Silver at Highest Level in 22 Years
The price of silver hit its highest level in more than 22 years Tuesday, after U.S. regulators paved the way for an exchange-traded mutual fund that would invest directly in the metal.
The Securities and Exchange Commission said it approved rule changes that would allow the American Stock Exchange to list shares in Barclays’ proposed iShares Silver Trust.
Speculators bid up silver futures, betting that the fund could mean heavy new demand for the metal. Near-term silver futures in New York jumped 21 cents to $10.52 an ounce, the highest since October 1983.
The fund, designed to track the price of physical silver, would be modeled after the StreetTracks Gold Trust that began trading in November 2004.
The silver fund would be backed by bullion held in vaults in London, with each share worth about 10 ounces of silver.
Exchange-traded funds are mutual funds that trade like individual stocks, allowing investors and traders to buy or sell at any time of the day. By contrast, conventional mutual funds typically can be bought or sold only at each day’s closing price.
Exchange-traded funds also can be “shorted,” meaning investors can bet on a price decline rather than a rising price.
The funds have become increasingly popular in recent years. There are scores of them in the marketplace, most of them tracking broad stock or bond market indexes, or indexes of specific market sectors.
The silver fund would tap into the exchange-traded fund boom as well as investors’ increasing appetite for commodities.
Silver prices have more than doubled since 2002 as prices of industrial and precious metals in general have soared.
Investors have been pouring cash into metals and other commodities seeking better returns than on stocks and bonds, and as a hedge against inflation. Demand from China also has boosted metal costs.
The price of silver surged 30% in 2005, compared with a 3% price gain for the Standard & Poor’s 500 stock index.
The creation of the exchange-traded gold fund has helped drive gold prices to 25-year highs. The fund has attracted $6.2 billion in investment since its debut.
Near-term gold futures ended at $552.40 an ounce Tuesday, down $2.80. The recent peak was $572.50 an ounce Feb. 2.
The Silver Users Assn., an industry group, opposes the creation of the Barclays fund amid concerns that it could divert silver supplies from industrial users and drive up the price.
But the SEC said it “does not believe that the silver shares are likely to cause serious liquidity problems in the silver market.”
