Can a Dubai Silver ETF Send Global Spot Prices Higher?

by: Peter Cooper November 18, 2008 | about stocks: SLV    

Peter Cooper

About this author: By this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

The Dubai Multi Commodities Center is understood to be putting the finishing touches to an exchange traded fund for silver with a launch likely next month as demand for silver has surged in the past six months.

Local bullion dealers are having to fly heavy silver bullion bars in from around the globe to meet demand as traditional sources closer to Dubai have been exhausted. The DMCC has successfully established itself as a regional hub for commodities trading over the past few years, and has its own swanky new business park with its gold, silver and diamond towers.

City of Gold

Around 20 per cent of the world’s physical gold trade is conducted through Dubai which used to be the epicenter of gold smuggling to India thirty years ago when import taxes were sky high. Nowadays Dubai is a convenient logistics center for commodities traders and still tax free.

The details of the silver ETF are being kept under wraps for the launch but plans seem advanced. Local jewelers have long used silver in a 25:75 amalgam with gold to create white-gold which is popular with consumers.

But clearly the ETF is an strictly an investment product, and demand for the shiniest of metals has been rising strongly, as evidenced by the high premiums now being paid on coins and bullion locally.

ETF price advantage

The latter also gives the ETF a natural advantage. Its price will be closely linked to the lower spot price for physical silver, and not be inflated by the high premiums now paid on physical silver.

Investors will no doubt appreciate this keen pricing advantage, and hope to also profit from the leverage silver offers to the gold price. In previous gold price booms silver has outperformed the yellow metal, and the gold-to-silver price ratio has fallen sharply.

Will the new Dubai silver ETF have a big enough impact on the tiny global silver market to send prices higher like the Hunt Brothers did in the late 1970s when they cornered the market? Well, nothing succeeds like success and a silver ETF in Dubai looks like being the right product in the right place at the right time.

Related Articles

This article has 7 comments:

  •  
    Nov 18 06:26 PM
    Your comment "Its price will be closely linked to the lower spot price for physical silver, and not be inflated by the high premiums now paid on physical silver." seems a bit off the mark.

    It is not inflated spot prices which are the problem. It is the articificially low prices being paid for paper silver which will never see delivery which is the problem. The correct price for silver if the price people are willing to pay to get their hands on the real thing.

    Other than that I agree with you. It seems like another silver ETF based in a large commercial center can be nothing but good for the price. However, will it really be signficant enough to overcome the paper price for futures in the US? GLD certainly did not have that effect on gold. Time will tell.
    Reply | Link to Comment
  •  
    Nov 19 10:00 AM
    I think it could have a substantial impact. There is a tremendous amount of cash looking for a home in the Arab theatre.

    A very small portion of this massive stockpile of wealth, not to mention the Sovereign wealth funds, if it finds its way into the silver market via this ETF could have a massive impact.

    The gold ETF GLD has drawn a huge amount of physical gold out of the trading market, and holds more than the national reserves of China.

    A similar drawdown on global silver stocks because the Arabs choose to invest in this ETF versus not trusting one out of the US for example, could be huge.

    I am looking forward to what happens with this.
    Reply | Link to Comment
  •  
    Nov 19 02:00 PM
    no idea how much impact etc on silver & mining prices, but, for me -

    it seems, the more global interaction, the better!

    we'll see what happens :-)
    Reply | Link to Comment
  •  
    Nov 20 03:59 AM
    The Hunt brothers attempted to corner the silver market. They did not succeed and vanished from the commodity scene shortly afterwards. No one really knows what silver's ratio to gold would have been had the Hunts not been around to drive it up.

    Having said that, a shortage of silver may develop sooner than later. Silver is a mining byproduct of several other minerals. I read a Kitco article wherein silver output is going down because the mining operations of the others is closing. The estimate was a 70% reduction in silver production, if this trend persisted.

    I don't know if the writer was blowing smoke or not. Any opinions?
    Reply | Link to Comment
  •  
    Nov 20 05:26 PM
    ...Dubai, Dubai -- let's see...oh, yeah -- that's the place where the real estate market is collapsing with prices falling like 40-50%, and the banks are in trouble, and the stock market is caving in, and the government has formed a committee to help manage the situation, etc, etc...why, sure, they're going to be lining around the block up to buy silver!...and you sure picked a great time to publish a book about getting rich in the Middle East!
    Reply | Link to Comment
  •  
    Nov 22 01:29 PM
    Saudi Arabia has $2.5 Trillion in US reserves, if they wish they will be able to give Dubai a loan. Dubai doesn't produce a drop of oil, they are part of the UAE who are actually funding the operation. And while, real estate prices are collapsing, the banks are in trouble, and the stock market is collapsing, the construction activity continues without pause and new projects come online every day.

    They do not have a credit crunch. The commodities involved in the construction process have plunged. This is the best of times.


    zawya.com
    Reply | Link to Comment
  •  
    Nov 23 03:52 PM
    The devious, dastardly, disingenuous and diabolical denizens of the COMEX are about to get an abject lesson in "The OTHER Golden Rule". Then they'll become an interesting historical relic, like Lehman Brothers.
    Reply | Link to Comment
More Comments on SLV ยป
Top Rated Comment Streams:

Numbers are net rating-

See all Top 100 »
More by Peter Cooper

Investment Resources
Money Management
Research
Seeking Alpha provides these ads as a service to its leading contributors
Articles on related themes
Silver
Gold Price
Metal Miners
Precious Metals Funds