HardAssetsInvestor

Written by Julian Murdoch  |

October 26, 2010

Is The New Precious Metals ETF Worth Buying?

Details

Silver

On Friday, silver closed at $23.290—almost halfway back to its all-time high of $50/oz, hit back in 1980 when the Hunt Brothers attempted to corner the market. This time, however, silver prices are buoyed by a combination of factors, including gold prices, industrial demand and demand from investors.

In 2009, silver demand came mainly from jewelry demand (17.6 percent) and industrial demand (39.6 percent). According to the Silver Institute, investment demand for the metal (coins, bars, ETFs and so on) had grown by leaps and bounds last year, increasing over 180 percent from 2008 to 2009—but it still only made up 15 percent of total demand.

Still, silver investment continues to grow. As of Oct. 22, iShares Silver Trust (SLV) held 10,224 tonnes of silver in its vaults, whereas one month earlier, the trust had held 9,613.02 tonnes. That's a 6 percent increase in just 30 days.

As we've said so many times on HAI, silver is in a unique position compared to gold, because its demand is fueled not just by safe-haven paranoia, but also by industrial needs—so as the economy recovers, silver prices should maintain their rise.

And now that the investment community is increasingly interested in silver, that could also help support prices. An article from the Financial Times recently noted, "Hedge funds that are bullish about gold have begun taking positions in the silver market, aiming to profit from its higher volatility."

Palladium

Palladium is platinum's relatively cheaper sibling, and as such is used primarily in automotive and industrial uses. On Friday it closed at $598/oz, but many familiar with the metal are expecting prices to continue to rise in the coming months due to supply constraints—primarily from Russia.

In 2009, Russia supplied about around 42 percent of global palladium production—roughly 2.7 million ounces—some of which came from stockpiles the country had built up back when palladium was not yet in such high demand. But since Russian stockpile levels are state secrets, the question now is: How much of that stockpile remains?

Norilsk Nickel, itself responsible for around 39 percent of the world's palladium, doesn't think much remains of the Russian stockpile. "This year will be the last year when any substantial quantity from this stock has any chance to enter the market," said Norilsk Nickel's deputy general director for sales and distribution Viktor Sprogis in an article by Reuters.