The Hindu Business Line : Silver rallies on ETF launch buzz

GOLD has continued to oscillate between $415 and $420 an ounce last several days. Many believe the market would have seen a more concerted push higher; but news that the French referendum is likely to say `no' to the proposed European constitution has seen the euro come under pressure once again and encouraged selling across the precious metals complex.

This is looming as an important test for gold whether it can break from its almost slavish adherence to movements in Euro-USD, commented a precious metals analyst.

Gold in euros has been trending higher for much of this year but has stalled below euro 340/oz.

In reality, euro gold has traded between euro 280/oz and 360/oz for the past four years and still shows a little sign of any likely break, with the range actually contracting over the past two years.

This is important given the ongoing discussion about a potential revaluation of Chinese yuan with the likelihood that the euro suffers some relief from bearing the brunt of dollar weakness, the analyst observed.

More interestingly, silver stood out with prices breaking over $7.20/oz on Thursday before hitting selling pressure driven by release of a positive annual market survey by the Silver Institute.

According to consultants GFMS commissioned to do the silver survey, the metal can touch $8.50/oz if there is a gold rally later in the year (GFMS expects gold to touch $500/oz later this year), although a fall to the mid-$6/oz was also seen as possible if commodity and gold prices declined.

However, much more relevant to the recent silver strength has been the market rumours of an imminent filing of a silver exchange traded fund (ETF) with participants citing the recent rise in silver lease rates as evidence of a building of inventory ahead of the launch of such an ETF. Expectations strengthened when a wire-agency story suggested that a filing by Barclays Global Investors was likely to occur at some point over the next two months.

According to experts, there is normally a long gap between SEC filings and eventual approval.

The time lag between the filing of two US gold ETFs and their eventual approval is a case in point.

However, the SEC may well consider the impact that such an ETF may have on the silver market and hence for the market price to be affected materially on the basis of mere expectation of an ETF, then this may not help the likelihood of SEC approval of any such filing whenever it comes.

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