Silver ETF Bullion Holdings Down From April Record Peak

Includes: SIVR, SLV
by: John Spence

The amount of bullion in silver exchange traded funds has declined from the record high set in April, but ETFs still control nearly 18,000 metric tons of silver, according to a report.

Total holdings at the end of October stood at 577 million ounces, or 17,947 metric tons, down from 621 million ounces, or 19,315 tons, the record peak established in April this year, according to a Silver Institute report prepared by Thomson Reuters GFMS.

ETFs allow investors to buy shares backed by silver with one trade. Some funds hold physical silver, while others invest in futures contracts.

The first silver ETF was launched in 2006 and the financial products have led to “the increasing participation of retail and high-net-worth investors, whose only access to the physical market before the introduction of ETFs was essentially in the coin and bar market,” the Silver Institute noted.

The largest silver ETF by assets is the $10.6 billion iShares Silver Trust (NYSEArca: SLV), which holds about 314.6 million ounces. ETFS Physical Silver Shares (NYSEArca: SIVR) is another U.S.-listed ETF.

“Looking at recent trends in more detail, early 2009 saw significant growth in global silver ETF holdings. This was mainly driven by rising concerns over the global financial stability, which encouraged demand for safe haven assets,” according to the report. “In 2010, the market saw a further rise in silver ETF demand. The increase was largely driven by economic and financial problems in Europe and the U.S., quantitative easing in major advanced economies as well as rising inflationary concerns.”

The iShares silver ETF has a 5-year annualized return of 21% and a 3-year annualized return of 51.6%, according to investment researcher Morningstar. The fund is up about 12% year to date.

In 2011, silver ETFs have seen a “broadly neutral first quarter, which gave way to steep sell-off, which appeared institutional-related, given the scale and speed of the decline,” according to the Silver Institute. “From July onwards investor interest in ETFs and other related products rebounded modestly, a function of the downgrade to the United States’ credit rating, as well as prevailing concerns relating to Europe’s sovereign debt.”

Silver prices fell sharply in September but have climbed back to about $35 an ounce.

ETFS Physical Silver Shares - (click chart to expand)

Full disclosure: Tom Lydon’s clients own SLV.