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ETF captures 13% of world silver output

Section: Daily Dispatches

By Saskia Scholtes
Financial Times, London
Wednesday, May 23, 2007

NEW YORK -- A single exchange-traded fund captured more than 13 percent of the world's silver output last year, according to data from GFMS, a precious metals consultancy.

It achieved this feat even though it was launched only in April last year.

The launch of the iShares Silver Trust ETF, which gives retail investors easy access to the silver market through shares that trade on an exchange, helped stoke demand for the metal last year, sending average prices rocketing 58 percent to a 26-year high.

Launched with just 1.5 million ounces of silver in trust, the fund held 120 million ounces at the end of last year and now holds more than 135 million ounces. Global silver supply amounted to 912 million ounces last year, according to the 2007 world silver survey released by GFMS on Wednesday.

The data show the increasingly important role that ETFs are playing in the precious metals world.

The world's gold ETFs, which number about 10, have more than 20 million ounces under management, accounting for a little less than a fifth of global gold supply last year.

Philip Klapwijk, chairman of GFMS, said the launch of the silver ETF raised concerns about its potential impact on the relatively small silver market. "There were fears voiced that it could lead to market disruptions," he said.

As a result, investors bought silver before the product's launch in anticipation of higher prices, and market participants borrowed silver to avoid the higher lease rates the ETF was expected to produce.

There was an initial spike in volatility as speculators unwound their positions and investors moved into the new fund. But Mr Klapwijk said that prices were now more stable.

In the past two months, a number of silver ETFs have launched. ETF Securities launched funds listed on the London Stock Exchange, Deutsche Borse and Euronext while Zurcher Kantonalbank started a silver ETF on the SWX Swiss Exchange.

Mr Klapwijk said the new ETFs were likely to help sustain high prices, particularly in the light of a slight contraction in overall silver supply in 2006.

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