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Silver ETFs post 'massive' inflows as prices recover

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(Kitco News) - Holdings of silver by exchange-traded funds have risen sharply this week along with the price, analysts said.

As of 9:40 a.m. EDT, the most-active Comex May silver contract was trading at $14.54 an ounce, which was a gain of 17.4% since last Friday’s close. The metal rose along with gold this week in the wake of a Federal Reserve announcement of open-ended quantitative easing.

Precious-metals ETFs trade like a stock but track the price of the commodity, with metal put into storage to back the shares. Market participants track the inflows as a gauge of investment demand.

“Silver ETFs have registered massive inflows this week,” said Commerzbank analyst Carsten Fritsch.

Inflows of 57 metric tons were reported Thursday, with just shy of 560 tons going into these ETFs since the start of the week, Fritsch said. Further, inflows over the past seven trading days have totaled nearly 1,000 tons.

Bart Melek, head of commodity strategy at TD Securities, told Kitco News that the ETF holdings have risen by around 5% from the recent low to the current level.

“That is very much a response to what has been happening to the price,” Melek said. “We had a nice rally in gold, and we had a nice rally in silver as well after the big declines [earlier this month].

“People see silver picking up and as such, I wouldn’t be surprised if people are looking at it as a bargain...after it was down below $12.”

In particular, silver had become cheap relative to gold, pointed out Fritsch, citing the gold-silver ratio. This measures how many ounces of silver it takes to buy an ounce of gold. The recent historically high ratio meant an underperformance by silver against gold.

“Apparently, investors see silver as a bargain given that the gold-silver ratio has at times exceeded 120,” Fritsch said. “Similar investor behavior was also observed in the summer of 2019 when the gold-silver ratio climbed to over 90 for the first time in 27 years.”

Back then, Fritsch pointed out, silver ETFs saw inflows of nearly 3,000 tons in the third quarter.

“Thanks to the ETF inflows, the silver price has been able to gain since mid-March from below $12 to [roughly] $14.50 per troy ounce,” Fritsch said. “The gold/silver ratio has dropped to 111.”

Silver prices fell to an 11-year low last week, losing about one-third of their value during a “brutal” two weeks, said a research note from Mitsubishi.

“After plunging to intraday lows of under $12, the lowest since 2009, silver subsequently experienced a limited recovery on bargain-hunting investment and a more positive macro environment as the U.S. unveiled an unprecedented stimulus plan,” Mitsubishi said. “This allowed silver to recapture some ground against gold, having recently reached an all-time low of 120th of the price of gold.

“Amid all this, physical investor interest has remained strong (as evidenced by recent buying into ETFs), and industrial demand (particularly in the chemical and medical space) has been robust.”

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