PRECIOUS METALS Silver gives gold a run for the money Biggest rally since 1997 has benefited Bill Gates, who bet on Pan American PHAM-DUY NGUYEN Bloomberg News
SEATTLE -- The biggest rally in silver since 1979 is benefiting the commodities market's largest investors, including Bill Gates, the world's richest man.
The Microsoft Corp. chairman's Cascade Investment LLC is the second-largest shareholder in Vancouver-based mining company Pan American Silver Corp. His 3.32 million shares of Pan American are valued at about $99.6-million, and have tripled since he made the investment in 1999.
A 54-per-cent jump in the past 12 months has put silver on track for its best year since the billionaire Hunt brothers of Dallas caused prices to skyrocket in 1979 by hoarding the metal.
Silver, above $10 (U.S.) an ounce for the first time in 22 years, may reach $15 by year-end on rising demand from jewellery makers and commodity investors, said Philip Klapwijk, executive chairman of London- based metals researcher GFMS Ltd.
"Silver is a market that sort of acts like a freight train," said trader Frank McGhee at Integrated Brokerage Services LLC in Chicago, forecasting a high of as much as $13 an ounce. "It's really slow moving, and once it gets started in a direction, you can't stand in front of it."
Silver for May delivery closed at $10.735 an ounce March 24 on the Commodity Exchange division of the New York Mercantile Exchange. Prices, after a six-year rally, are up 21 per cent since Dec. 31.
U.S. billionaire Warren Buffett's Berkshire Hathaway Inc. bought 129.7 million ounces of silver in 1997, most at less than $6 an ounce. He won't say if he still owns it.
Buffett's stockpile of silver, if still held by Omaha, Nebraska-based Berkshire, would be valued at $1.39-billion, about $700-million more than when the investment was made. Mr. Buffett declined to comment. Officials for Mr. Gates and Cascade Investment didn't return calls seeking comment.
Silver "is a diversification tool," said money manager Graham Birch at London-based Merrill Lynch Investment Managers Ltd. "Investors are putting more money in commodities, and within that there are some hot spots like silver."
This year, rising demand may help silver outperform gold and copper, said money manager Michael Kagan at Legg Mason's CAM North America LLC in New York. Copper prices rose 37 per cent last year, touching a record this month, as demand from China depleted supply. Gold hit a 25-year high in February as investors bet against the U.S. dollar. The 30-per-cent jump in silver prices last year far exceeded the 3-per-cent rise in the Standard & Poor's 500-stock index and the 2-per-cent return on the 10-year U.S. Treasury note.
"Silver supply-demand fundamentals are tightening this year, while copper's may loosen in the second half," said Mr. Kagan. "Silver is going to outperform gold until we get some new mines, and that's not coming on for another few years."
Not even lower demand from filmmakers, biggest users of silver, has hurt prices as investors seek a cheaper alternative than gold, Mr. McGhee said. Gold rose 32 per cent in the year to $560.50 an ounce.
Supply may tighten should Barclays Global Investors NA get U.S. approval for an exchange-traded fund (ETF) linked to the price of silver, creating new investor demand.
Shares of Idaho-based Coeur d'Alene Mines Corp., the biggest U.S. producer, are up 79 per cent in the past year; the company reported two successive quarters of profit for the first time since 1996. Mexico's Industrias Penoles SA, the world's largest producer, rose 31 per cent this year, making it the top performer on Mexico's Bolsa index after ranking fourth worst in 2005.
Not everyone is a buyer. Demand for silver from the ETF is overblown, and the switch to digital cameras may further slow silver demand, said Ellison Chu, precious metals manager of Standard Bank Asia in Hong Kong. "The total demand for silver is diminishing because the film industry no longer uses silver as much as before," he said.
"Silver is probably toppy around $12," said Alastair McIntyre, head of marketing at ScotiaMocatta, the bullion unit of Bank of Nova Scotia, one of five participants in the daily trading session in London that sets world gold prices.
Bill Mr. Gates has trimmed his holdings. Cascade Investments sold 1.79 million shares of Pan American between Dec. 12 and Dec. 20, Pan American spokeswoman Brenda Radies said Dec. 22.
At the time, the stock was at a 20-month high. Since then, it has risen another 46 per cent to a record. Michael Larson, chief investment officer of Kirkland, Washington-based Cascade, remains on Pan American's board, where he has been a director since 1999. He didn't return calls seeking comment.
The U.S. Silver Users Association, whose members include Kodak, jewellery maker Tiffany & Co. and Dow Chemical Co., opposes creation of the Barclays fund because it may keep prices high.
Silver's widening use in products from paints to batteries to medical devices has made it more appealing than gold for some investors seeking a haven from the U.S. dollar's decline. Demand for silver in industrial applications is estimated to have risen between 5 per cent and 6 per cent in 2005, GFMS said.
"Silver prices are not driven by normal supply and demand fundamentals at the moment," Mr. Klapwijk said. "They're driven by investor demand." In the United States, which accounts for about 20 per cent of global silver use, demand exceeded supply by about 2,700 tons in 2004, prompting increases in output from China, he said.
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