Silver ETFs traded down sharply at the open this morning, and on large volume, as investors fled the worldâs second metal in a conspicuous example of selling pressure in commodities following the Federal Reserveâs decision yesterday not to take any new measures to stimulate the U.S. economy.
The $10 billion iShares Silver Trust (NYSEArca:SLV) was down almost 6 percent, with volume of more than 9 million shares. The fund was on pace for its largest-volume day since September, when a sharp downdraft in silver prices led to a spike in trading for silver ETFs. The much smaller ETFS Physical Silver Shares (NYSEArca:SIVR) showed a similar moved, and similarly high volume.
âSilver is sort of a beta play in the commodities space,â said one ETF trader who spoke to IndexUniverse on condition of anonymity. âThe market is disappointed it didnât get a QE3 announcement from the Fed yesterday, so commodities are just selling off.â
The stock market was also caught in the downdraft following yesterdayâs meeting of the Federal Open Market Committee, the Fedâs policy-setting arm. Markets were hoping the Fed might choose to implement its third âquantitative easingâ bond purchasing program since the market crash of 2008. In the absence of so-called QE3, the market quickly started fretting how bad Europeâs economy will get.
The Dow Jones industrial average closed 131.46 points, or 1.1 percent, to 11,823.48. The Dow shed 66.45 points on Tuesday, with the index moving into the red after the Fedâs decision.
The Real Flight To Safety
The downward move was sharper for silver than for gold. The $73 billion SPDR Gold Shares (NYSEArca:GLD) physical bullion ETF was down 3.5 percent, to about a three-month low.
The ETF trader, who said he had seen some of the GLD order flow, said gold appears to be assuming its role as the preferred flight-to-safety investment when markets are unsettled. Silver was poised for a breakout before the FOMC decision, but for now, seems to just be one more commodity.
Gold and silver have plotted sharply different courses in 2011. GLD is up more than 10 percent this year, while SLV has fallen 6.4 percent.
Silver has been far more volatile than gold this year, spiking sharply and then falling even more sharply this spring. It again fell abruptly in September, as concern about Europeâs sovereign debt crisis became the marketâs single-biggest worry. Gold dipped at that time as well, though not nearly as much as silver.
Both precious metals have been moving lower in December. Thatâs in part a consequence of increased appetite for riskier assets following a concerted central banking move on Nov. 30 aimed at making short-term dollar-based loans more affordable to banks having difficulty securing credit.
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