September 15, 2014 / 6:15 PM / in 5 years

Silver ETF holdings set record high as price drop sparks interest

NEW YORK, Sept 15 (Reuters) - Holdings at the world’s largest silver-backed exchange-traded funds (ETFs) rose to a record high as a pullback in prices prompted long-term retail investors to increase purchases of the precious metal.

The tonnage of silver bullion held by the world’s six largest silver ETFs increased by 104 tonnes, or 0.6 percent, to a record 17,135.04 tonnes on Friday, the latest Reuters data shows.

The jump was driven by a 1-percent rise in the holdings at U.S.-based iShares Silver Trust, which accounted for more than 60 percent of the physical metal in global silver ETFs. The ETF also posted its biggest one-day inflow since May 1.

Long-term silver retail buyers stepped up demand after silver broke below the key $19 level last week, dealers said. On Monday, silver edged up 0.1 percent to around $18.58 an ounce, hovering less than 50 cents above a four-year low at $18.19 an ounce set in June 2013.

“I expect ETFs in silver to outperform those in gold as small silver speculators continue to come onboard,” said Bill O’Neill, a partner at commodities investment firm LOGIC Advisors in New Jersey. “But I don’t think that’s going to be a driving force for the market.”

“However, if you see a significant increase in gold ETF holdings, that would be very bullish and it would signal the market has bottomed and it’s going to turn higher,” he said.

Silver has long been a favorite for smaller retail investors and speculators who want to gain exposure to gold at a fraction of the price. They also tend to buy and hold.

On the other hand, the gold ETF market is dominated by hedge funds and institutional investors who buy gold as a hedge against economic uncertainty and currency risks.

Investors have now withdrawn more than a third of their holdings in gold ETFs since the funds hit a record high in tonnage terms in December 2012. Despite gold’s 3 percent drop in prices last week, total tonnage of gold in ETFs stayed flat.

But in the year-to-date, silver is down 5 percent, underperforming gold’s 2.5 percent gain. (Reporting by Frank Tang, graphic by Vincent Flasseur in London; editing by G Crosse)

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