iShares Silver has $1 billion outflow, worst week ever

A record $1 billion outflow from the iShares Silver Trust in the week ended Wednesday helped feed silver's torrid price decline, just as the fund's earlier inflows aided the prior rally. Many more small investors can trade the iShares exchange-traded fund than participate in the precious metals futures market, and that can exacerbate the volatility of day-to-day price moves, investors said.
"The ease of access from exchange-traded products can be the tail that wags the dog," said Roger Nusbaum, chief investment officer at Your Source Financial in Phoenix, Arizona. ETF trading and share redemptions "can be a disruptive force in the short term, but it is the sort of thing that will flame out." Silver's five-day losing streak that cut prices by almost a third did indeed "flame out" on Friday. Spot silver gained as much as 5 percent and the iShares fund rose 2.3 percent to $34.48 on the New York Stock Exchange.
With volume of over 188 million shares, the silver ETF was the second-most actively traded US equity on the day, trailing only Citigroup. Investors had added $726 million to the silver ETF in 2011 before yanking $1.6 billion over the past two weeks, according to iShares manager BlackRock. Inflows prompt the ETF manager to buy silver while outflows require selling.
BlackRock said the ETF is not a major factor in the silver market. Net inflow of $2 billion over the past 12 months represented less than 1 percent of mined new silver in 2010, said Leland Clemons, head of US iShares capital markets. "Trading is a result of the rise in spot silver, not a driver of it," he said. "Any suggestion that current creation and redemption activity in SLV is exacerbating the volatility, or driving the spot price, of silver is inaccurate. SLV was designed to track the price of silver and even in these volatile markets, that is exactly what it has been doing," Leland added.
Despite Friday's bounce back, silver is heading for its worst week since the Hunt Brothers collapse in 1980. Spot silver prices shed 25 percent this week as higher futures margin requirements prompted speculators to unwind bullish positions. Silver peaked at a record high of $49.51 an ounce on April 28. Lipper data released late on Thursday showed the world's largest silver-backed exchange-traded fund, whose assets now total $13.3 billion, faced a double whammy of net outflows and a plunge in silver for the week ended May 4.