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Gold and Silver ETFs Get Boost from Rising Investment, Industrial Demand


Silver industrial demand is projected to rise by 7% in 2013 to a record, but investment remains key in 2012 for silver exchange traded funds. In gold ETFs, central banks have accumulated over 40 metric tons of bullion as investors push global gold exchange traded product holdings to a fresh record.

According to the Silver Institute’s latest report, industrial demand for silver is expected to rebound in 2013 after losing ground in 2012. The electronics industry is expected to be the mainstay of industrial demand over the next two years, with growth in emerging Asia the predominant force.

China is expected to play catch-up with the US in terms of industrial demand, with the two nations combining to provide over 40% of industrial demand. The forecast gain of around 7% in 2013 is expected to be driven by solid growth in silver oxide catalyst production, while the photovoltaic industry is expected to see growth rebound in 2014.

While industrial demand accounts for around 55% of overall silver demand, investment demand has been the main driver of price strength in 2012 thus far.

Silver has been the best performing precious metal in 2012, with prices have rising by 20% year to date. At the same time, stocks in COMEX warehouses have risen by 21%, an indication that industrial demand remains soft in 2012. The weakness in industrial demand has been borne out by the Silver Institute’s estimated 6% downturn in industrial demand this year.

Gold ETF bullion holdings hit all-time high

Emerging market central banks are at the vanguard of foreign exchange reserve diversification, accounting for the vast majority of the gold buying in October.

Brazil and Kazakhstan were some of the largest contributors to the 9% yoy growth in October, buying 17.2 and 7.5 tonnes, respectively. Investors also continued to buy gold, pushing global ETP holdings to over 83 million ounces last week, a fresh record high.

Uncertainty over the outlook for the Eurozone and the precarious position of the US economy approaching the ‘”fiscal cliff” remain the main risks to the global economic recovery. [Hedge Funds Buy Gold by the Ton with ETFs]

While the market remains optimistic that Eurozone ministers will come to an agreement to clear the way for the next disbursement of Greek bailout funds when they meet today, further delays are likely to be supportive of defensive assets like gold.

Key events to watch this week

The next Eurogroup meeting to discuss the fate of Greece’s finances this week is likely to be the main distraction for investors, along with any news flow coming from senior Democrats and Republicans on the progress toward a potential resolution of the US ‘fiscal cliff’ issue.

ETFS Physical Swiss Gold Shares (SGOL)