[T.S.R:17024] Silver-Physical Metal Being Moved Into Vaults, Futures Market Being Squeezed For Delivery

Silver-Weak Hands Have Been Shaken Off By The Nov-Dec 2010 correction

According to Suki Cooper Of Barclays, "asuming that outflows from gold ETFs represented "absolute selling"  was incorrectly labelled as a bull liquidation. Infact, there was evidence to suggest that some institutional investors had been switching their exposure from ETFs into "allocated" gold and silver (numbered bars held in bank vaults in a separate allocated account).  "The picture painted by recent persistent ETF outflows is not wholly accurate."  

 

Large outflows from precious metals exchange traded funds since the start of the year have left some analysts questioning if investor sentiment towards gold and silver could be shifting. "Heavy redemptions from the gold and silver ETFs in early 2011 may be a sign of things to come," said Daniel Major, precious metals analyst at the Royal Bank of Scotland. A decline in safe haven buying interest for gold and the prospects for interest rates returning to more normal levels in the US and Europe could mean that "positive sentiment towards [gold and silver] ETFs may be fading", according to Mr Major.

He added that if ETF inflows were to dry up or reverse, then it would be difficult for gold and silver prices to make further gains and the silver market would be "particularly vulnerable to a price correction".  Mr Major said he did not expect "large scale selling" but he estimated that the value of holdings in all precious metals ETFs has dropped almost $10bn so far this year with withdrawals mainly coming from the gold and silver products.

Other analysts acknowledge that ETF outflows have weighed on sentiment but say that the fundamentals supporting the gold price remain intact. Suki Cooper, precious metals analyst at Barclays Capital said that the gold market was facing "short-term headwinds".  However, Ms Cooper also said that longer-term investment demand remains intact, given low interest rates, concerns about currency debasement, inflationary risks and rising geopolitical tensions as demonstrated by the situation in Egypt.

According to Barclays, holdings in gold ETFs ended 2010 at $98bn, a record, even though last year's inflows at 330 tonnes were down by almost half compared with 614 tonnes in 2009. Total gold ETF holdings were 2,142 tonnes at the end of 2010, slightly below the all-time high of 2,155 tonnes reached in the middle of December. The latest available data suggests total gold ETF holdings have fallen to around 2,166 tonnes after a record monthly outflow in January. The value of gold ETF holdings has stabilised to around $ 100bn.

Michael Lewis, commodity strategist at Deutsche Bank said that the rally in gold prices has gradually run out of steam over the past five months due to concerns about a turn in the global interest rate cycle. But Mr Lewis also said these concerns were overdone and that ongoing weakness in the US dollar and further diversification by central banks should sustain a positive outlook for the gold market. Edel Tully, precious metals analyst at UBS, noted that outflows from gold ETFs were "relatively modest" so far in February, in contrast to the heavy selling seen in January. "This suggests to us that the bulk of the ETF holders who wanted to exit gold have already done so," said Dr Tully.

 

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