Leading ETF provider Barclays Global Investors proposed the security last year. Shares would be issued in baskets of 50,000 shares or multiples thereof and would be traded on the Amex, like the Barclays iShares COMEX GOLD Trust.
The sponsor fee for the shares is set at 0.5 per cent of the net assets of the trust.
''With silver currently hovering just below key resistance of .60, its outlook is increasingly promising especially if it could break this technical level convincingly and register a strong close above it,'' Standard Bank said in a note.
''If so, silver could be poised to potentially stage a breakout higher towards .25 which has been touted as the next key technical level by chart watchers,'' it said.
Analysts said the Barclays product would enable players to invest in silver without taking delivery of the metal. It would also attract investor groups such as pension funds.
ETFs are designed to reflect closely the price of an underlying market or commodity, such as a stock index or gold, and they trade like listed stocks on any exchange.
Gold ETFs, launched in the past three years, are becoming popular among investors. Five such funds worldwide have so far collected more than 460 tonnes of gold, equivalent to the 12th largest gold holding by a central bank.
But some analysts said prices were unlikely to jump.
''The final clearance of the ETF is not going to trigger a fresh explosion of the silver price, since there has been already a massive build-up of speculative long positions in anticipation of the approval,'' said Wolfgang Wrzesniok-Rossbach, analyst at Heraeus.
''When the first smoke has cleared, the owners of those longs might rather be tempted to take profits in order to secure some of the spectacular gains they have achieved in the last four months.'' REUTERS SD VC1917