Gold Forecaster
- Global Watch
The Silver E.T.F. - A new
Dawn for Silver
Julian D.W.
Phillips
March 27, 2006
Excerpts
from "Gold Forecaster - Global Watch."
 It is clear that the permission to
list on AMEX is confirmation that the Silver E.T.F. will list,
despite final clearance not having been given yet. "The
S-1, which is the registration statement submitted by BGI, has
not become effective yet with the SEC, so we are still in the
quiet period of the registration and a launch date cannot be
determined," says Christine Hudacko, spokeswoman for Barclays
Global Investors, which is behind the creation of the silver
ETF.
Barclays Global Investors is
applying to list 13 million shares backed by 129 million ounces
of silver in an arrangement similar to that for the streetTRACKS
Gold Trust shares. Under this structure, silver will be held
in the Bank's vaults and each share will represent 10 ounces
of Silver
Present Demand
/ Supply for Silver
As we have said consistently,
the demand for Silver is going to overtake supply and it may
well be in the process of doing so now. With demand for silver
for photography having dropped, but being more than replaced
by new applications in industry and prints of digital photographs,
global demand has moved to a point where it is greater than new
global production. This deficit has been accommodated by sales
of "Official" silver from the government of China.
Sales of Indian "Official" silver should be completed
by the end of the year. At that point Indian demand should spill
over into the global silver market. We suspect that the sales
of Chinese "Official" silver are near to completion
as we see imports of silver into China rising quickly. However,
we cannot be sure that this has happened. When it is completed,
Chinese demand will come to the global market for the needs that
are in excess of its present internal supplies. So irrespective
of any other factors, the Silver market and its price will
have to deal with a potentially very large demand on top of present
global demand.
Now add to that the prospects of a Silver based E.T.F. and you
have an explosive situation! At its start the Exchange Traded
Fund will require 129 million ounces of Silver. Whichever way
one looks at it they purchase over a relatively short period
of time of 129 million ounces is a massive off-take from the
market, equating to roughly 16% of the world's annual silver
production and 21% of the known above-ground inventories of silver.
This by itself will send the Silver price well up on present
levels. However more pertinently a vast array of new Investors
into Silver will come forward possessing investment power the
Silver market has never experienced, even with the Hunt Brothers
and Warren Buffet's Berkshire Hathaway, 130 million ounce holding
already present.
 Because
Speculators/Investors will delight in taking new long-term positions
in Silver through an E.T.F. we would expect the holdings of the
E.T.F. to grow very quickly, on the back of the success of the
gold E.T.F.
It was one thing a single Investor
trying to corner the market, but when many large Investors move
in like a pack, the chance of huge silver price 'spikes' grows.
The difference also lying in the fact that individual control
of such a situation has to give way to the group, so giving a
decent market at much higher prices. This translates to the addition
of a genuine investment side to Silver.
The complaint that this will
prejudice industrial users has to be true to some extent, but
at the same time the S.E.C. could not withhold permission on
that ground, for that would have been manipulation of the worst
kind. After all the S.E.C. could not withhold permission because
Silver buyers didn't want to pay more. Industrial users will
simply have to adjust to higher prices or alternatives, if a
free market is to be continued. Silver Producers are delighted,
with the prospect of earning more, against the annoyance of Silver
users having to pay more. We also wait with curiosity to see
just how much scrap or hoarded silver finds its way back to the
market as prices rise and how quickly new production comes on
stream?
This is a major step for Silver,
which has to transform the whole market. We do expect the silver
price, should it be placed under such pressures as these, to
be considerably higher than we see at the moment. Relatively
speaking silver could outperform gold, price-wise and volatility-wise.
Having said all this we have
to emphasize that Silver companies and their share are likely
to outperform the Silver price simply because of their gearing!
March 24, 2006
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
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