Potential Volatility for Silver ETFs

Traders grow increasingly bearish on silver

Bullion.Directory precious metals analysis 26 August, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

With fairly positive data out of the United States and hype about a potential hike in US interest rates, silver has suffered as the US dollar has seen multi-month highs.

The ETFS Physical Silver Shares (SIVR) and the iShares Silver Trust (SLV) are the two largest exchange-traded funds (ETFs) that are backed by physical silver – and they’re both down over six percent this month alone.

To reiterate the current market sentiment on silver, Debarati Roy of Bloomberg said

open interest the Comex market climbed 3.9 percent to 212,249 futures and options contracts in the week ended Aug. 19, U.S. government data showed Aug. 22. That’s the highest since June 18, 2013. Money managers have boosted their short wagers for four straight weeks, the longest streak since April. Long holdings have declined for six weeks to a two-month low.

However, the overly bearish market sentiment could cause a short-covering rally in order to clear out traders who are leaning too short.

Silver is a thin market, and the precious metal can experience high volatility. For instance, from May to July, silver increased 10 percent and outpaced returns in other asset classes in the same time period.

The bearish sentiment could bode well for contrarian traders and those that want to reestablish a long position in silver.

SLV has seen capital inflows of $150.7 million since the third quarter, while the ProShares UltraShort Silver (ZSL), which is a leveraged short ETF and gained 13.5 percent in the last month, has seen net capital outflows of $4.8 in assets.

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