Hedge Funds Boost Bullish Silver Bets as Mideast Tensions Mount

Date: Wednesday, February 23, 2011
Author: Pham-Duy Nguyen, Bloomberg

Hedge funds boosted bullish bets on silver to the highest in almost four months as tensions in the Middle East sent the metal to a 30-year high.

Managed-money funds held net-long positions, or wagers on rising prices, totaling 35,159 contracts on the Comex as of Feb. 15, U.S. Commodity Futures Trading Commission data showed last week. That’s the most since October. Holdings have gained for three straight weeks, the longest streak since September.

Silver futures rallied 7.7 percent last week, the most since early December, as Egypt’s pro-democracy demonstrations spread to Bahrain, Yemen, Libya and Iran. Prices have doubled in the past year and touched $32.87 an ounce in New York on Feb. 18, the highest since March 1980.

“With the Middle East deteriorating, and the threat of inflation, you’ve got the big money flowing back into silver and precious metals,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Silver provides better upside exposure than gold. Gold hasn’t moved as much, and people are chasing yields.”

Gold in New York gained 2.1 percent last week and is up 24 percent in the past 12 months, trailing silver’s rally. Bullish gold holdings by managed-money funds totaled 159,814 contracts, up 10 percent from the previous week and the highest total since December, CFTC data show.

‘Silver Over Gold’

“If I had to, I’d pick silver over gold,” said James Dailey, who manages about $200 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “Gold and silver are picking up market share in the currency world as a store of value. Silver’s also got the tailwind of the global industrial expansion.”

Silver futures for March delivery gained 2.3 percent to settle at $32.296 on Feb. 18 on the Comex. Gold futures for April delivery gained 0.3 percent to $1,388.60 an ounce. The metal touched a record $1,432.50 on Dec. 7.

Managed-money positions include hedge funds, commodity- trading advisers and commodity pools. Analysts and investors follow changes in speculator positions because such transactions may reflect an expectation of a shift in prices.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.