The success of gold exchange traded funds (ETFs) has parlayed into the silver market with investors looking for better investment vehicles that track the price of silver. But Barclays petition for a silver ETF was met last month with the unprecidented move by the Silver Users Association where the group asked the Securities and Exchange Commission (SEC) to deny the application. The fear being that Barclays may have to buy upto 130 million ounces of silver prior to the approval of a silver ETF in order to meet expected demand for the fund.
The Silver Users Association is an intriguing group of companies that use silver in their mainly industrial products and have a vested interest to keep the price low. In this case their position was that, "The Silver Users Association opposes the creation of a silver ETF because of the concerns that doing so will require the holding of physical silver be held in allocated accounts, thus removing large amounts of silver from the market. By doing so, the ETF will cause a shortage of silver in the marketplace."
The silver ETF would be a good way for investors to hold silver without the storage and logistical costs of the hard commodity. But this opposition to a large buyer coming in makes it quite clear that silver is in shorter supply than what many investors may be believed. Even as its use in traditional photography decreases, silver applications in electronics, its growing use as an anti-bacterial agent along with the burgeoning economies of India and China may be putting the squeeze on above ground silver supply.
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