Spiking silver prices and a blast of interest in a double-short silver ETF are clear signs that silver may be in a bubble, IndexUniverse President of ETF Analytics Matt Hougan said on CNBC yesterday.
The precious metal had become a darling in the past year among investors looking for a hedge in their portfolios against the loss of the dollar's value. It threatened to double last year and this year has risen by another 50 percent. It settled on Thursday at $47.52, just short of its record settlement in 1980.
But the metal, which, unlike gold, has broad industrial uses apart from its cachet as a precious metal, appears to be having difficulty reaching and crossing the $50 barrier, in part because the latest surge in interest is becoming unhinged from underlying industrial demand. The iShares Silver Trust (NYSEArca:SLV) has emerged as one of the most popular ways for investors to express their views on the metal.
"There actually hasn't been that much inflow into SLV, but there has been massive trading," Hougan told a panel of guests on CNBC. "It's been the most liquid security in the world, which is absurd for a minor metal. I think we're getting to feel it's a bubble that might burst."
Hougan pointed to large creations on Wednesday of the ProShares UltraShort Silver ETF (NYSEArca:ZSL)-a leveraged and inverse fund that provides double bearish exposure to spot silver prices in London-as a sign that silver may be on the verge of a correction.
Investors plowed $162.7 million into ZSL, an 83 percent jump that brought assets to $359.7 million.
"I think that move to the inverse side, coupled with the fact that you can no longer short SLV, says that this bubble is getting pretty advanced-it may be close to coming down," Hougan said.
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