Silver Lost Its Shine: Will It Impact Hedge Funds?



Silver lost its shine

The returns on silver remain the best on a YTD (year-to-date) basis compared all of the other precious metals. However, silver became the worst-performing asset on a five-day trailing basis as of November 3. Silver has lost a whopping 6.4% in the last five trading days. That’s the biggest loss since July. The speculators boosted their net-long positions in silver futures and options to the highest since 2006 just before the US Fed signaled a rate hike in December. Silver futures for December delivery on COMEX, a division of NYMEX, closed at $15.30 per ounce on Tuesday, November 3, 2015. It’s the lowest level for silver in about one month.

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Threat of a rate hike

The threat of higher rates after the October FOMC (Federal Open Market Committee) meeting sent ripples through precious metals market. As monetary policy tightening takes place, precious metals tend to lose their allure. They don’t bear any cash flows or interest like Treasuries.

Gold’s trading near its one-month low. Platinum fell for four straight days. While hedge funds investors were fortunate enough to pull back their bullish bets before the Fed’s hawkish stance, the silver bulls weren’t as lucky. Hedge funds likely picked the wrong time to build their bullish bets in silver. More than $380 million has been lost over the past week from the value of global exchange-traded products backed by silver.

Silver-backed ETFs like the Global X Silver Miners ETF (SIL) and the iShares Silver Trust ETF (SLV) fell 6.6% and 3.7%, respectively, on a five-day trailing basis. Silver mining companies that saw a fall in their prices in the past five trading days include Silver Wheaton (SLW), First-Majestic Silver (AG), and Pan American Silver (PAAS). Together, these companies account for 7.1% of the price changes in the VanEck Vectors Gold Miners ETF (GDX).


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