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Silver outshines gold as traders eye silver ETF

Silver outshines gold as traders eye silver ETF
Thu Mar 23, 2006 12:25 PM ET
By Zach Howard

NEW YORK, March 23 (Reuters) - Selling gold and buying silver has come into play in the precious metals market, as the gray metal has become more alluring amid expectations of rising demand and prices, analysts said on Thursday.

Indeed, fresh speculative buying boosted silver to a more than 22-year high of $10.60 an ounce this week, while gold has labored to maintain its levels amid a lack of demand.

This has pushed the gold/silver ratio -- the number of ounces of silver needed to buy one of gold -- down sharply, which traders tend to see as a bullish signal for the silver market.

"There's some speculative attention that is turning toward silver, versus the gold," said James Quinn, commodities commentator at AG Edwards & Sons.

By midmorning, the ratio of gold to silver was at 52 to 1, versus 58:1 at the end of February and 60:1 late last year.

Traders sometimes switch their holdings from one to another when the price differentials become advantageous to do so, said one source at a metals desk in New York.

"You could say people are coming to the silver market as it's more in play right now," Quinn said, adding that the gold/silver ratio had slumped to its lowest since April 2004.

Analysts said silver was more in vogue now after U.S. regulators on Tuesday moved closer to approving the first silver exchange-traded fund (ETF) [ID:nN21216480].

The ETF, which is designed to track the price of silver and be backed by metal held in storage, has the potential to bring fresh investment to the market and soak up supply.

For its part, gold seems to have run out of steam with prices idling below recent 25-year highs, due to less consumer interest and less speculative buying at these lofty levels.

"The ETF is causing people to look at silver and I think that's creating additional demand for silver," said James Turk, founder of online metals exchange service GoldMoney.com.

At midday Thursday, U.S. benchmark gold futures <GCJ6> were down $2.40 at $549.30 an ounce, while May silver <SIK6> rose 9.5 cents to $10.59 an ounce.

Turk expects the gold/silver ratio to fall further, perhaps to 50:1, and he sees silver continuing to outperform gold.

"I'd say $12 silver within the next couple of months is a very reasonable target," he said.

Turk also remains long-term bullish on gold, however, and he expects the price to reach at least $600 this year and perhaps even $850, which would equal its all-time high from 1980.


LINK: http://yahoo.reuters.com/news/NewsArticle.aspx?storyID=urn:newsml:reuters.com:20060323:MTFH97808_200...