ETF Bargain Hunters Load Up on iShares Silver on Price Slump

(Bloomberg) -- Silver may be down, but the return of ETF investors suggests it’s not out.

On Wednesday, as prices of the metal were heading for a seventh straight loss, the worst streak since 2015, investors added 2.93 million ounces of the metal to their holdings in iShares Silver Trust, the biggest daily purchase in six months, data compiled by Bloomberg show. Money is pouring into the largest exchange-traded fund backed by the metal days after U.S. government data showed hedge funds retreating from record bullish bets on silver.

Silver was the top performer this year among 22 raw materials on the Bloomberg Commodity Index until last week, helped by demand for haven assets and bets that industrial use would rise. With prices extending losses this week as an improving economic outlook damps demand for gold and other havens, ETF buyers are coming back. Investors were also buoyed by data released Tuesday showing China’s imports of the metal soared 42 percent in March from a year earlier, suggesting silver’s price decline could soon reverse.

“Somebody might be covering a short position, thinking there’s going to be a rebound in silver, and they’re doing it through ETFs,” said Dave Lutz, the Annapolis, Maryland-based head of ETF trading for JonesTrading Institutional Services. “There’s a lot of global factors that could cause people to go into precious metal and silver will be along for the ride.”

While the unwinding of money managers’ overextended long positions in silver present downside risk to prices, the metal’s declining supply is supportive of prices, according to Standard Chartered analysts including Suki Cooper. Mine output fell in 2016 for the first time since 2004 and supply is seen dropping again this year, the analysts wrote in a report April 25.

“As projects draw to a close, there is limited scope for new developments to replenish supply without a further leg higher in prices,” Standard Chartered said.

Haven Demand

Political angst may also give precious metals a boost. As candidates gear up for the runoff in French presidential election next month, a low turnout of voters could favor far-right National Front’s Marine Le Pen, who backs the nation’s exit from the European Union. That could spur demand for haven assets as investors brace for a potential disintegration of the trading bloc after the U.K. voted to leave last year.

In Asia, tensions are mounting over North Korea’s nuclear program as U.S. forces began installing a missile-defense system in South Korea, prompting complaints from China.

Silver futures for July delivery fell less than 0.1 percent to $17.425 an ounce at 8:45 a.m. on the Comex in New York. Gold futures rose 0.1 percent. On the New York Mercantile Exchange, palladium advanced and platinum was unchanged.

To contact the reporter on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net.

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Joe Richter, Steven Frank