Silver tops $10 on prospect of new fund

March 03, 2006|By BLOOMBERG NEWS

NEW YORK -- Silver rose above $10 an ounce in New York yesterday for the first time in 22 years on speculation that demand for the metal will accelerate, extending a yearlong rally.

Barclays Global Investors NA may soon get U.S. approval for an exchange-traded fund linked to the price of silver, making it easier for investors to own the metal, said Michael Guido, director of hedge fund marketing and commodity strategy for Societe Generale SA in New York. "There's a lot of inflow into silver in anticipation of the ETF," Guido said.

The StreetTracks Gold Trust, a fund created in November 2004, has attracted $6.3 billion and helped drive gold prices to a 25-year high last month.

Silver futures for May delivery rose 41.8 cents, or 4.3 percent, to $10.21 an ounce on the Comex division of the New York Mercantile Exchange, the highest closing price since March 5, 1984. Silver for immediate delivery rose 4.8 percent to $10.22, the biggest fluctuation of any commodity yesterday.

Silver futures have gained 37 percent in the past year, outpacing the 31 percent gain in gold, which climbed 0.8 percent yesterday.

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

Shares of Coeur d'Alene Mines Corp., the biggest U.S. silver producer, have risen about 51 percent in the past year. The Idaho-based mining company rose 38 cents, or 6 percent, to close at $6.08 on the New York Stock Exchange.

Exchange-traded funds are among the fastest-growing investments, attracting one of every four new dollars going into stock funds last year.

ETFs took in $53.9 billion in 2005 and ended the year with $296 billion in total assets, according to the Washington-based Investment Company Institute, the fund industry trade group. That's more than quadruple the assets of five years ago.

"It's got people excited by silver," said Ron Goodis, retail trading director at Equidex Brokerage Group Inc. in Closter, N.J. "The silver universe will now be open to new investors, because people can own silver without accumulating physical silver."

The Barclays silver ETF is being reviewed by the Securities and Exchange Commission.

"We have not heard from the SEC," Barclays spokeswoman Christine Hudacko said yesterday.

Silver's rally has reflected a broader demand for commodities and metals, analysts said.

Commodity prices, led by energy and metals, extended a four- year rally as pension funds, hedge funds and investors poured more money into raw materials. The Reuters-Jefferies CRB Index of 19 commodities climbed to a record 350.96 on Feb. 1.

Some analysts warned of the volatility of speculative investment in silver.

A 12-month rally in 1980 drove prices to $50 from $6 when billionaire brothers Nelson Bunker Hunt and William Herbert Hunt of Dallas hoarded the metal.

"Prices are very high and remain volatile," Goodis said. "Investors have to be careful when these markets correct."

Shares of Vancouver-based Pan American Silver Corp., partly owned by Microsoft Corp. Chairman Bill Gates, jumped $2.44 Canadian, or 9.6 percent, to C$27.89 on the Toronto Stock Exchange.

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