Hedge funds bullish on silver as futures open interest nears record

Silver Coins

Hedge funds and ETP investors’ bullishness has yet to extend to demand for American Eagle silver coins, a market valued at about $1.4 billion in 2011 based on metal content. The U.S. Mint sold 25.8 million ounces since the start of January, 23 percent less than a year earlier, data on its website show.

Central bankers are increasing stimulus because of concern about growth. Industrial applications account for 53 percent of silver demand. International Monetary Fund Managing Director Christine Lagarde said in a speech in Washington on Sept. 24 that the group sees global growth “a bit weaker” than it had forecast in July. The fund expected growth of 3.5 percent this year and 3.9 percent in 2013.

“The slowdown impact is not over as yet for industrial metals including silver,” said Dan Denbow, a fund manager at the $2.1 billion USAA Precious Metals & Minerals Fund in San Antonio. “The money coming in today because of all the easing will not impact the economy for six months or so.”

Industrial Demand

Weaker industrial demand would leave investors with a bigger glut to absorb. Production will exceed consumption for a fifth year in 2013, leaving a surplus of 5,095 tons, Barclays Plc estimates. Higher prices may also encourage more recycling. Scrap supplies jumped 10 percent in 2010 as prices almost doubled, according to Barclays.

Silver imports by China, the second-biggest user after the U.S., reached a one-year high in August, customs data show. The nation’s growth will accelerate to 8.5 percent next year from 8 percent this year, the International Monetary Fund estimates.

Hedge funds raised their net-long position to the highest since Feb. 28 in the week ended Sept. 18, holding a combined 30,986 futures and options, CFTC data show. Investors now own 18,601.4 tons through ETPs, or 0.2 percent below the record set in April 2011, data compiled by Bloomberg show.

While the metal is trading 31 percent below the record $49.79 set in April 2011, this year’s average of $30.67 is the second-highest ever.

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