Silver ETP Holdings Slump by Most in More Than Four Years

(Corrects extent and scope of decline in ETP silver holdings in headline and story first published yesterday.)

Silver holdings in exchange-traded products declined 0.5 percent, the most since December, as prices traded near a three-month low and exchange stockpiles climbed, underscoring concern a global economic slowdown may curb demand.

Assets in ETPs fell to 17,564 metric tons yesterday, the lowest level since Jan. 30. Silver dropped as much as 3.8 percent to $30.48 an ounce yesterday, the lowest price since Jan. 20, and traded at $30.9325 by 1:35 p.m. in London today.

Demand for silver fell in 2011 for the first year in four as Europe’s debt crisis sapped industrial use of the metal found in solar panels and photography, Thomson Reuters GFMS said in a report on April 19.

“The price drop drives fund selling and that in turn drives prices even lower,” said Sun Yonggang, an analyst at Everbright Futures Co., a unit of China’s largest state-owned investment group. “Silver isn’t holding up as well as gold because it is still primarily an industrial metal.”

Gold holdings in ETPs have advanced 1.6 percent year this year, according to data tracked by Bloomberg, and are at 2,394.2 metric tons. That’s within 0.7 percent of the all-time high set in March. Silver ETP holdings dropped 4.5 percent in 2011.

Industrial Use

Manufacturing in the euro area and China is contracting, separate reports showed yesterday, boosting demand for the dollar as a haven. Silver and gold often trade inversely to the U.S. currency.

Total silver demand fell 3.2 percent to 1.04 billion ounces in 2011, the first decline since 2007, according to the report from GFMS, which was published by the Washington-based Silver Institute. Industrial consumption slipped 2.7 percent to 486.5 million ounces, according to the report.

CME Group Inc. on April 12 cut margins for silver futures on the Comex. The amount speculators must keep on deposit for an initial account in silver futures was cut 13 percent to $18,900 from $21,600, effective after the close of business April 16.

“It’s possible after the margin change, some people switched out of the ETPs into futures,” said Nick Trevethan, Singapore-based senior commodities strategist at Australia & New Zealand Banking Group Ltd. (ANZ)

Open interest in the most active silver contract in New York climbed to 46,056 contracts yesterday, the highest level since April 10. Stockpiles of the metal tracked by Comex climbed for a second day to 140.59 million ounces yesterday. Inventories reached 141.59 million ounces on April 13, the highest level since September 1997.

‘Choppy’ Price

“Silver is set to maintain its choppy price action given the strain industrial demand is under,” Suki Cooper, an analyst at Barclays Capital in New York, wrote in a report today. “The limited investor participation means the metal has scope to gather momentum to the upside should appetite grow from a weak base.”

Silver may average $33.78 an ounce this quarter, $36.11 in the third quarter, and $35.93 in the fourth quarter, according to the mean of analysts’ forecasts tracked by Bloomberg. The metal for immediate delivery averaged $32.67 in the first quarter of this year.

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To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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Silver ETP Holdings Slump by Most in More Than Four Years

Victor J. Blue/Bloomberg

Silver bars in New York.

Silver bars in New York. Photographer: Victor J. Blue/Bloomberg